The increasing use of electric vehicles (EVs) has been driving the growth of the car insurance market for EVs in Korea, according to a blog posted by Korean Re on its website. The number of insured EVs across the country more than tripled to around 184,000 at the end of 2021 compared to 2018. Although EVs still account for a very small portion (0.8%) of the entire motor insurance market, the share has been rising fast over the last few years. This growth trend is expected to accelerate as EV sales are soaring due to a combination of improvements in battery technology, growing consumer awareness of eco-friendly lifestyle, and the government’s carbon neutrality initiatives under which financial incentives such as tax credits and direct purchase subsidies are provided to promote the sales of EVs. In general, EVs cost more to insure mostly because their actual cash value is higher than their non-electric equivalents. On average, the actual cash value of EVs was 2.7 times as high as that of conventional vehicles in 2021. The average premium per personal car insurance policy for EVs in Korea was KRW943,000 ($703.72) in 2021, much higher than KRW762,000 for gas-powered vehicles. From 2018 to 2021, the average premium for EVs increased by 34.5% compared to an 11.2% rise for conventional vehicles. Repair costs The cost to repair or replace parts of EVs is usually higher compared to their non-electric equivalents, which is another important reason for their higher premium rates. In 2021, repair costs of EVs under the own damage car insurance coverage averaged KRW2.45m, 30.2% higher than conventional cars. If even a minor accident results in damage to the battery pack of an EV, the whole battery may have to be replaced. It cost KRW20m on average to replace a damaged high-voltage battery in an EV, and the price of an EV battery has been rising amid growing EV demand and lithium supply shortages. Lithium is one of the key materials used to make EV batteries, alongside nickel and cobalt. The supply of lithium has been strained not only by increasing demand but also by the war in Ukraine, one of the largest global sources of lithium. Loss ratio The loss ratio of electric car insurance was 76% in 2021, down 21.4ppt from 2018. The stabilization of the loss ratio was driven by increases in average premiums and the number of the insured vehicles and a drop in loss incidence rate. Still, the insurance loss ratio of EVs remained 2ppt higher than that of gas-powered automobiles in 2021. By coverage type, the own damage loss ratio of EVs fell significantly to 67.9% in 2021, 4.4ppt lower than that of conventional vehicles, while the EV insurance coverage for bodily injury liability and property damage liability had loss ratios of 81.7% and 77.8%, respectively, which were still relatively high compared to non-electric cars. It has been a challenge for insurers to provide EV drivers with adequate insurance coverage at reasonable prices based on an accurate understanding of the nature and risks of EV technology that is relatively new and rapidly evolving. In particular, a lack of sufficient underwriting data and experience presents obstacles to insurers. At the same time, however, the rise of EVs will also bring new business opportunities to the insurance industry, and it will thus be important for the industry to develop and build underwriting expertise in keeping with how the mobility sector evolves. Source: asiainsurancereview.com

Goldman Sachs has said that it is estimating a +35% increase in global property catastrophe reinsurance rates-on-line (RoL). This would, said the firm, be the strongest RoL increase since the early 1990s (+65% in 1993), which it said would surpass the +26% averaged in 2001-2002 post-9/11. The financial giant gave several reasons for this, saying that Hurricane Ian was a factor in what it said was already setting up to be ‘a challenging renewal’ following property inflation and increased weather losses. It wrote: “Hurricane Ian is expected to be ~$50bn industry loss, adding to annual global insured catastrophe losses since 2017 of >$110bn, which has increased ~60% versus the prior decade average of ~$70bn. These losses are causing (re)insurers to question the accuracy of catastrophe modelling capabilities and factor in the increasing prevalence of secondary perils such as wildfires and flooding.” The hurricane, wrote Goldman Sachs, is particularly challenging to the Florida market, saying that it added adding trapped capital and potential solvency issues on top of a state with an already troubling property CAT environment driven by litigation and insurance fraud. Meanwhile, on the casualty side, the firm said it expected to see high-single-digit pricing stemming primarily from inflation, a factor that it said appears to be impacting longer-tail claim costs such as medical care and legal services. It added: “The current macroeconomic and geopolitical risk also lends itself to increased underwriting scrutiny and caution. Cyber (re)insurance in particular should experience increased pricing and penetration. AJG management expects 60% of its high-risk casualty book to face a difficult renewal season.” It also said that inflation was likely to drive a more-than 20% price increase for property lines by itself, while it and social inflation is looking to drive most casualty pricing increases. It added: “Capacity is broadly available Europe: While we expect supply pressures to be more pronounced in the U.S., industry commentary points to capacity availability in Europe broadly, partially stemming from the lack of an exceptionally large industry loss in 2022, such as that of Hurricane Ian in the U.S. As such, we expect European Property NPW growth to nearly match U.S. growth, as price increases of ~26%+ (GSe) are partially offset by higher risk retention by insureds, but lower reinsurance capital is not an impediment.” There were, wrote Goldman Sachs, a few negatives for organic growth, including reduced capacity, increased risk retention, and reinsurance brokerage revenue structure. On the first, it said that this would primarily be focused in the US. It wrote: “Through mid-year 2022, global reinsurance capacity decreased 11% principally driven by substantial unrealized losses on investment portfolios. Additionally, consensus is building around the potential for ILS fund capital to be trapped by Hurricane Ian in the $15-$30bn range, plus a low-single-digit billions impact to the $15bn Retrocessional (retro) market, which can have further implications for reinsurers’ willingness to deploy capital.” It added: “However, we also note several reinsurers highlighting increased willingness to participate, or increase participation in, the property reinsurance markets given expectations for higher expected returns. Ultimately, we do believe that forces for capacity reduction will be stronger than new supply, and are considered when we model pricing increases previously discussed. A capacity reduction at 1/1 2023 from YE21 levels would represent a decline for the first time since 2018 (according to Aon).” Around an increase in risk retention, Goldman Sachs said: “When prices rise, insurers are faced with difficult decisions around the amount of reinsurance coverage they will buy. When there are increases of material magnitude as we expect in 2023, this scenario often leads to increased risk retention from insureds, which can serve to dampen industry NPW growth. That said, we expect offsets in the demand for reinsurance given persistent inflation and increased weather. We expect increased risk retention for Property lines broadly (primarily U.S.) but do not see this impacting casualty lines in total.” And on reinsurance brokerage revenue structure, it said: “While reinsurance brokerage is primarily a commission-based business, and we expect commission rates to stay stable, there are offsets in the form of commission rebates to customers and negotiated fees; particularly when pricing is high. This structure causes reinsurance brokerage to be less dependent on pricing than a pure commission business – which is favorable – yet less beneficial when prices are expected to be at highest in three decades.” Source: reinsurancene.ws

Risk managers have a clear role to play in developing and managing ESG strategies for their organizations, but work is needed to define where best to focus efforts according to a new survey conducted by WTW. The survey saw participation of over 310 corporates globally and employing more than 2m people in total, was conducted between April and August 2022. The primary question that the survey looked at was on how ESG factors are impacting corporate risk management. The survey also examined how engaged risk managers are, and expect to be, in addressing ESG risks and pressures. It found that risk managers have a clear role to play in developing and managing ESG strategies for organizations. Three quarters of respondents (74%) said improving their organization's ESG score was a core focus for the business. However, while the majority of risk managers say their organizations have ESG goals, only 17% have documented targets with clear milestones for ESG risks. While just over half of respondents say the risk management function (55%), and they personally (54%), are significantly involved in their organization's ESG efforts, 77% believe the risk management function should take a more active role in ESG initiatives and strategy. While more than 80% of organizations that have documented or are actively discussing climate goals say they have stated carbon or emissions targets, other climate and resilience risk management goals are frequently more vague or absent. Most respondents (54%) believe risk management practices in the environmental liability area influence their ESG standing. Accordingly, three quarters of respondents have taken actions to address environmental liability and climate risks. However, many have done so without specific goals or performance indicators. Many respondents identify risk management priorities in areas such as data privacy and cyber risk (97%), workplace safety and product and employment liability, although they also acknowledge gaps their ability to influence procedures. There are concerns about the impact of hybrid work on employee safety and cyber risks. Many organizations also feel they need to develop a more comprehensive view of employee wellbeing to better promote employee resilience. Source: asiainsurancereview.com

Rapid inflation, debt crises and the cost of living crisis are the biggest threats to doing business over the next two years in G20 countries according to 2022 executive opinion survey conducted by the World Economic Forum's Centre for the New Economy and Society. The survey released in November 2022 revealed that transition to net-zero has dropped too far down on the short-term agendas of many business leaders and the impact of rapid inflation, debt crises and the cost of living crisis are the biggest threats to doing business over the next two years in G20 countries. The findings of this year’s executive opinion survey, which elicited the views of over 12,000 business leaders from 122 countries between April and August 2022, was published ahead of COP27 in Egypt and the G20 summit in Indonesia later in November 2022. According to survey results, interlinking economic, geopolitical and societal risks are dominating the risk landscape among G20 business leaders, as they continue to address immediate concerns around significant market turbulence and intensifying political conflict. Rapid and/or sustained inflation is the most commonly cited top risk in G20 countries surveyed this year, with over one-third (37%) of G20 countries identifying it as a top concern, followed jointly by debt crises and the cost of living crisis (21%). Geo-economic confrontation was identified as the top risk by two G20 countries. Other respondents referenced the potential for state collapse and lack of widespread digital services and digital inequality as top concerns. Despite mounting environmental pressures and rising environmental regulation over the last 12 months – and factoring in adjustments to the list of risks surveyed this year in response to evolving economic, geopolitical and environmental trends – environmental issues featured significantly lower as a top five risk for G20 countries in this year’s report, compared to 2021. Further, despite the growing threat of cyber attacks on critical infrastructure, this and other technological risks ranked among the least commonly cited top five risks this year. Marsh McLennan and Zurich Insurance Group are partners of the Centre and the Global Risks Report series. Source: asiainsurancereview.com

By Herminia S. Jacinto I MUST have written about climate change in previous columns, so why am I writing about it again? Recent events have made it a current topic and perhaps it will never be outdated since climate change is a perennial problem. Typhoon "Karding" had just passed our country and resulted in so much damage to property and lives. My heart goes out to the rescuers who died while trying to perform their tasks. The efforts exerted by both public and private sectors during the typhoon and the floods deserve a lot of commendation. We saw how government organizations, especially the local government units (LGUs), immediately came to the rescue of the affected residents and their properties. Evacuation was orderly even if we had the usual resistance from people who would not leave their homes. Television and radio stations were announcing the developments as they occurred and immediately sent relief goods to the evacuation centers. Large malls like the SM Malls offered to shelter people at the height of the floods. Their parking areas were opened to the stranded vehicles in flood-prone areas. How admirable! It looks like we have learned a lot about coping with such events considering that the Philippines is visited by about 20 typhoons a year. Not to mention the flooding and the storm surges that accompany such typhoons. But we are not always successful. Inevitably, there is the resulting damage to crops, property and even lives which take a long time for us to recover. Yes, there are mechanisms and opportunities to recover through insurance and other solutions which are now available in the market. But how does one recover from the loss of a loved one and the destruction of livelihood? Maybe never. From my perspective as an insurance practitioner, I am appalled at the lack of attention and concern about climate change, an issue which is now the subject of discussions in global conferences. Since typhoons and floods occur frequently in our country, we may just accept it as something that will come anyway, so let it come! It is our business in insurance to provide solutions and products that will restore property after the event and we make money doing this. But it is also our business that we help our clients cope with these events with less cost and heartaches! The key is prevention. We should harness all available solutions to help us mitigate the impact of these events. Recent posts in Facebook make fun of the "builder or creator" of the Sierra Madre mountains, which were reactions to articles about the role the mountain range played in preventing Karding from doing more damage to the places traversed by the typhoon. Setting aside the memes, there is a lot to be grateful for that we have these God-given natural resources to protect us from strong winds. Inquirer.Net correctly says "Sierra Madre stands up to Karding, but needs protection vs the human it serves." What comes to mind is the mining of dolomite from a mountain in Cebu to create a Boracay type beach in Manila Bay. The so-called dolomite beach is now the receptacle of all the garbage brought by the flood from various places near Manila. It is providential that the new government has stopped the so-called rehabilitation of the Manila Bay and save the mountains from being denuded. Another natural resource that the Philippines is gifted with is the abundance of mangroves in the countryside. Experts on natural disasters say that mangroves are many times more cost-effective than building a concrete sea wall over a 15-year investment. I hope our own weather experts will develop our own natural resources to prevent or reduce flooding. Until recently, not many knew that there was a Climate Change Commission which was created in 2011. Among its several purposes is for a successful transition toward climate-smart development. The chairman of this commission is no less than the President of the Philippines with three commissioner-members and has been provided with an ample budget to do its job. I just hope that the president will give it the time and attention it needs. Now is the time for them to implement what they have learned from the various conferences they have attended and the inputs from the National Panel of Technical Experts. The LGUs are waiting for you! A man checks his house that was totally destroyed by Typhoon ‘Karding’ in San Miguel, Bulacan, on Monday, Sept. 26, 2022. PHOTO BY MIKE DE JUAN Source: manilatimes.net

By Michael F. Rellosa THE fact that climate change and the deleterious effects that it can have on mankind is widely accepted and scientifically proven is a given. That the Philippines, owing to its location and geography, is one of, if not the most, vulnerable countries in the world is another widely accepted fact. Add to this the hydro-meteorological, seismic and volcanic events that have occurred in recent memory, and we have the elements of a perfect catastrophe. In previous columns, I mentioned that it is long overdue for a whole-of-nation approach to addressing this pressing issue. I leave it to each sector to meet and craft ways to mitigate the expected adverse events, but belonging to the insurance industry allows me to dwell on the industry initiative on the table, the Philippine Insurance Catastrophe Facility (PCIF). To be honest, this is probably the fourth iteration of the PCIF that we have tried to implement in the past decade or so, with the initial ones created by parties outside the Philippine insurance industry and forced down our collective throat. These were promptly and successfully resisted. The current one, however, is different. Consider the following: the premises mentioned above are accepted; there is a consensus that the industry must unite and act before it is too late; and this is one of the rare instances where the regulators (the Insurance Commission) and the industry have agreed and collaborated to set one up. A technical working group (TWG), composed of members culled from all existing local insurers, has been set up to flesh out the details of the proposed facility. The TWG has worked steadily, meeting up to twice a month in the past year and a half together with the assistance of and valuable help from the world's leading brokers and reinsurers, who have committed time, resources and expertise to assist the TWG in fleshing out the details of the PCIF. The question of why involve these outside parties may be asked, but numerous and similar facilities have been set up in other areas of the globe where these same parties have been involved. It is best to learn from the experience, the mistakes and birth pains of other countries and adapt their best practices at the earliest opportunity; as the saying goes, "Why reinvent the wheel?" Tomorrow, the TWG reconvenes to decide on an alternative that a member company has suggested. In all honesty, the alternative merits of looking into and possible development, in my humble opinion, can serve as the counterbalance to the PCIF as originally envisioned. As the humble Pinoy bangka (outrigger), there is stability and better coverage with both outriggers working in tandem. We can split the TWG into two, with each subgroup working on each alternative, or create another one to work on the new alternative. This way, the gains made and the work done and painstakingly arrived at via consensus, are not wasted. Let us not wait for another "Odette." The time to act is way past and the earlier that we get this off the ground and running, the better it will be for the industry and for the people it serves. With the two alternatives running side by side, we get to serve both the traditional buyers of insurance protection, as well as those who may not have the wherewithal to do so. I hope and pray that the Philippine insurance industry can demonstrate its unity and capacity to see beyond its own borders and at the common good. After all, we only have one country and stabbing at the dark, one planet. Source: manilatimes.net

By Michael F. Rellosa A COUPLE of weeks ago, the industry was invited to a discussion on the future imposition of yet another compliance requirement to which the insurance industry would be subjected. The Insurance Commission, under the guidance of the World Bank via a technical assistance arrangement, conducted a briefing on ORSA, otherwise known as the own risk self-assessment process and reportorial requirements. The ORSA is an internal process undertaken by an insurer or an insurance group to assess the adequacy of its risk management vis-à-vis its current and prospective solvency positions as exhibited under normal and stress scenarios. ORSA is supposed to help firms understand which areas of their enterprise risk management (ERM) framework they would need to look into and develop further. Companies abroad which have already adopted this discipline have indicated that the difficulty lies not so much with ORSA itself, but rather with the process or needed calculations that feed into it. These calculations assume that the company is cognizant of and accepts its internal risk appetites and risk tolerances, which by themselves may be moving targets. ORSA is a prerequisite under Solvency 2 requirements, where Solvency 2 is an EU legislative program implemented by all its 28 EU member states back in 2016. It harmonized the insurance regulatory regime across the European Union and the main driving force here concerns the amount of capital that EU-domiciled insurance companies are required to hold to reduce the risk of insolvency. This is all well and good. But for the local industry, however, there are certain issues that would have to be addressed before we can even think of adopting these. For one, our local Insurance Code currently in force pegs us to the now antiquated margin of solvency and its attendant processes and reportorial requirements. To complicate matters further, our regulators have already introduced the risk-based capitalization model (RBC), where ratios are determined by allocating assets and specified off-balance sheet financial instruments into several broad risk categories with higher levels of capital being required for the categories that present greater risk. The Philippines is already on RBC version 2. These methods are all applied separately and result in different reportorial requirements. On top of this, there is a need for the different regulators, such as the Insurance Commission, the Securities and Exchange Commission as well as the Bureau of Internal Revenue, to sit down among themselves and agree on a common methodology and reportorial requirement for insurers to follow prospectively. The reality on the ground is more complicated. In a previous column, I mentioned the industry's gearing up for yet another requirement — the impending implementation of IFRS 17 — the new international financial reporting standard (IFRS) introduced by the International Accounting Standards Board back in 2017 and for adoption globally in 2023, but in the Philippines in 2025. This change in standards will mean a paradigm shift in current practice. On top of capacity building, legacy systems, both software and hardware, may have to be overhauled, or changed completely, translating into huge capital outlay expected to be in the tens of millions for each company, which is ill-timed on the face of the continuing capital build-up program currently being undertaken by the industry. It only gets worse. On the horizon is yet another looming requirement that will inevitably make its way to our shores, the only question being when. This is the ESG, or environmental, social and governance — nonfinancial factors that insurers will need to apply in the assessment of their risks to identify new areas of risks to avoid or growth opportunities to explore. There is a general acceptance that these "best practices" may be well-meaning, but an ill-timed and ill-prepared adoption could likewise spell a disaster for a company or the industry. From a high of close to 140 insurers, we are now down to 56. We would not want to see an industry where domestic players, save but for a handful, have all but gone, and only the huge multinationals are left to choose from. Admittedly, there is still hope as the communication lines between the Insurance Commission and the industry remain good and the position and effect on the regulated are known to and understood by the regulators. Close collaboration and a concerted effort at a phased and timely adoption and implementation will spell the difference. Source: manilatimes.net

By Michael F. Rellosa AS we approach the end of an administration and the dawn of another, it is an opportune time to raise an issue few people talk about but many feel strongly about, be they on one side of the divide or the other. Of the many elephants in the room, one that needs recognition of and understanding is the value of political appointees to the positions of the commissioner and his deputies. A political appointee includes Cabinet secretaries and their subordinates at the deputy secretary, undersecretary or assistant secretary levels, and the heads and deputies of most independent agencies. The appointing power is the president of the republic, and the most important criteria, among the many that he must use in making his choice, is the appointees' ability to manage, design and effectively conduct new programs, implement key legislation (both old and new) or deliver services. In turn, the appointee, who possesses those needed qualities, must be able to educate political leaders about an agency's prerogatives and the regulated industry's unique attributes as well as to maintain the delicate balance between the agency's core mission and the political goals of elected officials. Therein lies the rub, the tightrope the appointee proves to be the waterloo of lesser mortals and what exacerbates this is the damaged culture in which we exist. This includes the "utang na loob" that demands that favors be paid, the "padrino system" that creeps into all levels, the "palakasan system" as well as the "crab mentality" that is innate. On top of this, we have the vested interests of the various industry stakeholders, which are vigilantly fought for, using all means within one's disposal. These hamstring even the best of the appointees and who suffers most is ultimately the insuring public. In a paper titled "Political Appointees vs Career Civil Servants: A Multiple Principals Theory of Political Bureaucracies," written by Spiller and Urbiztondo for the Haas School of Business, Berkeley, California and published in the European Journal of Political Economy in 1994, the main point that the authors wanted to emphasize was that "the differences in the organization of civil services can be understood as the result of a game among multiple principals for the control of the bureaucracy. While the bureaucracy is, in principle, directed by the executive branch of the government, the legislature can not be deterred from being involved in the determination of the policies the bureaucracy ought to follow. Thus, the bureaucracy must respond to the interests of at least two political principals. These two principals may differ in their political interests as well as their political horizons." In the Philippines, for example, historically, legislators have tended to last longer than presidents causing a divergence in their political horizons and, therefore, priorities and interests. We also must recognize the fact that the same party does not usually control the two branches. Patronage politics provides the executive branch with a bureaucracy that is, to a large extent, compliant to its wishes. This does not bode well for the legislative branch that prefers a bureaucracy that is more in tune with its own policy interests than those of the relatively transient members of the executive branch. Throw in the culture in which we operate and the current plethora of stakeholders with their respective interests, the picture becomes clearer. My wish for the commission is more freedom and latitude for them to make the proper decisions independent of the interests of the appointing powers and by extension their "amicis." I am glad that our current commissioner and his deputies now have a fixed term independent of the executive branch granting them more time to continue with their reforms and initiatives that have proven to be good for the industry given its unassailable growth numbers. This will also pave the way for a proper and efficient turnover in due course. My other wish, which is timely, is for the electorate to think hard and deep when wielding their power to choose our leaders come May. There is much at stake not only for my beloved industry, but for the entire government bureaucracy and all those affected by it, and that means all of us. Source: manilatimes.net

By Michael F. Rellosa THERE are certain principles that guide and ensure the proper functioning of an insurance contract, the acceptance of which is critical to its success. A review of these principles in the light of the electoral process our country is currently going through, and which will culminate in the May 9 elections, shows an uncanny applicability of these principles to the entire process. Inasmuch as the coming elections, again, thrusts the country into another do-or-die scenario where much is at stake and where the future of our country hinges on, insights gained may help us in our discernment process to choose candidates, who have the wherewithal to make a difference, with the good of the majority in mind and the will to carry the country through the pandemic and its attendant issues as well as the minefield called geopolitics. These principles and how they may relate are as follows: Uberrimae fidei or utmost good faith – This doctrine used in insurance contracts legally obliges all parties to act honestly and not mislead or withhold critical information from one another. The same is true between the elected officials and the people who elect them, more so on the part of the elected. As we put our trust in them, they must be eminently worthy of such trust. We expect them to lead us. But how can they lead if they do not have the moral ascendancy nor the capacity to be truthful. It just won't work. The lesson here is to vote only the trustworthy! Causa proxima or proximate cause – This simply means the nearest or proximate or most immediate cause. In insurance, the cause of the loss for it to be indemnified is for the cause to be the most immediate and not remote and for it to be a peril insured against. Taking it in the context of choosing the right candidate, it would help to investigate the proximate cause of their running. Is it because of a genuine desire to help our fellow man or is it because they want to protect the status quo or ensure a dynasty (which the Constitution prohibits). Insurable interest – A prerequisite for a person to insure a property is for that person to have insurable interest in it, the test being if the person stands to suffer if the subject matter is saved or kept whole, or if he stands to suffer if it is lost or damaged. We all have an insurable interest in what happens to our country, as we stand to suffer if our country goes down the drain, and we stand to gain if our country rises to heights it so badly deserves. The point is, as we do have an "insurable interest" in our country, let us do what we can to ensure its stability by voting for the right candidate. Indemnity – When compensating for an insured loss, the principle of indemnity must be followed, and this is to pay the insured the equivalent of what was lost, no more no less. In other words, no one is supposed to make a profit out of insurance. This is true, too, for our officialdom. No one is supposed to profit out of the positions entrusted to them by the electorate. So, choose servant leaders who are aware of their role and who, like insurers who imbibe these principles, have the Solomonic sense of justice needed to fulfill what is expected of them in their elected positions. Subrogation – To be put in place of another in situations where there is legal right to claim. Applying this to the elections may be a bit far-fetched. However, what screams at me is the phrase "to be put in place of another," which leads me to the word empathy. Our chosen leaders must have this quality to lead us. How can one lead if throughout their lives they had nothing but a life of power, riches and ease? They will not have the capability to feel what the majority of our compatriots feel and therefore may not be in the best position to make the appropriate decisions. There are other principles, but I have run out of space. I hope this can at least spur you to make the right decision, the future of our country depends on it. Source: manilatimes.net

By Michael F. Rellosa THIS is a paper I had the opportunity to present at the seventh Global Platform for Disaster Risk Reduction, held in Bali, Indonesia from May 23 to 28, 2022, and organized by the United Nations Office for Disaster Risk Reduction that I would like to share with readers. Sitting at the apex of climate and seismic risks, the Philippines has long tried to address the effects of these risks through various means, primarily through the introduction of micro-insurance products. The number of Filipinos covered by inexpensive, short-term micro-insurance products rose to a record P53.7 million in 2021 alongside total premiums, which exceeded the P10-billion mark for the first time. As far as nonlife insurance firms are concerned, they also grew their micro-insurance premiums by 31.5 percent to P1.2 billion in 2021 from 2020's P913.5 million. These short-term and cheap products have been increasing in sales, but as Cat (catastrophe) perils are covered by the non-life sector, there was realization that micro-insurance was not the only way to directly address the gap. Therefore, recognizing that a systemic multi-sectoral collaboration was essential to address the insurance gap, the Philippine insurance industry, together with its regulators, the Insurance Commission and with the guidance and technical assistance of the World Bank and the GIZ (German Cooperation), as well as inputs from the top global brokers — AON, Guy Carpenter and Willis — collaborated on the creation of the Philippine Catastrophe Insurance Facility or PCIF. Core objectives The facility was envisioned to redirect Cat risks written by the local industry into a facility that will share the pooled risks with participating companies. By doing so, the facility enables insurers to cover more catastrophe risks, at the same time, allowing them to manage their exposures to catastrophes more effectively. The PCIF aims to satisfy four core objectives: 1. Strengthen social and economic value of insurance. The PCIF enables more insurers to provide badly needed coverage against disaster risks, thus promoting the financial resilience of the populace. This facility likewise ensures timely claims servicing, post disaster. 2. Higher insurance penetration over time. The enhanced ability to develop and offer Cat insurance lends itself to an increased capacity which, in turn, leads to a marked increase in penetration over time. Complementary measures, such as an education campaign for the grassroots, coupled with willingness to review and adapt the product to the needs of the target population segments, will enhance this penetration. 3. Adequate and sustainable catastrophe premium rates. As the Philippine insurance industry has limited financial capacity to accept and retain Cat risks, owing to rates that have not been reviewed and updated in decades, the creation of the PCIF necessitates a hard look at the current rate vis-a-vis the global experience, via actuarial analysis and modeling. Such a correction to technically proven rates will increase premiums an estimated 50 percent, ensuring a more resilient industry where premium reserves will be sufficient to respond to disasters. 4. Increased local catastrophe retention. Without the PCIF, local insurers are forced to cede out the majority of the disaster risks they write to the foreign reinsurance market. With the PCIF, retention will increase, thereby growing the premium base which, in turn, results in greater leverage in negotiations with the foreign reinsurance market giving the local industry better price and conditions, ensuring to the benefit of not only the insurer but the insured as well. PCIF 2 In the course of its development, the PCIF has morphed into two work streams, the first (PCIF1), which would cover the existing insureds via the just discussed pooling mechanism; the second (PCIF2) is being set up to cover the underserved portion of the populace, broken down into the residential and SME (small- and medium-sized enterprise) markets. The target markets would include Class C households numbering about 6 million or 30 million individuals, as well as Class D with 12 million households or 60 million individuals. The PCIF2 will be a property insurance product covering against Cat perils that has two parts, an indemnity-based part and a parametric part that would ensure an early pay out which is badly needed post disaster. The amounts to be covered remain small to be able to cater to the underserved portion of the population, however, it will be adjustable as it can be bought in small increments or units, up to a specified amount. PCIF 1 and PCIF 2 are likened to the outrigger canoe or banca, ubiquitous in the Philippines, where each PCIF initiative serving as the outriggers supports the country symbolized by the canoe in its goal to be sustainable, and able to bounce back after a disaster. Expect both to be operational toward the fourth quarter of this year. Source: manilatimes.net