IC chief bullish on insurance industry growth
THE INSURANCE Commission (IC) is bullish on the continued expansion of the industry this year, anchored on the country’s strong economic growth and a gradual increase in Filipinos spending more on insurance policies.
In a statement on Tuesday, newly appointed Insurance Commissioner Dennis B. Funa expressed confidence the industry will continue growing this year.
“Due to the increase in confidence in the current Duterte administration, purchasing power and the middle class, the Philippine economy is expected to continue its expansion. This would benefit the different industries, translate into a considerable amount of potential to the insurance industry and would address the challenges brought about by the ASEAN (Association of Southeast Asian Nations) integration,” Mr. Funa was as quoted saying in a statement.
The Philippine economy expanded 7.1% — the fastest in three years — in the third quarter last year, maintaining its lead among Asia’s emerging markets, driven by continued improvement in state spending and investments. This brought the average gross domestic product ( GDP) growth to 7% in 2016’s first nine months, way above the government’s 6-7% full-year target.
Meanwhile, key IC data showed that Filipinos’ spending on insurance surged from 2011 to 2015. Insurance density, which measures the average amount spent on insurance by each individual in the Philippines, jumped 84% to P2,286 in 2015 from P1,241.50 in 2011.
Similarly, market penetration rate, the ratio of Filipinos with life insurance policies to population, rose by 126% to 41.9 million Filipinos, representing 41.27% of the 101.6 million total population in 2015. This compares to the market penetration rate of 18.29% or 17.2 million of the country’s total population of 94.2 million in 2011.
Likewise, insurance penetration rate, or the contribution of the country’s insurance industry to the economy, during the period increased by 45.8% to 1.75% in 2015 from 1.02% in 2011.
However, despite an improvement insurance density and market penetration rates, the insurance penetration rate is still well below to the average rate of 3% recorded in other ASEAN member states, said Mr. Funa.
The IC is looking to heighten its regulatory reforms and enhancements to address these challenges, such as the regulator’s mandatory capital build-up of insurance firms which is seen as an important driver of growth and helps increase public confidence in insurance.
Republic Act 10607 or the Amended Insurance Code stated new life and non-life insurance companies are mandated to have P1 billion in paid-up capital when they set up shop in the country. Existing insurers must have a net worth of P250 million by June 2013, P550 million by December 2016, P900 million by December 2019 and P1.3 billion by December 2022.
“Insurance companies will also be required to observe new financial regulatory requirements on financial reporting, risk-based capital and valuation standards for policy reserves. In order to ensure that the solvency of insurance companies are determined and monitored in accordance with internationally accepted accounting, actuarial and insurance core principles, the IC implemented this regulatory change as it will have an impact the growth of the industry,” Mr. Funa said.
On Monday, the IC announced that three non- life insurance firms and one life insurance company have already confirmed their intention to voluntary cease operations amid difficulties in meeting the capitalization requirements.
While four pairs of non-life insurers have entered into merger and acquisitions, two other nonlife insurance firms are set to bring new investors to fully control their company, pursuant to the regulator’s mandatory capital build-up.
“Despite the decrease in the number of insurance companies in view of the implementation of the higher capitalization requirements, we remain optimistic that the industry will continue its growth. Considering that the industry is well- capitalized, we expect that there will be an increase in market penetration owing to the increase in confidence on the industry,” Mr. Funa said.
The Insurance Commissioner also sought regulation that would allow insurance firms to make investments in infrastructure and public- private partnership (PPP) projects.
“In relation to the capitalization of insurance companies, we must consider the availability of investment opportunities for the industry. The IC and the industry are expecting that more investment instruments or products will become available to the industry to improve its revenue from investments,” he said.
He also addressed the need for stricter regulations “on the sale of insurance products online or through the internet or through mobile applications.”
Basing on end-2015 financial statements, the IC reported that all composite insurance companies, 24 life insurers and 13 non-life insurance firms already complied with the P550 million capital build- up requirement. Fewer than ten non- life insurers needed a small amount to comply with the requirement.
The insurance industry’s total premiums continued to slip in the third quarter to P169.56 billion, 1.65% lower compared to its premiums at P172.402 billion in 2015 due to the life insurance sector’s poor performance during the July to September period.
Broken down, net premiums from life insurance companies in the country in the three months ending September continued to contract by 8% to P133.855 billion from P145.484 billion during the same period last year.
While non-life insurance companies extended its growth in the third quarter as it booked a 11.81% increase to P30.1 billion from its year-ago level at P26.9 billion.
As of end-2016, the IC recorded four companies with composite license to engage in life and non- life insurance activities, 55 non-life insurers and 27 life insurance firms. — D. Soliman