25 disaster-prone provinces stand to benefit from govt’s parametric insurance policy
Some 25 provinces along the country’s eastern seaboard stand to benefit from the Philippines’s parametric insurance policy, which aims to provide quick liquidity in case of natural calamities, according to the Bureau of the Treasury (BTr).
In a report to Finance Secretary Carlos G. Dominguez III, National Treasurer Rosalia de Leon said the Parametric Insurance Policy, which has a maximum cover of P20.49 billion, has already been placed on the international market.
The policy, which will enable 25 catastrophe-vulnerable provinces and the national government to act faster and respond better against natural calamities, became effective at midnight of December 19, 2018.
“With the increased market participation, we were able to achieve a tighter multiple this year compared to last year’s transaction,” de Leon said in her report to Dominguez. “[This] augurs well for our forthcoming indemnity and catastrophe bond issue.”
The 25 provinces are Albay, Aurora, Batanes, Cagayan, Camarines Norte, Camarines Sur, Catanduanes, Cebu, Davao del Sur, Davao oriental, Dinagat Islands, eastern Samar, Ilocos Norte, Ilocos Sur, Isabela, Laguna, Leyte, Northern Samar, Pampanga, Quezon, Rizal, Sorsogon, Surigao del Norte, Surigao del Sur and Zambales.
De Leon said that, in addition to the reinsurers in 2017, which include Nephila, munich Re, Swiss Re, AXA and Hannover Re, a new set of reinsurers also provided support for the cover. They are Hiscox Re, Allianz Re Switzerland, AP3 (Tredje AP-fonden) and SCoR.
The premium for the program was allocated under the National Disaster Risk Reduction and management Fund of the 2018 General Appropriations Act in the amount of P2 billion.
Under the said program, the Government Service Insurance System (GSIS) provides catastrophe risk-insurance coverage, particularly for the Department of education, along with the 25 selected provinces.
The World Bank, through its International Bank for Reconstruction and Development, acts as the intermediary to transfer or cede GSIS risks to the global reinsurance market, thus minimizing risks for the government. Its Disaster Risk Financing and Insurance Program provided preparation work with financial support from the UK-DFID.
In turn, the BTr is the designated policyholder, representing the 25 provinces and the national government.
Finance Assistant Secretary Paola Alvarez earlier said that the program is unlike the traditional indemnity insurance that takes a long time to assess and process. The program’s quick-disbursing payouts will be based on the estimated loss triggers determined through the Philippines’s Catastrophic Risk model developed by the finance department in 2014, as well as damage reports from the ground.
“Since the Bureau of Treasury is the policy-holder, the funds will be mobilized faster to the first responders, namely the national government and the LGUs,” Alvarez said.
In addition to the Parametric Insurance Program, the Department of Finance is also exploring a plan to sponsor a catastrophe bond (Cat nond) to help bridge the financing gap the government faces in light of natural disasters.
Depending on the insurance coverage and its trigger, the Philippines, as sponsor of the Cat bonds, will get paid the principal contributed by investors if a catastrophe occurs. But if there is no trigger, then investors would make a positive return on their investment in the bonds.