Philippines Insurance Trade Body Seeks Regulatory Updates

The Philippines' 36-year-old insurance regulation code needs to be reviewed to meet changes in the operating environment and market trends, according to the country's insurance trade body.

The Philippines Insurers & Reinsurers Association proposed an update of insurance regulations to the Insurance Commission, the country's regulator. The trade group plans to submit an amendment for the next session of the Congress, which will probably meet after January, said Mario C. Valdes, general manger of PIRA.

Two key suggestions in the proposed amendment relate to the commission's supervisory authority over claims settlements and a tax review for nonlife products, according to Valdes. The revamp would aim to make regulation more relevant to current market conditions and insurance development.

For solvency regulation, Valdes said the trend is moving toward a risk-based capital regime from the existing solvency margin system. The Philippines is still far from the adoption of Solvency II, a regulatory regime designed to bring a uniform capital adequacy structure for insurance and reinsurance in the 27-nation European Union, although there have been some discussions on it, according to Valdes.

The association also proposes to amend the 12% documentary stamp tax on nonlife premium so as to make the products more affordable and economical to the population, including micro-insurance consumers. The current stamp tax has made nonlife products less attractive for consumers, said Valdes.

A rationalization of the tax system is important to enable poor people to seek insurance protection in line with the country's current promotion of micro-insurance. "We have to amend the code so that insurance products could become more available to the majority of population," said Valdes.

The regulator needs to enhance its supervisory authority over claims settlement, according to PIRA, which represents 87 nonlife insurance members in the Philippines. The commission can only resolve claims settlement cases involving 100,000 pesos(US$2,291) and below, which is even lower than the 200,000 pesos coverage provided through micro-insurance products.

As any case above the 100,000-peso limit has to go to courts to be resolved, Valdes said the process is expensive for poor people. PIRA suggests raising the limit to 5 million pesos so as to make the policy more relevant to a majority of the population.

Regulation of insurers' investment portfolios also needs to be updated in line with current investment practices. Valdes said this does not mean "a more liberalized" system, but necessary adjustments to market conditions.

For intermediaries, a fee-based structure has been suggested to enhance transparency of premium charges to consumers. However, Valdes said this is more of a best-practices suggestion for the industry rather than a regulatory enforcement issue. The nonlife industry mostly uses a commission-based structure, and Valdes said there is no foreseeable change to this system.

Although the Philippines has high risk exposures to natural perils such as typhoons and floods, Valdes said the country has yet to reach consensus on a public natural catastrophe risk pool. Local appetites have been sufficiently covered by commercial reinsurance companies, he said.

But when micro-insurance grows to a certain extent through nationwide coverage, Valdes said a public pool for natural catastrophe protection may then be required.

The regulator had proposed a universal insurance plan to provide protection against property losses caused by natural disasters. The plan would engage both public and private sectors under a joint undertaking to provide insurance cover for every taxpayer against natural peril-related losses, according to the commission (BestWire, May 6, 2010).

In another regulatory move, the government has imposed mandatory insurance for Filipino workers hired through agencies to work overseas. Under this rule, recruitment agencies or foreign employers are required to obtain compulsory insurance coverage issued by an insurer accredited by the commission. In the Philippines, there are three to four insurers underwriting this product, according to the commission.

The Philippines is among the smallest insurance markets in Asia. The country's insurance penetration--premiums as a percentage of gross domestic product--stood at 1.5, compared to the global average of seven in 2009, according to Swiss Re's sigma report. Nonlife insurance premiums amounted to 39.8 billion pesos in 2009.

(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com)