Insurance Commissioner Dennis B. Funa is optimistic that the local insurance industry will sustain its growth for this year, and his sanguine outlook is grounded on the recent past: the sector emerged from 2018 stronger, despite the “economic turbulence” that shadowed it.
Another basis of his positive prediction–on the back of the country’s strong macroeconomic environment, the insurance industry in the Philippines is seen to sustain its pace of growth this year.
“I’m very optimistic that the insurance industry will grow further in 2019. The industry did very well in 2018 considering all the economic turbulence,” Funa told the Philippine Graphic in an exclusive interview.
The drivers of growth of the insurance sector for this year are seen to be underpinned by an expanding middle class, more financially aware millennials, as well as advancements in technology.
“More important, our economy is growing, it’s expanding, the middle class is growing. So you put all these things together, fintech [financial technology], the millennials, the growing economy, and the result is the growth in the insurance industry and the financial sector,” he elaborated.
A serious example of the economic turbulence of last year was the acceleration of the country’s headline inflation in September 2018, when it reached a new-high of 6.7 percent, coming from 6.4 percent in the previous month, and at 3 percent in the same year for 2017.
According to the Philippine Statistics Authority (PSA), the top contributors for the increase in the inflation rate for September 2018 were the prices of food and non-alcoholic beverages; housing, water, electricity, gas and other fuels; and transport, among others.
Despite the high inflation, the insurance industry posted growth as of end-September 2018, based on the financial report of the Insurance Commission (IC) released in December 2018.
GROWTH ALL AROUND
According to the IC, the Philippine insurance industry posted growth of 18 percent in terms of premiums as of end-September 2018, as the life, nonlife, and mutual benefit associations (MBAs) sectors all registered positive growth for the period.
The local insurance industry posted total premiums of P218.91 billion by the end of the third quarter, or 18 percent higher than the P185.51 billion in the same period in 2017.
The life insurance sector posted premiums of P174.15 billion, which account for 79.55 percent of the premiums collected by the industry. This is 20.4 percent higher than the P144.63 billion recorded in 2017.
For the nonlife insurance industry, the net premiums also increased by 7.34 percent to P36.83 billion compared to the P34.31 billion as of end-September 2017.
The reported contributions or premiums of MBAs rose to P7.93 billion, up by 21.20 percent from P6.54 billion during the same period last year.
The country’s low penetration rate is also seen as an opportunity for insurance companies to further grow their businesses this year, as it only means that there is still a huge sector that can be tapped into in terms of providing some form of insurance.
Funa sees the country’s insurance penetration rate for 2018 to meet or even surpass the highest ever recorded insurance penetration level for the country (in 2013) of 1.78 percent, with the fourth-quarter figures for the industry expected to be on the higher end of the scale.
“The record penetration rate overall in the entire history of the Philippine insurance industry was in 2013; we achieved a penetration rate of 1.78 percent, the highest in history,” Funa pointed out.
He said the insurance industry figures for the fourth quarter of 2018 may come out this month or early April 2019, and expressed confidence that it would show an increase in numbers.
As of the third quarter of 2018, the country’s insurance penetration level already reached 1.76 percent, coming from 1.64 percent during the same period in 2017.
“So, that is just .02 percentage points away from the record. Once we get the fourth-quarter figure, which is always historically the highest, I am confident that we will equal or even surpass the all-time record in terms of penetration,” he added.
Insurance penetration is measured as the ratio of premiums to the country’s gross domestic product (GDP).
Although the insurance penetration level in the Philippines registers growth, Funa explained that it is still far off compared to its peers in the Association of Southeast Asian Nations (Asean).
“But you know, looking at the bigger picture in Asean, we still have a lot of catching up to do. So there’s a big potential for growth. The Asean average penetration rate is, I think, around 3 percent,” he said.
Funa also cited as an example Taiwan, which recorded an insurance penetration rate at 21 percent, attributable to its economically advanced environment.
“The highest penetration rate in the world is Taiwan, and they have a penetration rate of 21 percent. So the Philippines is far away from Taiwan at least, but the good thing is that we are growing. More and more people are becoming aware about insurance,” he added.
MILLENNIALS AND TECH
Millennials, meanwhile, will be of some help in terms of increasing penetration levels in the country, as they are seen to be more financially aware than previous generations.
“I think the reason is that the financial terrain is changing. If you ask the millennials, they are now more financially aware than, let’s say, my generation. Financial literacy is growing but more than that, it’s being held by the change in technology. All these financially complicated matters are now just within the reach of the fingertips,” he said.
Furthermore, in terms of technological advancements, Funa pointed out that he sees technology to be of help to the insurance industry rather than a threat.
“Technology really goes ahead and the regulation just follows. I mean, after all, technology is there to make processes easier, transactions easier, and convenient for the public. So the best thing that the regulator can do is not to be a stumbling block, but to be the one to encourage these developments because in the first place technology cannot be stopped,” he added.
The only challenge the IC chief sees for the insurance industry would be threats that come from the outside rather than from the inside, global uncertainties to be exact.
He explained that the trade war between China and the United States could be a challenge for the industry as there are uncertainties on what it could mean for the local economy, as well as natural calamities which will impact the nonlife insurance sector the most.
“The challenges that can be a threat to the insurance industry will have to come from outside the Philippines, meaning, external factors. Let’s say the trade war between the US and China, or a negative economic contagion; let’s say starting from the European Union that will spread around the world. So those could be the threats to our economy,” Funa said.
Funa was quick to add, though, that as long as external threats don’t get out of control, and that no major natural calamity hits the country, then the insurance industry will continue its upward trajectory in terms of growth.
“If those things don’t happen, then we will continue. The industry has been growing for the past five years . . . I don’t see any threat of political turmoil, in fact, we are politically stable. There may be a lot of political noises, but that is not political instability. People are not focusing on those issues, they are focusing on their daily lives,” he added.
He also reminded everyone that the IC, being the regulator of insurance companies in the country, will always provide regulatory relief if there would be economic trouble.
“The role of the regulator in terms of economic troubles is very limited . . . What we can do, if economic trouble comes, is to provide regulatory relief. And that is a natural reaction for any regulator,” he said.
Regulatory relief pertains to measures implemented by regulators to reduce the burden of regulation due to some compelling reasons. It comes in different forms, as it takes into account the objectives of providing the regulatory relief, and activities in line with such.
HELPING THE INDUSTRY
Staying true to its mandate of helping the local insurance industry as best it can, the IC issued 76 circular letters in 2018, aimed at sustaining a healthy business environment for the insurance players.
The 76 circular letters were reported to be the most number of issuances within a given year for the IC. The circular letters not only clarify vague rules and regulations that have unclear details, but also encourage transparency within the industry.
“Last year, we issued a total of 76 circular letters. Now, the significance is that this is the most number of circulars issued in one year in the entire history of the IC. This means that we are strengthening our regulations. I think the average per year is 20 or 30, but last year we issued 76 to show how hard-working we have been since I assumed office,” Funa said.
MINIMUM NET WORTH
Meanwhile, he explained the significance of the IC policy to increase the minimum networth requirement for local players. It is a means, he said, to help the industry, making sure that it has enough funds to pay for claims as well as running the day-to-day operations of the insurance company.
Under Republic Act 10607, or the Amended Insurance Code of the Philippines, new insurance industry players are required to have P1 billion in paid-up capital, while existing insurance companies need a paid-up capital of P550 million by December 2016, P900 million by December 2019 and P1.3 billion by December 2022.
“At the end of this year, the net worth requirement is going to be P900 million. I looked at the list of the companies and their net worth; we still have a handful that are bellow P900 million, but I can say that they are within striking distance . . . So, we will see towards the end of the year if they will be able to meet the minimum net worth requirement,” he said.
INVESTMENTS IN INFRA
In terms of investment, the IC also issued Circular Letter 2018-74, which enumerates the guidelines on how local insurance companies can invest their funds in the infrastructure projects of the government under the Philippine Development Plan (PDP).
“What that will do is to offer them more investment opportunities because that’s one of the issues hounding the health of insurance companies. That we don’t have a number of investment choices. But with these infrastructure projects, that have assured returns . . . we are more or less helping the investment income,” he said.
When asked if opening up more investment channels will help insurance industry players meet the P900-million net worth requirement, Funa said the issuance of the circular letter is really to help players be better able to invest more in different channels.
“Insurance companies earn two ways—the underwriting profit from the sale of insurance products, and investment income which comes from where they invest. But there’s a problem, there’s limited investment opportunities, just in government securities and corporate bonds only. So this [investment in infra projects under the government’s PDP] hopefully will give them more leeway, more choices,” he added.
Funa is unfazed by murmurs from some quarters that this policy of encouraging the insurance firms to invest in PDP-tagged projects might expose them to more risks instead of helping them shore up their bottomlines in preparation for meeting the higher networth value.
He explained that, in fact, there may be less risk in investing funds under the “Build, Build, Build” (BBB) program of the government, as returns from these infrastructure projects are seen to be stable.
“I would say stable [returns], because the bonds for these are rated…These are all part of the BBB program and I don’t think that the Philippine government will allow these investment opportunities if these are high risks,” he said.
As proof of the continuing growth in potential in the sector, Funa pointed out that the insurance industry saw a number of consolidations in 2018, with PNB General Insurers Co. Inc. and Allied bankers Insurance Corp. under the LT group having consolidated; as well as the Yuchengco groups, Malayan Insurance Company Inc., First Nationwide Assurance Corporation (FNAC) and Bankers Assurance Corporation (BAC).
“In 2018 we saw a lot of consolidation: the LT group consolidated their two insurance companies, while the Yuchengco group consolidated all their three insurance companies,” he said.
Apart from the consolidations, Funa also noted that the IC received a letter from an insurance company signifying its intention to buy another company placed under conservatorship.
“Last week, I received a letter wherein one insurance company expressed interest to buy Plaridel [Surety & Insurance Co.], it was placed under conservatorship, but if there will be a buyer, then it can be rehabilitated,” he added.
In March 2018, the IC announced that it had shut down the operations of five nonlife insurance firms and placed them under conservatorship for failure to meet the statutory capital requirement.
The companies placed under conservatorship were First Integrated Bonding & Insurance Co. Inc., Investors Assurance Corp., Metropolitan Insurance Co., Inc., Plaridel Surety & Insurance Co. and Premier Insurance & Surety Corp.
Funa clarified, however, that placing these companies under conservatorship does not necessarily mean they will close shop.
When asked if foreign players signified interest in acquiring local insurance companies, he revealed that at least two foreign companies expressed interest in such.
From all the movements happening in the insurance industry, Funa emphasized that the most important thing is to make sure that the insurance companies are in stable position.
“The bottomline, what is important is that an insurance company is stable, that a company would have enough resources to meet and to be able to pay claims. So whether it’s 60 or 30 [companies], it doesn’t matter, as long as they are stable and financially strong,” he said.
There are currently 54 insurance companies operating in the country. G