Posted on Jul 27, 2011 by Sergio Ulloa
There may be boom times ahead for the Philippines insurance industry after some difficult years. The Southeast Asian country's life insurers are particularly confident about the performance forecast for their sector, projecting double-digit growth in written premiums for the second consecutive year due to the country's positive economic indicators and an increased demand for insurance products.
Mayo Jose B. Ongsingco, president of both the Philippine Life Insurance Association Inc. (PLIA) and Insular Life Assurance Co, told the local press at a briefing on Tuesday that major players within the Philippines life insurance market expect premiums to rise by 23 to 24 percent in the coming year, with first year premiums (premiums for new insurance policies) predicted to expand a further 60 percent. Ongsingco commented that these figures would closely match the growth rate in total premiums the industry reported for 2010. "Based on what we've been hearing from the industry, this year's growth would be close to that seen in 2010," Ongsingco confirmed.
Newly released PLIA data showed that the insurance industry's total premium income increased to PHP70.727 billion (US$1.67 billion) from PHP57.241 billion (US$1.34 billion) last year, a 23.5 percent increase. First year premiums meanwhile rose by a significant 59.4 percent to PHP34.28 billion (US$800 million) from PHP21.508 billion (US$507 million) in 2010. Of the first year premiums, the PLIA noted that almost two thirds were sold through bancassurance, with the remaining third being provided through the conventional agency distribution channel.
The Philippines life insurance industry remains largely concentrated with large insurers accounting for over 80 percent of the sector's combined premiums. The PLIA reported that for 2010 the top five insurance companies in terms of premium income performance were Philam Life with PHP11.255 billion (US$ 265 million) in premiums or 16 percent of total, Sun Life with PHP10.63 billion (US$250 million) at 15 percent
; AXA Life, PHP8.36 billion (US$197 million) at 11.8 percent; Pru Life UK with PHP7.36 billion (US$173.5 million) at10.4 percent, and Insular Life, PHP7.13 billion (US$168 million) at 10 percent. The next five were PhilamLife, Manulife, Grepalife, United Cocolife and Generali Pilipinas respectively.
The continued steady development of the Philippine economy has enabled the country's insurance sector to maintain its positive outlook for sustained premium growth. The six to seven percent rise in the Philippines gross domestic product (GDP) combined with improved consumption patterns, remittances from the overseas Filipino Diaspora, sustained development of business process outsourcing (BPO) fundamentals, and the high liquidity present in the country's financial system, are all strong internal factors that enable investor confidence to prevail in the emerging Southeast Asian market. Improved structural fundamentals and favorable economic conditions have provided Philippine citizens with more personal disposable income with which to now purchase insurance. Most of the Philippine working population is technically covered by a public health insurance scheme provided through Philippine Health Insurance Corporation (PhiHealth) and this may enable them to pursue other avenues for coverage as well.
The PLIA noted that variable life insurance and group insurance policies have proved to be popular choices among the country's new emerging consumer class. Variable life insurance policies build cash value and link investment to life insurance. Part of the premium acts as conventional life insurance coverage while the other part is invested in a fund chosen by the policyholder to be paid to the beneficiary upon death. These policies have proven particularly popular and accounted for PHP26.506 billion (US$264 million) of the industry's total premium income last year. The PLIA disclosed that sale of group insurance policies are also on the rise as more Filipino businesses recognize the value of providing coverage to their employees as a powerful retention tool for their companies. "Insurance is now being included as part of the benefits of employees, and it helps companies keep their people," Ongsingco stated. Group insurance contributed PHP9.921 billion (US$233.8 million) towards the industry's cumulative premium income for 2010.
The Philippines, similar to other emerging Asian economies, is also benefiting from the weak economic performance of established industrialized countries in the West. The ongoing debt crises facing both the United States and Europe have pushed substantial capital into emerging economies in the Asia Pacific region. This increase in direct foreign investment has buoyed local bond and equity markets, which will further boost the Philippine insurance industry by increasing companies' yields on investments. President Ongsingco noted that the weakening of the global economy is currently working in the favor of the Philippines. "A weakening global economy would lead to higher foreign direct investments in the Philippines, including in securities and bond markets. The fundamentals of the Philippine economy are also improving--inflation is in check, the deficit is below target, and remittances continue to grow even with the unrest in the Middle East and North Africa," Ongsingco said.
While these external international debt issues are currently helping the country attract investment, the PLIA is wary that these developments could change and pose significant risk to insurance growth going forward. Domestic life insurance companies are monitoring these events closely and may prepare for an eventual disruption. If the United States fails to resolve its policy on raising the debt ceiling by the August 2nd deadline and they default on their obligations it could have a ripple effect on markets across the globe, similar to the aftermath of the 2008 financial crisis. For the local insurance industry this would particularly affect interest rates and funds inflow. Ongsingco explained that this would be the most immediate concern for the Philippine insurance sector. "All the negative factors that may work against the industry's growth is basically external," the PLIA president said, adding "A lot of the growth now is anchored on expectations that the US is turning the corner."
Improving insurance awareness and broad financial literacy in the Philippines is something the local industry has control over however. According to government data, life insurance premiums accounted for only 0.75 percent of the country's GDP in 2010, putting the Philippines on par with Indonesia, but far below that of neighboring Asian countries such as Malaysia and Thailand at 2.8 and 1.8 percent respectively. The PLIA expect this figure to increase significantly with increased participation from overseas Filipinos as well as the introduction and development of innovative new products, such as micro-insurance targeted towards the country's poorer members of the population
Mr. Ongsingco concluded that explaining the diversity of protection and investment opportunities available through all insurance disciplines will become the most effective way to further the development of the industry. "Individual insurers are taking it upon themselves to educate the public about the value of insurance. Hopefully with these efforts, we can increase the penetration of insurance in the country," he finished.