Posted on Feb 15, 2012 by Sergio Ulloa
The Philippines is fast becoming one of Asia's most promising young insurance markets, with newly released industry statistics projecting yet another year of double digit premium growth in the country's life sector.
Gregorio Mercado, President of the Philippine Life Insurance Association (PLIA), announced in a press briefing on Tuesday that unaudited premium income for the country's life insurance sector amounted to P85.5 billion (US$2 billion) by year-end 2011, about 21 percent higher than the P70.7 billion (US$1.67 billion) recorded in 2010. This considerable P15 billion (US$350 million) improvement follows similar gains made during the 2009-2010 reporting period
, when premium levels went from P57.241 billion (US$1.34 billion) to P70.7 billion (US$1.67 billion), a 23.5 percent annual increase. At this pace and barring any further global financial shocks, the PLIA President expects the country's life insurance industry to grow by at least 16 percent in 2012, breaking the P100 billion (US$2.36 billion) threshold in new premium income by year's end. "We want to hit P100 billion by the end of this year," Mercado declared. While local non-life insurers have suffered from heavy claims losses and dubious investment practices, the Philippines life insurance market remains financially stable and well capitalized, with reserves capable of meeting all present obligations.
The continued development of the Philippines economy has enabled the country's insurance sector to sustain its positive outlook for stable premium growth. A healthy economy together with improved consumption patterns, remittances from the sizeable overseas Filipino Diaspora, and the high liquidity present in the country's financial system, are all strong internal factors that will continue to drive investor confidence in the emerging Southeast Asian market. These favorable economic development conditions have provided Filipinos with more personal disposable income with which to now purchase insurance. It is also worth noting that, most of the Philippine workforce is technically covered by a the health insurance scheme provided under Philippine Health Insurance Corporation (PhiHealth), and this perhaps enables them to pursue other avenues of insurance coverage as well.
Despite these strong internal indicators, the future growth and development of the Philippines insurance sector remains tied to the overall performance of the global economy, similar to that of other emerging Asian nations. The PLIA President acknowledged these external forces in his briefing, stating that their annual forecast was made "assuming that the economic issues affecting Europe and the US would not further worsen, since that may have a subsequent effect on the Philippine economy." For the local insurance industry, further downgrades in Europe or the US would likely affect interest rates and foreign investment activity. Mercado assured reporters however that the Phillipines insurance industry already has a strong framework in place which will limit contagion with ongoing global financial market volatility, adding that "our fundamentals remain strong amidst the prudent financial regulations and vigilant performance monitoring mechanism of the Insurance Commission, along with the good record of compliance by the industry."
The PLIA have based their projections on rising microinsurance sales, greater financial literacy amongst the general population, and the continued evolution and maturation of the domestic insurance industry towards best international standards. Microinsurance was cited by the PLIA President in particular as an integral development tool which should raise the insurance penetration rates amongst the Filipino population considerably in the coming years. Microinsurance policies in the Philippines are currently defined as retail products that offer coverage values between P500 (US$12) and P200,000 (US$4,700). Premium payments can be as small as one peso or up to P19 (US$0.45) a day and giving out benefits as large as P190,000 (US$500) per policy. According to the Insurance Commission (IC), the number of Filipinos buying microinsurance has already risen considerably, with approximately 3.5 million policies sold in the past year. This number is expected to increase to over 5 million new policy sales in 2012, driven in no small part by recent weather calamites which have increased the demand for insurance policies amongst the country's rural populace.
Insurance companies themselves recognize the potential microinsurance offers in the Philippines, and an increased number are now entering the market. In his briefing, the PLIA President disclosed that nine member-companies have obtained the license to sell Filipino microinsurance products so far. These companies are Asian Life & General, Banclife, CISP, CLIMBS, Cocolife, Country Bankers, Manila Bankers, Philippine Prudential, and Pioneer Life. Five more companies are currently awaiting IC approval to sell microinsurance. These are BPI-Philam, Manulife, PELAC, Philamlife, and Sun Life
In addition to greater microinsurance
sales, the PLIA briefing noted that the recent decision by the Bureau of the Treasury to issue longer-termed 10-year and 20-year government securities will enable Filipino life insurance companies to more effectively match assets with future liabilities and better manage their balance sheets going forward. According to the PLIA President, these Treasury bonds are "safe, long-term, and good-yielding investments which we prefer to be part of the assets of life insurers that allow good matching with our liabilities to better service the claims of our clients."
Overall, Filipinos are becoming more risk aware every year and are now increasingly seeking out the insurance coverage solutions
that PLIA members offer. The PLIA has attributed this development in part to their on-going fiscal literacy campaign, which aims to educate more remote populations about the importance of insurance and adequate financial planning.Improving insurance awareness is the next great challenge for the Philippines insurance sector. According to government data, life insurance premiums accounted for only around 1.04 percent of the country's GDP in 2011, the lowest in the Asean-5 region and far below the worldwide average of 4 percent. The PLIA expect this figure to increase considerably over the next few years as market conditions improve together with the introduction and development of innovative new products, such as micro-insurance.