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Insurance industry: Steady progress amid stability

"It makes possible the maintenance of a citizenry's health and well-being and provides support for the construction and development activities of a nation."

 

Insurance is a vital component of commerce, and a sound and thriving insurance industry is essential to the success of a nation’s trade and finance. Insurance makes possible the maintenance of a citizenry’s health and well-being and provides support for the construction and development activities of a nation.

Insurance as we know it today had its beginnings in the middle ages, when the trading countries and principalities of Western Europe—especially England, Italy and Spain—wanted to insure the protection of their trade against all sorts of risks. By the time the customers of Eduard Lloyd’s 16th-century London coffeehouse began to underwrite risks—and to accept premiums—on cargo ships sailing into and out of England, the concept of insurance as we know it today had become well-established.

Not long after its colonization of the Philippines, the US introduced legislation to regulate the business of insurance. The legislation was largely based on Anglo-Saxon precepts; this was to be expected, considering that it was in an Anglo-Saxon setting that the development of insurance as a commercial activity reached full power. 

By its very nature—the fact that its operations are based on calculations of the occurrence and extent of losses from possible but unforeseeable causes—the insurance industry has always been a heavily supervised part of the economy. This explains why the governance of the industry has hardly ever been touched by insinuations of corruption and while it has been able to retain the trust and respect of its stakeholders. Attached to DOF (Department of Finance), the Insurance Commission, formerly the Office of the Insurance Commissioner, is a virtual oasis in the dessert of distrust and disrespect that DOF largely is. 

If today the Insurance Commission enjoys high stature not only in the DOF family but in the entire Executive Department, credit must go to the individual who is arguably the best Secretary of Finance that this country has ever had. I refer to Cesar E. A. Virata. During his incumbency, Cesar Virata made everyone understand that he considered the Insurance industry a very important industry and gave the Insurance Commission the status and support—including first-rate commissioners that he thought it deserved. The Commission thus gained the regulatory clout that had long eluded it; the clout is still there. In the corridors of DOF the Insurance Commissioner now has his full say. 

Although obviously smaller than the Insurance industries of the high-income countries of East Asia, the Philippine Insurance Industry is far from inconsequential. In his report to the Secretary of Finance on the first-quarter 2019 performance of the insurance industry—31 life insurance companies, 60 non-life insurance companies, 1 reinsurer and MBAs (mutual benefit associations), Insurance Commissioner Dennis B. Funa stated that the industry had, as of March 31, 2019, assets totalling P1577 billion, investments totalling P1327 billion, total. Net worth of P337 billion, premiums totaling P290 billion, total paid up capital and guaranty funds of P55 billion and a total quarterly net income of P37 billion. 

The number of industry players would have been higher in all three categories—life insurance companies, non-life insurance companies and MBAs—were it not for the draconian capital augmentation program that the Insurance Commission put into effect several years ago. The program resulted in the establishment of three tiers of paid-up capital. Though the announced objectives—enhancement of the insurance companies’ ability to meet catastrophic claims and improvement of their capacity to cope with foreign and domestic competition—were laudable, the program resulted in the disappearance from the scene of a number of venerable companies that were unable to comply with the Commission’s capital augmentation order. The Commission believes that as a result of the program, the Philippine insurance industry is now much better placed to cope with the likely operational demands of the foreseeable future. 

Commissioner Funa, a Commission insider, realizes that while the companies’ balance-sheet and income-statement figures are impressive, a lot of distance still has to be traveled before the Insurance Commission can be said to have fulfilled its statutory mandate. For one thing, the Filipino people remain under-insured: the last figure I recall seeing had only around 1/3 of Filipinos having life insurance cover and most physical structures either inadequately protected against risks or not protected at all. Knowing fully well that this state of affairs is largely attributable to financial incapacity. The Insurance Commission has initiated a Health Microinsurance (microhealth) Program to enable low-income Filipinos to have health insurance cover. 

Then there is the issue of technological transformation. Commissioner Funa has expressed a desire for more speedy progress toward the full digitalization of the financial operations of Philippine insurance companies. The Commissioner believes that the operational capabilities of Philippine insurance companies need to become comparable with those of insurance companies in the more developed East Asian countries. 

So it has done a good job of running the Philippine insurance industry, the time for resting on laurels has not yet come for the Insurance Commission. It still has lots of things to do. But, as it goes about its unfinished business, the Commission will be helped much by the knowledge that it continues to enjoy the trust and goodwill of the Filipino people. 

Topics: Department of Finance , Insurance Commission , Health Microinsurance Program
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