Regulators are optimistic that the insurance industry stands to benefit from the expansion of the Philippine economy this year.
“Due to the increase in confidence in the current Duterte administration, purchasing power and the middle class, the Philippine economy is expected to continue its expansion,” Insurance Commissioner Dennis Funa said in a statement on Tuesday.
“This would benefit the different industries, translate into a considerable amount of potential to the insurance industry and address the challenges brought about by the Asean [Association of Southeast Asian Nations] integration,” the commissioner noted.
Citing the latest Insurance Commission (IC) data for 2011-2015, Funa said the numbers show that the insurance density–which represents the average amount spent on insurance by each individual in the country–grew by 84.1 percent to P 2286.0 in 2015 from P 1241.5 in 2011.
In the same period, the insurance penetration also improved by 45.8 percent from 1.02 percent in 2011 to 1.75 percent in 2015, he added. The measure reflects the ratio of insurance premium to gross domestic product or the contribution of the insurance sector to the economy.
The market penetration rate–or the ratio of individuals with life insurance coverage to population–increased by 125.64 percent from 18.29 percent of the population of 94.2 million in 2011, equivalent to or 17.2 million people, to 41.27 percent of the population of 101.6 million or 41.9 million in 2015.
Despite the steady increase in insurance density, insurance penetration and penetration rate, the numbers are considered low compared with other Asean countries, Funa noted.
To address these challenges, the IC will implement regulatory reforms and enhancements.
The recent mandatory increase in the minimum capitalization of insurance companies from P250 million to P550 million is part of the reforms, Funa said.
The higher capitalization of insurance companies leads to an increase in confidence in the industry, the commissioner said.
The Insurance Commission last week announced that some industry players were resorting to different strategies on how to comply with the capital requirement such as mergers and acquisitions. Some companies decided to close shop.
“Despite the decrease in the number of insurance companies in view of the implementation of higher capitalization, we remain optimistic that the industry will continue to grow. Considering that the industry is well-capitalized, we expect that there will be an increase in market penetration owing to the increase in confidence on the industry,” Funa said.
“Insurance companies will also be required to observe new financial regulatory requirements on financial reporting, risk-based capital and valuation standards for policy reserves. In order to ensure that the solvency of insurance companies are determined and monitored in accordance with internationally-accepted accounting, actuarial and insurance core principles, the IC implemented this regulatory change as it will have an impact the growth of the industry,” he added.
Regulation must be in place to facilitate investment by the sector in infrastructure and public-private partnership projects in the country.
“In relation to the capitalization of insurance companies, we must consider the availability of investment opportunities for the industry. The IC and the industry are expecting that more investment instruments or products will become available to the industry to improve its revenue from investments,” he said.
Funa recognized that higher awareness and understanding the need and benefit of insurance would drive growth in the long run and the evolution of different channels as one of the drivers in the growth of the insurance industry.
“In the recent past, the industry has witnessed the emergence of bancassurance and electronic commerce that contributed to the increase in insurance market penetration. However, we likewise recognize that there is need for an enhanced regulation on the sale of insurance products online or through the internet or through mobile applications,” he said.
Even with the development of electronic commerce in the industry, there are certain areas that are left behind such as the regulation of the Compulsory Third Party Liability. Funa said there is a need to enhance and modernize the regulation of CTPL products.
“With the challenges confronting the insurance industry, the regulator and the industry should welcome regulatory changes and work hand-in-hand towards the continuous positive growth of the industry, always bearing in mind the protection of the interests of the insuring public,” he said.