Mandatory disaster insurance proposal a good idea

Ben D. Kritz

Ben D. Kritz

The version of the bill in the current Congress was shelved in early September—reportedly due to resistance over its “mandatory” character—but late last month it was dusted off and presented again by Insurance Commissioner (now SSS president) Emmanuel Dooc, with the backing of the Philippine Insurers and Reinsurers Association (PIRA).

The risk of massive financial losses from natural disasters is ridiculously high, according to insurance giant Lloyd’s. In 2013’s Typhoon Yolanda, for instance, only about $2 billion of the eventual $14 billion in losses was insured. In a large-scale calamity such as a strong earthquake or typhoon in Metro Manila, Lloyd’s estimated at least half of the National Capital Region’s average annual GDP of $201.1 billion could be lost due to a lack of insurance coverage.

According to the Oxford Business Group, insurance penetration in the Philippines has averaged about one percent of GDP for the past several years, compared with the Asean average of 3.4 percent of GDP, and far below the Insurance Commission’s target of 3 percent of GDP by the end of 2019.

Although there are obviously a great many details that would need to be ironed out, particularly in terms of enforcing “mandatory” insurance coverage, there are a number of clear benefits to implementing the scheme.
Making the insurance mandatory means that homes and businesses will have to meet insurable standards of location, construction, and equipment, which will do much to reduce natural disaster risks. Having a much greater number of households and businesses covered by some form of insurance also eases some of the burden on government calamity funds, redistributing at least part of them to people and places where they are more needed.

And the huge windfall for the insurance sector could help to mitigate some of the risks the insurance is intended to protect against, if a stipulation was made that a portion of invested premiums be directed to disaster- and climate-mitigation related investments; examples might include funds to relocate vulnerable populations, flood control and coastal protection projects, and even power or other infrastructure projects with identifiable benefits.
Of course, selling the idea to a population not known for its foresight and which tends to look at insurance as a cost rather than an investment is a challenge that has proven to be insurmountable so far. This is not at all helped by the way the insurance business is typically handled here; although some companies are better than others, making any sort of insurance claim is usually a slow process in which one is treated with a great deal of suspicion. If calamity insurance is carried by a large part of an affected population, insurance company business processes are going to need to be considerably more efficient and user-friendly than they are now; whether that is something PIRA has considered along with its push for the mandatory insurance is a question the group itself will have to answer.


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