Insurance sector targets growth despite cloudy outlook

INSURERS will continue to target growth this year as they aim to help increase the insurance penetration rate in the Philippines, even as companies could face rising costs from claims amid expectations of elevated inflation.

“Elevated interest rates may not have that big an impact. However, heightened inflation will have a negative effect as it drives claims costs higher,” Philippine Insurers and Reinsurers Association, Inc. (PIRA) Executive Director and Fortune General Insurance Company President & Chief Operating Officer Michael F. Rellosa said in an e-mail. “High inflation affects our claims costs negatively. We have to watch our claims costs and keep them manageable.”

“A heightened sense of vulnerability would hopefully spur more people to insure themselves. However, if the economy is bad, then there would be less disposable income and insurance becomes less of a priority,” he added.

The Philippines’ insurance penetration rate, or the premium volume as a share of gross domestic product or contribution of the insurance sector to the national economy, stood at 1.68% at end-September 2023, Insurance Commission (IC) data showed, lower than the 1.81% in the same period last year.

Meanwhile, data released by the Philippine Statistics Authority on Friday showed headline inflation slowed to 3.9% in December from 4.1% in November and 8.1% a year ago.

This is the first time the consumer price index was within the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target in nearly two years and was the slowest reading in 22 months or since 3% in February 2022.

However, the 2023 inflation average stood at a 14-year high of 6%. This was above the 5.8% in 2022 and marked the second straight year that average inflation breached the BSP’s 2-4% target.

Amid expectations of continued elevated inflation this year, the insurance sector should adopt new technologies to keep up with changing times, Mr. Rellosa said.

“As the insurance industry faces various challenges that require innovative solutions, insurance companies should invest in digital transformation, compliance tools, cybersecurity measures, talent management programs, and customer-centric strategies to overcome these challenges,” he said.

The industry’s required shift to International Financial Reporting Standard (IFRS) 17 in 2025 will also mean changes to operating and computer systems, he said, which could cost companies millions.

“On top of that, IFRS 17 basically requires the industry to realize a loss on the business it writes, and over time, this turns into profit if no claims are made. This may have tax implications, which we are currently looking into,” Mr. Rellosa said.

Singlife Philippines, Inc. Co-Founder and Executive Director Sherie Ng said insurers should look into tapping technologies such as artificial intelligence (AI) and blockchain to distribute policies.

“I think the pandemic has shown us that technology will be in every facet of every industry. I’m a firm believer that technology is the way for us to transform the way we work, live and play,” she said.

Ms. Ng said Singlife is currently the only life insurance company that uses AI to automate the customization of policies to clients and blockchain to boost security.

“To do this without technology is the traditional way of talking to an advisor, and that’s costly and time-consuming. AI enables us to tailor-make and customize the features of a policy for an individual. You can only do that cost effectively through technology. Blockchain also allows us to manage our policy and administration in a very cost effective and safe way,” she said.

Ms. Ng also noted that the insurance market needs a new way to distribute policies as the current insurance penetration rate was achieved through “traditional means.”

For his part, Philippine Life Insurance Association, Inc. (PLIA) President and Etiqa Philippines President and Chief Executive Officer Rico T. Bautista said raising the country’s insurance penetration rate will depend on the country’s economic growth.

“I am positive that the insurance industry as a whole, and specifically the life insurance industry penetration rate, will continue to maintain its current rate for [this] year as we are hoping to see improved GDP (gross domestic product) growth in the country,” Mr. Bautista said in an e-mail.

The Development Budget Coordination Committee on Dec. 15 revised its growth target for 2024 to 6.5-7.5%, narrower than the previous 6.5-8% goal.

Still, this is slightly faster than the 6-7% GDP growth goal for 2023.

Latest data from the Philippine Statistics Authority showed GDP growth averaged 5.5% in the first nine months of 2023. To meet the lower end of the government’s target for last year, the economy should have expanded by 7.2% in the fourth quarter.

Mr. Rellosa said the industry also wants to further promote microinsurance to help bridge the protection gap in the country.

As for the reinsurance sector, the official said he is hopeful that the sector can stabilize this year.

“Barring any major claims arising out of catastrophic events, and with hopefully a softening of the reinsurance market the growth and profit trajectory may remain,” Mr. Rellosa said.

“However, it is a slippery slope as the Philippines is the most vulnerable country to catastrophic events and indications are that the reinsurance market will remain hard,” he added.

The El Niño weather event, natural disasters, compliance issues, cybercrime, and a shortage of talent will continue to challenge nonlife insurers in 2024, Mr. Rellosa said.

The insurance sector saw its overall net income grow by 9.38% to P38.28 billion at end-September 2023, up from P35 billion in the same period in 2022, IC data showed.

This came as the life and nonlife insurance sectors saw higher premiums and as mutual benefit associations (MBAs) posted increased contributions in the period.

The premium income of life insurance companies grew by 13.93% to P229.89 billion in the first nine months of 2023, with P46.57 billion coming from new business. The sector posted a net income of P28.79 billion in the period, up by 10.32% from P26.10 billion a year prior.

Meanwhile, the nonlife insurance sector’s total net premiums written rose by 15.56% to P48.21 billion at end-September. The segment’s net profit increased by 14.99% to P5.48 billion from P4.76 billion a year prior.

Lastly, MBAs saw contributions rise by 7.43% to P11.494.4 billion in the first nine months of 2023. However, net earnings of MBAs declined by 3.05% to P4.01 billion from P4.14 billion a year prior due to a 32.72% rise in total underwriting expenses amounting to P9.64 billion. — A.M.C. Sy