Sitting on the notorious Ring of Fire, the Philippines suffers about 20 natural catastrophes in the form of volcanic eruptions and earthquakes a year, not to mention a score of typhoons. And in the wake of these disasters it’s the non-life insurance industry that plays a major role in helping affected citizens and the economy get back on their feet.

“The Philippines is one of the most disaster-prone [areas] in the world, a sort of nightmare for insurers”, said Melecio Mallillin, President of non-life insurance firm Charter Ping An and a 40-year veteran of the industry. “Insurance is one of the keys in maintaining the economy during these catastrophes. Properties are restored and financial losses reduced through insurance coverages.”

Charter Ping An has prevailed over this highly unpredictable environment – in geophysical and commercial terms – for more than half a century. In that time it has developed an unusual and flexible organisation founded on a powerful financial conglomerate, the Metrobank Group, whose subsidiaries and affiliates encompass several of the sectors within the financial sector. Among the parent group’s brands are Toyota Motor Philippines, Federal Land, Orix Metro Leasing, Metrobank Card and AXA Philippines, most of them leaders in their own sectors. “We work together in a way that gives us dynamic synergies”, said Mallillin. “It means we can be much more competitive in our products and services.”

With such a broad footprint in a nation of 102.2 million people spread over a challenging geography of more than 7,000 islands, Charter Ping An has, over its 55 years in business, steadily developed strong business relationships with agents, brokers, car dealers and other distribution channels. In this the firm’s powerful financial position and parentage plays an important role as a reliable insurer capable of settling fairly and quickly. “It’s in the interests of our policyholders that we pay out quickly”, said Mallillin.

And in a country that likes to do business in a personal way, this gives the firm a natural momentum. Always ranked among the top five in terms of business written, Charter Ping An currently boasts the highest rate of growth among its peers. “We believe our products and services are the benchmark.”

Penetration rate
One of the ironies – and challenges – of the Philippine market is that, despite its obvious importance in such a vulnerable nation, insurance has a low penetration. Currently it’s running at 1.7 percent of the total population, not much more than half the average across the rest of the ASEAN region. After a series of catastrophes in the last five years, the industry saw an increase in so-called acts of nature coverage, but generally most Filipinos view insurance as a luxury rather than a necessity. Thus those on minimum wages would put more emphasis on food, housing and other basic necessities than on buying a policy.

Yet insurance has been available since the days of Spanish colonisation when a Scottish group, Strachman Murray, ventured into the country and started selling policies. Non-life policies made their appearance in 1906 and their popularity grew rapidly despite several ups and downs over the years, mainly for economic reasons.

Today, Charter Ping An operates in a market that is being forced to mature rapidly under a variety of pressures. In common with other jurisdictions in the vast ASEAN region of which the country is a long-standing member, the Philippines has introduced regulations that mandate higher standards of compliance while also having the effect of improving competencies such as overall financial management as well as the all-important actuarial and risk management functions that underpin the non-life sector.

As a result of the Amended Insurance Act of 2013, firms are required to comply with several new laws, including one that requires greater capital strength. Known as the net worth requirements, it applies equally to life and non-life sectors.

As the net-worth requirements show, regulators have certainly got tougher. By the end of 2016, non-life firms must have a minimum net worth equivalent to $10.7m, net worth being defined as the total of paid-up capitalisation, retained earnings, unimpaired surplus and revalued assets, all subject to the approval of the regulator. After that it gets tougher – by 2019 the target is $19.2m and by 2022 it will be $27.8m.

But with more foreign investors discovering opportunities in the Philippines, opportunities abound. Here the ‘ASEAN factor’ is proving to be a massive catalyst. Originally established nearly 50 years ago with five of the most populated countries in the region including the Philippines, ASEAN is seen as a powerhouse. Its membership has doubled with commensurately greater economic potential. With a combined population of 625 million and GDP of $2.6trn, economists see ASEAN as a waking giant – and so does Mallillin.

He predicts an increase in foreign direct investment, including in the insurance sector, under relaxed laws of foreign ownership. And that in turn will force local insurers to become more competitive. Indeed he foresees a period of consolidation.

“The increase in capitalisation requirements will pressure the smaller insurance companies to consolidate and merge with the more financially stable firms”, he said. “This will have the effect of strengthening the industry. With fewer but stronger domestic players, [the local industry] will be in a better position to compete with foreign competition.” ASEAN integration will force region-wide harmonisation in terms of regulation to the industry’s benefit, according to Mallillin.

Raising the game
Although the spate of new regulations is challenging for firms, it has raised the game and set up the non-life and other areas of insurance for a better medium-term future. As Mallillin summarises: “The sector should post a significant growth in revenues over the next few years. This will be brought about by increasing household incomes and purchasing power, improved regulations, continued growth in life insurance premiums and moderate growth in the non-life market.” Indeed this is already happening. In 2014, the non-life sector grew by nearly five percent compared with 2013 and its total net worth by nearly eight percent, while gross premiums written on a global basis reached $64.3bn (see Fig. 1).

The market is already seeing promising developments, for instance in bancassurance – the partnership between banking and insurance companies – and in microassurance. The latter is a particularly interesting phenomenon in a country of generally low household incomes. It provides cover against specific perils for financially vulnerable communities in return for the payment of modest premiums. These are calculated to be proportionate to the likelihood and costs of the risks involved. Microinsurance can be bought by people earning as little as $4 a day.

Steady rise
Under these generally welcome influences the Philippine economy is growing steadily, up by 1.8 percent in the second quarter of 2015. That’s faster in just three months than the 1.18 percent the country averaged in the last 17 years. And the industry is growing with it. Along with the capital Manila, the cities are expanding in a general process of urbanisation. And the commercial sector – tourism, education, agriculture, automotive among others – has picked up pace.

The steady rise in commercial and residential real estate is driving non-life sales, but Mallillin believes an increase in employment will make the difference in the long run. The best customers for non-life insurance at the moment, he points out, are corporations who provide cover as an employee benefit. Currently these are few and far between.

Like others in the industry, he believes education will also make a difference. “There is a need to focus on education about the value of insurance. [We also need] to promote microinsurance, which offers low-cost products for most middle and low-income earners.”

As an experienced observer, Mallillin has a vision of where the non-life sector should head over the next few years. First, he is convinced that the inevitable bout of consolidation will make the survivors financially stronger and more professional. Second, he believes it must become more disciplined in its pricing and less cut-throat – “clean and positive competition”. Third, the sector watchdog, the Insurance Commission, must become “more active and decisive”. Fourth, he would like a rationalised insurance tax that would be paid by the consumer. Fifth, schoolchildren should be taught about the role, function and importance of insurance. And finally, in the interests of higher standards, a government-run nationwide training programme would help professionalise the vast army of insurance agents.

And by no means least, he believes acts of nature should become standard in coverage. In a country that must pick itself up after some 20 natural catastrophes a year, that sounds like a very good idea indeed.