Stiff competition forces regulator to review nonlife insurance rates

Insurers are undercharging premiums for calamity insurance due to stiff competition, and regulators are worried these may end up not having enough funds to cover claims. To prevent this, the Insurance Commission is studying a schedule of tariff rates to ensure that properties are properly insured against natural calamities such as earthquakes and typhoons. Deputy Insurance Commissioner Vida T. Chiong said a technical working group had been formed to recommend a tariff schedule that will be followed by all insurance companies. Some firms, she said, have cut their tariff rates — and therefore, their premiums — given stiff competition. "We convened a meeting [between the Insurance Commission and insurers] on Monday to agree on a procedure for tariffs for natural catastrophe property insurance. Because of competition, some firms have cut their tariff rates," she said. There had been cases where companies did not apply the current tariff rates, undercharging the premiums for property insurance, she added. The tariff rate for property insurance against earthquakes is 0.1 percent, while the rate for property insurance against typhoons and floods is 0.05 percent. The tariff rate multiplied with the property value is equal to the premium to be paid by the owner. "If it (undercharging) continues, companies may not have enough to cover the impact of climate change," Chiong said. The technical working group, composed of representatives of insurance companies, may also recommend changes to tariff rates. "They will also make recommendations on sanctions if [insurance companies] do not follow the tariff schedule," she added. The technical working group has been given until the end of this month to finish the study that will be reviewed by the commission. Micheal F. Rellosa, president of the Philippine Insurers and Reinsurers Association, the association of nonlife insurers, said the meeting with the commission was timely given the spate of earthquakes around the world. "A major earthquake is always a possibility in the Philippines since our country lies smack on the Pacific Ring of Fire. All of us in the insurance industry truly need to make sure we have enough resources to cover for losses," he said in a statement. Chiong said the commission might also form a group that will study a plan to set up a "natural catastrophe pool." The government will provide the seed money for the fund, while insurance companies will sell the products to communities in areas prone to natural disasters. It will cover damage to properties caused by earthquakes, typhoons, volcanic eruptions and other natural disasters. "We are writing down the strategies. We hope to convene the technical working group within the year," she said. — Louella D. Desiderio, BusinessWorld