Robust auto sales and construction activities on the back of an expanding economy are helping the nonlife insurance sector grow faster, according to the Philippine Insurers and Reinsurers Association (Pira).
But Pira deputy chair and spokesman Michael F. Rellosa warns that the industry should be wary of the downward spiraling prices of nonlife insurance products amid intensified competition, especially as Asean economic integration draws nearer.
“(Nonlife insurance growth) is always a factor of the economy. If the economy is good, we’re good,” Rellosa told reporters last week, saying that of late, the sector had been posting growth rates “slightly higher” than the gross domestic product (GDP) growth.
Last year, the country’s GDP rose 7.2 percent, while the government had projected 6.5-7.5 percent growth this year.
Rellosa said the top selling nonlife products included those for motor vehicles as well as construction and engineering.
He noted that car insurance was on the rise as most automotive dealers and sellers require insurance coverage in their financing schemes. Latest industry data showed that domestic vehicle sales zoomed 41.7 percent last September en route to reaching a record 250,000-unit sales target by the end of the year.
In the case of construction, big projects such as shopping malls and residential developments are boosting insurance take up.
Pira data showed that in 2013, 36 percent of the direct premiums that the sector produced came from fire insurance, while 31 percent were contributed by motor car insurance.
In terms of gross premiums, fire insurance jumped 12.37 percent year-on-year to P24.443 billion in 2013, while motor vehicle insurance grew 6.84 percent to P17 billion during the same period. Total gross premiums hit P62.607 billion last year, up 7.34 percent from P58.326 billion in 2012.
The industry, however, posted a net loss of 3.35 percent in 2013 as net income slid to P3.163 billion from the previous year’s P3.272 billion due to a number of natural disasters and calamities that struck the country.
The first half of 2014 “was OK” industry-wide. While the second semester showed some losses, the amount was not as much as in previous years, Rellosa said.
As the per capita income grows alongside the country’s economic expansion, those with more money are increasingly spending more on insurance, the executive noted.
“Those with discretionary income deem insurance as asset-protection, so if you have money to spare and you want to protect the assets you’ve worked hard for, you buy insurance.”
As domestic competition intensifies while further opening up the sector to the entry of more regional players amid the Asean integration, Rellosa said a number of firms had been bringing down rates.
“Some companies think they are more efficient than others. But the danger is we don’t really know how much the costs and risks are,” he said.
Rellosa said that in the past, industry players had adhered to tariff books that determined rates for each insurance coverage. But now, more and more companies are just using the tariff as a “guide” but do not strictly follow the rates.
“I don’t think we’re doing the clients a favor by giving them cheap insurance… If the contributions are smaller, the cost of the risks also becomes lower. The pot may not be enough when a disaster of a huge magnitude hits,” Rellosa explained.
Since insurers operate in a free market, it would be up to the regulators to determine if the slashed nonlife insurance prices would still be enough to cover the increasing risks, he said.