Insurance premiums for disaster risk to be updated

Nonlife insurers recently welcomed the first of two revisions in the schedule of premiums for risks of earthquake as well as typhoons and floods, which will take effect for policies issued beginning Nov. 1.

Through Circular Letter No. 2022-34 issued last July 14, the Insurance Commission approved a revised rating structure for all catastrophe risk policies, which all nonlife insurance companies and intermediaries are ordered to adopt.

The circular provides that the minimum insurance premium—which is currently set at 0.1 percent of the sum insured for earthquake risks and 0.05 percent for typhoon and flood risks—shall be diversified not only in terms of rate but also in terms of construction types and risk zones.

Risk types related to flood and typhoons classifies the construction of a structure as “high grade” if built with reinforced concrete and steel or “others” if built with wood, masonry or unknown material.

Risk types related to earthquakes classify the construction of a structure as “high grade” if built with reinforced concrete, steel and wood or “others” if built with masonry and unknown material.

This means that, at an insured sum of P1 million for example, the premium would cost P1,000 (earthquake) or P500 (typhoons and floods).

Following the example, the new schedule for minimum premiums on flood and typhoon risks that will take effect on Nov. 1 will range from as low as 0.047 percent up to 0.1 percent or P470 to P1,000.

Accounting for earthquakes

Also, the new schedule for minimum premiums on earthquake risk that will take effect on Nov. 1 will range from as low as 0.047 percent up to 0.1 percent or P420 to P1,000.

The Philippine Insurers and Reinsurers Association (Pira) said in a statement that, with climate change at the forefront of many nations’ urgent concerns driven by the increasing number and ferocity of the resulting adverse weather that it causes, the Philippines counted among the countries most vulnerable to the risks of disasters.

Pira said that, Given this scenario, a review of the outdated catastrophe rates currently in place had to be done as these have not been reviewed over the last thirty years.

“Ideally, these rates need to be reviewed annually using catastrophe models and statistical analysis available to scientists and insurers around the world,” the group said.

“In short, the need to create a more risk-appropriate rating environment would in the end ensure sustainable disaster premium rates to equally support the sustainability of the insurance industry and ensure its presence and capability to service future cat peril claims, especially when it is most needed,” the industry group added. INQ