- Category: Banking & Finance
29 Nov 2013
THE government would not want to get caught with its pants down again and has agreed to a proposal from the Asian Development Bank (ADB) making the purchase of earthquake insurance mandatory down the line and the creation of a P17 billion semi-government owned Earthquake Protection Insurance Corp. (Epic) for the purpose.
This was learned from Insurance Commissioner Emmanuel Dooc who told reporters the earthquake-only insurer already has seed fund worth $400 million from the ADB as a start-up capital.
While the full structural make up of Epic has yet to be finalized, Dooc said government equity or participation is indispensable at the beginning if only to send the message the insurer is properly structured and adequately funded and managed.
This was important because Dooc said the other goal was to attract investors to Epic who at this point could be local or foreign.
According to the Insurance Commission (IC) chief, earthquake cover is not mandatory at present and people who get it from the fire risk cover they buy from insurers get it as an option or in addition to their fire insurance policy.
It was also recognized that Epic would not become a viable service if the service it sells was not made mandatory because the scale needed to bring the start-up cost down would not reach a critical mass that its proponents need to keep it going.
“The private sector partners will not come without the scale, the appropriate premium and without the assurance that the local market would support it. We need to ensure there is sufficient take-up for the business to survive the initial challenges,” Dooc said.
There had been criticisms in the past that a mandatory insurance scheme would merely present an opportunity for the government to extend favors to particular entities or businesses which would treat the program as just another money-making scheme.
But according to Dooc, there is a real need to extend earthquake-risk protection for residential homeowners and to so-called small- and medium-scale enterprises (SMEs) who may not recover from a catastrophic earthquake on their own.
He said subdivision homeowners and SMEs are considered unserved or underserved areas by traditional insurance providers who find the sector lacking in scale to make the effort worthwhile.
Dooc said the ADB has talked not just with the IC but also with life and non-life insurance executives who asked on the prospective role of the private sector under Epic or on whether or not participation via investment is possible or whether they can distribute or sell Epic’s services as well.
But because government participation is initially required to get Epic running, Dooc said crafting the relevant legislation already has the support of Senators Loren Legarda and Coco Pimentel who are strong environment advocates and with House Speaker Feliciano Belmonte.
“I don’t think we will have difficulty lining up legislative support for Epic and its charter. The real challenge is crafting the appropriate legislation that answers the need of Filipinos vulnerable to calamities such as earthquakes,” Dooc said.
Epic needs to sell an estimated 300,000 earthquake policies within five years from its creation to make the venture viable as a business.
Once Epic has proven its worth as a viable and ongoing concern, it should not be difficult to attract new investors who may be locals or foreign entities depending on how its charter would be crafted in Congress, Dooc said.