Insurers bank on digitalization, regulator support for recovery

With businesses freezing expansion plans in the pandemic, new insurance premiums and coverage have stalled. The crisis, however, fast-tracked a resort to online sales, and the sector is now banking on this, as well as help from regulators, to bounce back.
Philippine Life Insurance Association President Benedict C. Sison

INSURERS are banking on digitalization and regulatory support to help them battle losses as government measures against the Covid-19 pandemic compelled consumers to cut down spending on nonessentials.

Philippine Life Insurance Association (PLIA) President Benedict C. Sison told the BusinessMirror that sales were adversely affected by restrictions on mobility and strict implementation of social distancing.

While the pandemic resulted in higher public awareness on the value of having health and/or life insurance, many remained wary about parting with their cash given the uncertainties, according to Sison.

“This wait-and-see stance has resulted in lower sale closures and consequent decline in new business inflow,” he said. “Trading and commerce slowed down, especially during the stricter levels of the quarantine.

Insurance Commissioner Dennis B. Funa and Philippine Insurers and Reinsurers Association Executive Director Michael F. Rellosa

“The inflow of investible funds to insurance companies has also gone down on account of reduced premium collections,” Sison added.

In the view of Insurance Commission (IC) Deputy Commissioner George S. Ongkeko Jr., “The Covid-19 pandemic resulted in restricted business operations and adverse effects on the financial performance of the insurance industry.”

Replying to the BusinessMirror via electronic mail, Ongkeko said the life insurance sector’s net income for the first quarter this year was down by 24.89 percent year-on-year. The nonlife insurance sector also suffered a decline of 84.25 percent compared to the same period in 2019. These figures are based on the unaudited quarterly reports on selected financial statistics submitted to the Insurance Commission.

Benefits of digitalization

THESE figures reflect an industry grappling with the impact on the economy of government actions addressing a public health crisis.

Philippine Insurers and Reinsurers Association (PIRA) Executive Director Michael F. Rellosa told the BusinessMirror the lockdown measures hastened the industry’s digital transformation, which helped improve insurance sales.

Insurance Commission Deputy Commissioner George S. Ongkeko Jr.

However, Rellosa admits they have yet to see through the whole cycle for the nonlife insurance sector to really feel the full benefits of digitalization.

He noted that before the pandemic, it was very rare for nonlife insurance companies to sell products online. Rellosa explained why: a lot of these products are “bespoke or created depending on the risk that a particular client faces.”

So, “you cannot have one product for the whole country [that is] uniform,” he said. “Now, [except for the] way of selling or channel of distribution through digitalization, even our processes, like underwriting, are being transformed.”

Rellosa said while nonlife insurance companies were able to catch up on their sales, they still failed to hit their targets for new business premiums since businesses have put expansion plans on hold.

“’Yung mga renewals lang ang medyo nakuha; ’yung mga new business, it’s not budgeted [They only secured the renewals as there were no budgets for new businesses],” he said.

Rellosa explained that because companies held off on expansion, there were no new businesses “and new premiums or new coverage are results of new businesses.”

Adjusting to demands

BUT both PLIA and PIRA officials agreed that the steps that have been taken by the IC have helped the industry cope with the impact of the pandemic.

“The industry is certainly improving, thanks to the responsiveness of the [IC] in providing regulatory relief/concessions and ably adjusting to the demands for ‘new normal’ processes that are digital-based,” Sison said.

Aside from allowing the industry to sell via a remote, information and communications technology-, or ICT-, assisted process, Sison said the IC has also temporarily relaxed the agent licensing requirements while licensing exams are suspended.

He explained that the recruitment of new insurance agents stopped for a while after the IC discontinued the conduct of insurance agents’ qualifying examinations after several key urban centers were placed on lockdown.

The easing of requirements saw the inflow of new agents, who have been allowed to sell while awaiting the resumption of validating examinations, according to Sison.

Further, he said the IC has introduced an online portal for the submission and approval of new products.

“These initiatives will help boost the industry’s capacity to provide seamless service to the insuring public at a time they need it most; and when the productivity of existing insurance agents has been severely curtailed by the pandemic,” Sison said. “Moreover, the new investment vehicles from the government and the banks will provide Filipinos with alternative options for portfolio reallocations and help revive the economy.”

Deferring requirement

ASKED what more the IC can do to help the life insurance sector, Sison said “the industry looks forward to ‘future-readiness’ that will not only ease the impact of the present pandemic, but also better prepare us for similar occurrences and enable us to adopt solutions that work to modernize the industry as well.”

He added that the IC can also convert the remote, ICT-assisted selling process into a permanent facility and introduce a remote, ICT-assisted conduct of insurance agents’ qualifying exams for licensing agents.

Also, Sison urged the IC to enhance the e-commerce guidelines to expand the allowable conditions for selling Variable Unit-Linked (VUL) products. VULs make up over 70 percent of the industry’s total premiums.

He also pushed for the deferment of the mandatory net-worth buildup as “companies need more time to rebuild their net worth, considering its dependency on improvements in the investment landscape.”

Under Republic Act (RA) 10607 or the Insurance Code, insurance companies must have a minimum net worth of P900 million by end-2019 and P1.3 billion by end-2022.

“The current minimum of P900 million would help insurance companies work toward business recovery,” Sison said.

PIRA, Rellosa said, maintains its “stand that we are already the highest in the region and it’s already big as it is.”

Still, PIRA is “grateful for what has been done” by the regulator. Rellosa said PIRA also understands where the IC “is coming from.”

He added the PIRA would soon propose amendments to RA 10607.

Expected compliance

RELLOSA said the industry also wants the Commission to clarify which of the requirements shall be used as the primary basis to determine the financial health of an insurance company.

“We have to be compliant with all—RBC [risk-based capital], margin of solvency, minimum capitalization [requirements], please tell us because nahihirapan kami,” he said.

Rellosa said insurers are having a difficult time as they “have to prepare so many reports.” He added that while these requirements are being met, they still have to get ready for the implementation of International Financial Reporting Standards (IFRS) 17.

The IC in May further deferred the implementation of IFRS 17, two years after its effective date as decided by the International Accounting Standards Board (IASB). The IC has said that it “recognizes that the insurance industry will realign its priority programs and focus on modifying its business operations under a ‘new normal.’”

The IFRS is a set of accounting standards recognized by at least 166 countries, the Philippines included. It provides a guide on how particular types of transactions and other events should be reported in the financial statements.

The IFRS 17 implementation is expected to help the insurance industry comply with global standards, albeit compliance would require substantial investments in accounting systems, among others.

Ongkeko vowed that the “IC will continue to monitor the situation and implement policies that will effectively address the concerns of the insuring public and the insurance industry during these challenging times.”

Tracking growth

STILL, Rellosa expressed optimism that the nonlife insurance industry will be able to recover in two years’ time.

But the “economy would have to grow first before [us]. We are always the tail-end,” he said.

Sison is more positive, saying the life insurance industry will recover next year as its overall performance tracks the country’s economic growth.

“The industry has no specific growth targets. However, since VUL products significantly drive the industry’s premium growth, our overall performance follows the direction of the economy,” Sison explained. “While we anticipate a moderate contraction in total premiums this year, the ADB [Asian Development Bank] forecast of a 6.5-percent GDP [gross domestic product] bounce-back growth for 2021 paints an equally positive outlook for the industry.”

Economic managers forecast the Philippine economy would contract this year by 5.5 percent; potentially the sharpest in 35 years. They expect the country’s GDP to rebound by 6.5 percent to 7.5 percent due to the base effect.

Image credits: Sunlife, Alysa Salen,


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