Rise in premiums to cut insurance coverage

By Jasper Emmanuel Y. Arcalas @jearcalas

THE number of Filipinos with non-life insurance coverage could decline as premiums rise, driven by unprecedented increase in reinsurance costs due to a confluence of economic and calamity concerns, an executive of Malayan Insurance Co. Inc. warned.

Malayan Insurance senior vice president and chief underwriting officer Eden

R. Tesoro said non-life insurance premiums are increasing and are bound to increase further as reinsurance costs have ballooned by 50 percent already this year.

Tesoro explained that reinsurance costs have been priced “steeply” because of “rising” frequency and severity of natural calamities, the economic scars from the Covid-19 pandemic, global inflation, and the Ukraine-Russia war.

“The cost of reinsurance has gone up so much that it has forced reinsurers to pull out of the market simply because they cannot sustain these kinds of losses,” she said in a news briefing last Wednesday.

Tesoro pointed out that the doubledigit rate increase in reinsurance costs was unprecedented since its increase in the past 30 years prior to the Covid-19 pandemic has been stagnant to inch-spikes at most. She added they see the increase in reinsurance costs to linger until next year “since these things tend to stick for a while” as reinsurers would want to recover some of their losses. “This is what drives the [premium] costs. [But] it is not just a desire to increase margins—it is about sustainability,” she said.

The “steep” hikes in reinsurance costs are pushing insurance companies to repackage their products that would mean a more limited coverage compared to what they are offering at present, Tesoro explained. Tesoro said insurance companies might be forced to “withdraw” from the market to stave off further losses.

“This is not a fairytale. This is a global phenomenon—not just for Malayan [but] for our non-life insurance industry.”

A computation presented by Tesoro showed that the present non-life insurance premium average rate of 0.2 percent would increase to 0.3 percent. The 0.1 percentage point difference would spell an additional P1,000 in basic premium for a residential property worth P1 million.