The National Reinsurance Corporation of the Philippines (Nat Re, PSE: NRCP) hosted its 4th Annual Technical Forum (ATF) last September 14, 2018 at the New World Makati Hotel. With the theme “Uncovering Insurance Opportunities”, the ATF convened industry experts to provide its attendees insights on new opportunities for non-life and life insurance products in the Philippines. The ATF was attended by more than a hundred Chief Operating Officers and chief underwriters of the country’s insurance firms.
Insurance Commissioner Dennis Funa, in his opening speech during the non-life session, referred to agriculture, sabotage & terrorism, and financial lines as emerging product lines that “deserve a closer look and study”. He mentioned how certain developments in the country—namely food supply concerns, violent attacks in Mindanao, and the sustained growth of the Philippine economy—should further encourage insurers to “take their imagination further” when developing these emerging product lines.
Weimeng Yeo, Director at the catastrophe risk modeling company Risk Management Solutions (RMS), delivered the main presentation on sabotage & terrorism lines.
Yeo said that insuring terrorism remains to be a significant challenge since “the loss itself can be very challenging for the private market to absorb.” Yeo added, “Government agencies have to intervene to provide risk transfer.“
Yeo said that terrorism is particularly challenging for the firms to insure because of high-exposure and high-risk areas, high loss outcome uncertainty, and small event footprints. The risk landscape is also highly fluid; unlike in natural catastrophes, any event can trigger an act of terrorism.
It is for these reasons that several countries have established terrorism pools, which are “state-funded terrorism insurance facilities”. He gave a brief overview of the structures of such pools in countries such as Australia, Belgium, India, and South Africa.
While the Philippines can pattern its possible terrorism pool after these existing ones, Yeo mentioned that the nature and the cover of these pools ultimately depend on the capacity of the nation arranging it. He likened terrorism pools to snowflakes in such a way that they are “unique based on the context of the countries that generated the pools”.
Werhner Parel, Senior Corporate Adviser at MAA General Assurance, was a reactor to the main presentation. He pointed out that in the countries Yeo cited “it is the policymaker that pushed [for] the pool—a voluntary, mandatory, elective, or whatever form it may be.”
Yeo added that governments in these countries have been “cognizant” that losses arising from terrorist attacks can be significant and that the government cannot absorb all these losses. He noted that it is helpful to explore what public-private partnership or working group between public and private entities can be established to address this risk.
The second reactor—Sharon Navarro, Cluster Head for Fire & Reinsurance at Malayan Insurance—said that by creating a pool, the Philippine industry can combine their resources to better address the needs of the local market. “It will also help us build expertise in terms of underwriting and understanding terrorism as a peril better,” she added.
Joel Pridmore, Head of Financial Lines & Business Development of the Asia Pacific at Munich Re Syndicate Singapore, was the main speaker for the topic on financial lines insurance. This line covers financial losses such as directors and officers (D&O) liability, professional indemnity, and losses from cyber crimes.
Pridmore presented some case studies on the D&O liability markets in Australia and India. He also focused on cyber risk which, Pridmore said, “is one of those issues that is so talked about and [we are] blindly exposed [to] but the buying behavior is generally very slow… because clients don’t think it is going to happen to them.”
He pointed out that the opportunity for cyber insurance is large especially with data privacy protection laws requiring firms to report to their regulators cases of major breaches or attacks. Small and medium enterprises which may not be equipped with the personnel necessary to deal with the consequences of a breach can benefit greatly from cyber insurance.
“A lot of the large institutions in Australia, the USA, and around the world buy cyber cover not for the liability aspect but for the breach response services,” Pridmore said. “[If] you suffer a breach, part of the [insurance] policy is a crisis management component where you have access to specialists in forensic information technology, lawyers, and public relations officers who will project manage the response.” Some of the services that these professionals provide include identifying possible vulnerabilities in the system, rectifying or shutting down a system, and preparing reports to stakeholders.
Pridmore ended his presentation focusing on the opportunity for financial lines products in the Philippines. The tourism industry, with the amount of personal tourist information that it collects, and the manufacturing sector, with the potentially catastrophic effects of business interruption, are high targets of cyber attackers which can be a boon for cyber insurance. The business process outsourcing and banking sectors can be big markets as well for cyber insurance in addition to professional indemnity and D&O liability.
Atty. Christopher Jay Sacluti, Head of Specialty Lines at FPG Insurance, and Atty. Rene Cabanilla, Liability & Specialty Underwriter at Starr Companies, were the session’s reactors. “Rather than selling the highly technical side of cyber risk insurance, why not push the value-added [service]? It may be revenue generating income for the company but it will also help us promote the product,” Cabanilla said.
When asked about the lessons the local industry can learn from Australia’s experience with underpricing of D&O liability insurance, Pridmore emphasized the need to train and develop underwriters. He noted that D&O is a difficult class to write and would need underwriters with financial, legal, and corporate governance expertise. He encouraged insurers to learn from experts “who understand how to manage portfolios, how to look ahead, how to be dynamic on what risks are occurring day to day, and what will change moving forward.”
Christopher Coe, Head of Agriculture of Southeast Asia at AON Benfield, delivered the main presentation on agriculture insurance.
He gave an overview of the arrangements of the crop insurance schemes in some Asian countries and lessons that can be learned by the Philippine industry.
For instance, in the case of India where the government subsidizes the crop insurance premiums and conducts all the loss assessments, Coe stressed the need to monitor the government loss assessment process which can be heavily influenced by political factors.
In the case of Thailand, the key takeaway is to address possible anti-selection. The country’s crop insurance product piggy-backed on an existing government disaster relief scheme which every farmer qualified for. The product was rated on a national average, there was no control over geographical sales, and there was no cut-off date for the sales. As a result, the scheme was exposed to an antiselection problem which could have had catastrophic effects in the industry had the scheme been scaled up further.
Coe also gave light on the far-reaching effects of crop insurance on financing for rural economies. “It’s not just to give help to them—there’s a more political than economic factor to it,” Coe said. “If we can give crop insurance so that there is some payment to the farmers [when they experience a loss], that’s something that banks can use as collateral… You then get the chance to open up and finance the rural economy. Banks will be giving more loans because they have that collateral. There is money that can be channeled into the rural economy.. and more crops can be growing.”
Coe presented the structures of the crop insurance schemes in India, Thailand, and South Korea. He also gave suggestions on each role that Nat Re, the government, and the Philippine Crop Insurance Corporation of the Philippines (PCIC) can play in these different arrangements. Coe ended his presentation saying that several factors need to be harnessed when identifying the structure of a crop insurance scheme. These factors include the expertise, knowledge, and capacity of the PCIC, Nat Re, and the international reinsurance market; the role of the government in the scheme; and, the need to effectively market the insurance product to increase current penetration levels.
Norman Cajucom, Senior Vice President of the PCIC, gave a short presentation on the agriculture insurance products offered by the government agency.
On the topic of a legal framework for an agriculture insurance scheme in the Philippines, the second reactor—Geric Laude, Head of Non-Life Retail at Pioneer Surety & Insurance Corporation—emphasized the importance of collaboration between the government and the industry. “[The industry has] a bigger chance of making this successful if we work with the government,” Laude said. “Let us not act in isolation. We are talking about our interest as an industry but we are connected to the bigger value chain,” he added. “Financing, for example, is there to help us push this forward. Food security is an agenda that’s very strong that’s going beyond insurance.”
To help encourage the involvement of the private sector, Laude said that the industry still needs help on certain fronts. That includes providing insurers with financial incentives and usable and shareable data; addressing the lack of awareness, capacity, and capability among insurers to develop agriculture insurance; and, properly assessing the data and infrastructure needed to develop these products, particularly index insurance.
About National Reinsurance Corporation of the Philippines (Nat Re)
Nat Re (PSE: NRCP) provides life and non-life reinsurance capacity, and in relation to this offers consultancy, technical, and advisory services to its clients – the direct insurers – in emerging markets. Its services allow direct insurers to better manage their retentions and capital, to maximize their net premiums given their risk appetites, and to execute their roadmaps to competitiveness.
Nat Re also stimulates know-how transfer in the industry by helping build its clients’ capabilities in underwriting, product development, pricing, retention setting, and reinsurance program analysis. It continuously derives insights from experience and shares with its partners its knowledge of emerging markets, particularly of the Philippine insurance market, and curated global best practices in reinsurance.
Nat Re operates with a geographically diversified reinsurance portfolio with about 40% of its growing business coming from abroad.