The government and the insurance sector are working on achieving a balance in the pricing of insurance to ensure resilience and sustainability of businesses as new risks have pushed insurance cost in the country to among one of the highest in the region.
Paulo Garcia, CEO at Marsh McLennan Philippines and Mercer, two of the four global Marsh Mclennan units operating in the country, said in an interview with Manila Bulletin. Marsh McLennan Philippines is engaged in insurance brokering, while Mercer is involved in people or talent management, such as HR services, employee benefits wellness, among others.
On Marsh McLennan, Garcia noted that geopolitical risks including the Russia war in Ukraine that continues to affect global supply chain, and the tension at the West Philippine Sea, cybersecurity threat, among others, continue to hound business operations. Other kinds of risks include natural calamities such as typhoons, earthquakes, volcanic eruption, and flooding for the Philippines.
INSURANCE TAX
“Insurance is becoming expensive,” said Garcia. Also, he said, the Philippines is among the highest taxes in terms of insurance, which is estimated between 20-25 percent in total. “So that's also something that could be reviewed to attract more insurance companies to come into the country, not only from an investor perspective, but also from the insurance perspective,” he added.
He clarified that it does not really mean reducing the current insurance tax, but the tax rate needs to be properly rationalized so that companies and the ensuring public will have an educated decision. He said that if there are solutions, it should be sustainable.
“It's a very delicate balance because what the regulator is trying to do as well is it is trying to build the correct pricing so that in the event of a big catastrophe, the industry has sufficient funds to pay and support,” he said. In addition, the cost of insurance, although normally “bespoke” , businesses will not have a hard time paying the correct premium. “That's why there are ongoing dialogues between the association and regulators, one on how to arrive at the final solution,” he said.
While he could not say the ideal insurance tax, Garcia said that government can look into what the industry needs in terms of taxing the ensuring public adding that the growing cost of insurance also affects insurance penetration in the country.
In fact, insurance expense for big companies, including power providers, has gone up to top three expenses from top ten, previously.
“It's really alarming… and you know, we feel for them and I think it's high time that the government looks into it and see how how this industry can be supported. There's many sectors in the industry that will need support in terms of Risk and Insurance,” he said.
For instance, he noted that European insurance firms no longer accept coal power plants and bank financing have dried up for power projects with high carbon emissions. So, he suggested a transition period from coal to renewables because the Philippines is a developing nation and needs reliable power supply.
The high cost also impacts on insurance penetration in the country and plays a deciding factor for insurance firms to do business in the country.
With Philippines being in the Ring of Fire and prone to calamities had caused insurers to step away from the country, leaving it with limited reinsurance capacity, and rising cost of insurance.
RISKS
To avoid and prepare for these risks, Garcia said it is important for companies to step back and revisit how much risk can they actually take because these these expenses have gone up tremendously.
First, he advised companies to have a robust plan with annual planning and review every six months. Most of all, he stressed that this planning should start from the board and discuss the things that keep CEOs awake at night.
“Whether it's people risk, whether it's natural catastrophes or the cost of maintaining an insurance program, this has to be discussed. And then of course, companies must be able to determine what level of risk they can actually take on because if you transfer 100 percent, it will always be more expensive,” he said.
Lastly, he urged organizations to adapt benchmarking because it allows companies to also see where they are and how much limits of their peers not only locally but also regionally.
In so far as the conglomerates are concerned, he said, they have they have quite a robust risk committee. A lot of them have CRO or a chief risk officer, who takes care of all of this and reports directly to the risk committee of the board.
He noted that cybersecurity is something that has rapidly evolved over the past three to five years. The focus really of cyber insurance is to cover you for the financial losses resulting from a cyber breach. Recently, Marsh McLennan has invested in the Philippines in a cyber advisory leader. They have recently been accredited by the Department of Information, Culture and Telecommunications.
He explained that it is more than just buying cyber insurance, but also having a proper way of doing cyber risk assessment.
Nonetheless, Garcia said that the outlook is really bright as organizations are being encouraged to push boundaries by coming up with good innovations and fresh ideas. And this is where his company comes in handy.
To support and control the rising costs, he said, the government can consider redeployment of more strategic support for instance, the power industry, speed up infrastructure development, the very people intensive BPO industry. “When you have when you have government actively involved and policies supportive, it makes a whole world of difference,” he added.
TALENT
On the Mercer's 2023 Philippines HR Conference on June 22, 2023 at the Shangri-La The Fort, Manila dubbed “Transforming for the Future: Resilient, Relatable and Ready”, Garcia said that Mercer will help companies come up with with workforce strategies that would allow them to deploy their people in a thriving environment “where people are excited to work and they get the best out of their talent and at the same time they're able to, to keep the talent in the Philippines.”
He cited the importance of having a very engaging work environment to avoid brain drain. Garcia took the helm at Mercer only in April this year.
The group, which has been doing business in the Philippines, for more than 50 years has been doing well and they play a lot in the large business category or the institutional risk accounts.
“It’s a good business and we’ve been blessed to be thriving,” he said noting they are in the top three in insurance brokering although they are number one globally.
The conference aims to equip organizations with the necessary tools to adapt and thrive in this rapidly changing environment.
“Competition for talent now is essentially tougher. It's not only salary that matters, but also how they will be in the workplace. And now the workplace cannot truly support their personal lives in their other passions. So yeah, so it's it's a much tougher environment now. Even in the benefits side, different, very different appetites for benefits depending on the on the generation,” he added.
Although the work from home arrangement cannot match the effectiveness of a face to face interaction, Garcia said that While companies allow hybrid work arrangement, having the flexibility really helps a lot.
“I think it's quite exciting because it provides organizations now not only the tools to adapt, but also to excel in the future of work,” he said. “It is very exciting because since the pandemic happened there were changes in the way people are managed and how they view their work.”
He would like to bring certain sectors, like those in the power industry, hospitality and gaming, infrastructure or food and beverage, just to name a few, which have specific challenges.
Thus, he said, the "future is very exciting" because the industry is also working with a government that is accessible and hearing the private companies to generate new ideas. "That collaboration between private and public sector has has always brought good results,” he concluded.