The price of premiums for non-life insurance products have been inching upwards fueled by the hardening reinsurance rate and the country’s poor risk rating.

In a press briefing last August 9, at the Hexagon Lounge of the RCBC Plaza in Makati, Malayan Insurance Co. Inc. weighed in on the impact of reinsurance and other key factors on the non-life insurance industry.

The country’s leading non-life insurance company clarified that although reinsurance drove up the cost of premiums, it has enabled insurers like Malayan to continue to offer products, such as those that cover natural disasters, which they will not be able to sustain on their own. 

Reinsurance coverage, the insurance of insurers, keeps companies solvent and operational despite paying for large losses.

Malayan Insurance senior vice president and chief underwriting officer, Eden R. Tesoro, explained that without reinsurance, insurers will not have sustainable operations or be able to support risks which can generate massive losses like large-scale flooding or fires in multi-billion industrial facilities, for example. Companies will be forced to limit their coverage, which is unfavorable to policyholders.

“Reinsurance has enabled insurers to pay insured losses in catastrophic events, from the Titanic, which sank in 1912, where insurers paid one million pounds within 30 days of the loss (about 146 million pounds in today’s prices), to the World Trade Center collapse in the US worth over $40 billion, to our natural calamities where reinsurers helped pay insured losses from the Baguio earthquake of 1990, Typhoon Yolanda in 2013, and recently Typhoon Odette in 2021,” Tesoro said in the briefing. 

She explained that the vast amounts paid by the insurance companies for the said events were borne to a significant degree by reinsurers and would have been impossible for insurers to settle the astronomical losses on their own.

“However, reinsurers, like insurers, are subject to the same perils such as fire, natural calamities, and as recently demonstrated, from pandemics. Reinsurers (and insurers) are also not immune to inflation which impacts their operational costs and efficiencies. Simply put, the more losses they sustain, the higher premiums they will charge in the following period of cover. Just like any business they (and insurers also) need to recover from their losses,” added Tesoro. 

Reports from various credible sources state that the average increase globally (on reinsurance pricing) is upwards of 50% for areas exposed to natural perils.

In addition, the Philippines’ No. 1 spot on The World Risk Index 2022 in terms of risk from natural calamities and conflict also has a negative impact on how global reinsurers price Philippine risks. Not to mention the burden of coping with various national and local government taxes and fees such as the documentary stamp tax (DST).

Despite reinsurance’s impact on premiums, Tesoro emphasized that Filipinos should be more vigilant in protecting their hard-earned assets. She stressed that with the rising frequency and severity of natural disasters as well as increasing costs of living, Filipinos should prepare for hard times by safeguarding themselves from insurable perils.