The Philippines must overhaul its domestic insurance framework to mandate home coverage and incentivize disaster-resilient construction, according to the Organization for Economic Cooperation and Development (OECD).

In a move aimed at closing the “massive” protection gap, the Paris-based organization urged local policymakers to address the financial vulnerability of the Philippines, a nation consistently ranked among the world’s most exposed to climate-related disasters.

The OECD’s latest assessment noted an imbalance in the local market. While microinsurance has successfully penetrated the life and third-party motor vehicle sectors, the vast majority of Philippine homes remain uninsured against extreme weather.

“Microinsurance has been successfully deployed, but mostly for life insurance and third-party motor vehicles, leaving homes largely unprotected against extreme weather events and natural disasters,” OECD wrote.

OECD noted that despite rising climate risks, home insurance coverage remains “weak,” adding that mandatory coverage of existing insurance applies mainly to mortgaged homes. This narrow coverage forms a “large” protection gap.

Data from the organization showed that only a small share of Filipinos have home insurance, and an even smaller share carry policies that specifically protect against natural hazards.

To address these gaps, the OECD has proposed making home insurance mandatory for businesses in the country, following the example of advanced economies such as France, New Zealand, Poland, Switzerland, Turkey, and Italy.

“A potentially significant reform would be to make home insurance mandatory in the Philippines, as it is in a few other countries, thus reaching a larger pool of households and firms, dispersing risks and helping to reduce premiums,” the organization said.

OECD also suggested that the Philippines expand home insurance and share risks through public–private partnerships (PPPs), promoting re-insurance markets and affordable coverage for vulnerable households.

It also bears noting that the organization encouraged Philippine regulators to revise existing insurance rules to offer premium discounts for homeowners who weather-proof their properties.

OECD further stressed that regulators should ensure insurance policies allow policyholders to choose between parametric, indemnity, or hybrid payout options.

Another point offered by OECD is the correction of imbalances in microinsurance uptake. “Microinsurance uptake is high but concentrated in life and vehicle insurance, leaving most households exposed to economic damages from typhoons and floods,” it said.

Implementing mandatory home insurance would open the door for microinsurance policies to cover physical assets.

OECD further asserted the need for the expansion of property insurance, citing the high vulnerability of low-income households, for whom this setup would mitigate potential property damage.

To ensure poor households can afford insurance policies, the organization recommended pairing this measure with “a dedicated fund to subsidize premiums for low-income households.”