Insurance premiums on non-life products seen to rise sharply

Due to a "hardening" of the non-life insurance market, premiums are feared to increase by as much as a hundred percent with certain sectors increasing by close to 300 percent.

According to Ayala Aon Risk Services Inc. vice president Michael F. Rellosa, international and local factors have been bearing down on the otherwise moribund premiums of non-life insurance products like motor, fire, accident, and property.

Ayala Aon is an insurance brokerage and consultancy firm, jointly owned by Ayala Corp., Bank of the Philippine Islands, and Aon Crop.

"The industry has been experiencing a soft market for the past 10 years which is very unusual as the premium cycle in the insurance industry is every six years," Rellosa said. "It was bound to happen which was aggravated by the number of major global catastrophes such as the earthquakes in India, Taiwan and Seattle, and the devastating storms in Europe.

This has resulted in huge increases in premium rates of reinsurance companies growing from a low of 50 pecent to as high as 300 percent in the developed countries.

Locally, the undercutting of premium rates has reached a level detrimental to the non-life industry, which has resulted in the closure of several players and the consolidation of the industry in general. There are a little over a hundred registered non-life insurance companies in the Philippines.

However, the biggest factor domestically has been the heavy taxes slapped on non-life insurance products.

Ayala Aon president James G. Matti said that between 24.0 to 25.0 percent of the premiums paid goes mainly to government taxes. "It is a disincentive which held down the growth of the industry while forcing the premiums upwards."

Matti added that the Philippine insurance industry (both life and non-life) is the most taxed industry in the world.

For a fire insurance policy, taxes amount to 25 percent of the premium. Value added tax amounts to 10 percent, another 12.5 percent for documentary stamp tax (DST), two percent for fire service tax, and at least 0.5 percent for the local government unit (LGU) taxes.

In most Asian countries, insurance companies charge a flat rate for the DST such as Thailand, which charges a flat one bath for the entire policy. The taxes of most of the Asian neighbors charge less than 10 percent of the entire policy.

Multi expressed fears that the continued stringent taxation policies policies plus the hardening conditions will force the market to become selective.

"That will result in a flight of quality wherein the market will sacrifice higher premiums for quality products and services from companies which are financially well heldged on international investment options and global re-insurers," he said.

This may result in more corporations and transnationals seeking foreign insurers or local insurers with global partners.

Ayala Aon sees a growth rate of between 11 to 14 percent for the entire insurance industry although the non-life sector will experience a flat growth rate similar to the year 2000.

Matti said 57 percent of its clientele comes from the Ayala group of companies while the remaining 43 percent is from non-Ayala firms. "We hope to increase the non-Ayala accounts to 60 percent of the client mix within the next three to four years," he said.