Rate hikes a double-edged sword for insurers

MANILA, Philippines — The global spike in interest rates has hit the insurance industry with a double-edged sword, with one side carving a path for high-return investment policies, and the other discouraging consumers from taking on additional payments.

Prudential Corp. Asia chief health officer Andrew Wong yesterday said life insurers could exploit the rate hikes to their advantage by crafting high-yielding investment plans to attract consumers to get insured.

However, Wong said the monetary tightening enforced by central banks worldwide may prevent debt-ridden individuals from buying insurance products.

“It’s a double-edged sword in terms of the increase in interest rates. For those people with large mortgages, they are suffering and paying more for their monthly mortgage payments,” Wong said.

“On the other hand, because of the rise in interest rates and I think similar to our counterparts in the industry, we shall be in the position to develop some more attractive products in terms of higher returns. It’s a double-edged sword in terms of the rise of interest rates for the insurance industry,” he added.

In August, the Bangko Sentral ng Pilipinas (BSP) raised its benchmark rate by 50 basis points to 3.75 percent to anchor pricing expectations and avert an inflation runaway.

“An increase in BSP’s key policy rate – a move that attracts banks to place more of their funds in the BSP because they will earn higher interest – helps to slow down growth in lending activities and, consequently, helps reduce inflation,” the BSP said.

Despite the challenges, Wong believes insurance growth in the Philippines will be sustained, as the pandemic gave Filipinos a wake-up call to save up for emergencies.

“I’m sure the demand is there. The outbreak of the pandemic certainly raised the awareness of [Filipinos] in terms of need for health products,” Wong said.

“Due to the rise of interest rates and also inflation, people also start to worry about the stability of their income. I think we are confident that in the medium to long term, because of people’s awareness for health protection, the insurance industry is going to grow,” he said.

Insurance penetration, or the share of insurance to economic output, slipped to 1.98 percent in the first quarter, from 2.3 percent a year ago, according to the Insurance Commission.

In 2021, insurance penetration rose to a record 2.3 percent for two reasons: first, an increase in demand for investment policies due to the pandemic, and second, the low base of the economy to which insurance contribution was compared.