Non-life insurers ask gov't to stay away from insurance

MANILA, Philippines - The country’s non-life insurance industry wants regulators to adopt the risk based capital (RBC) formula over more capital.

Likewise, they are asking government in the long term to stay away from the business of insurance.

RBC adopts a formula for computing the capital equivalent versus the number of products sold. Government is implementing the mandated and fixed minimum paid up capital presently enforced.

The Philippine Insurance and Reinsurers Association (PIRA) said that fixed capital is not applicable for non-life insurance, nor is it a full proof measure of stability. PIRA is the trade organization of the country’s 87-strong non-life insurance industry.

“The ones who will benefit from a higher capital base is the government since it will collect higher taxes from an industry that is already heavily taxed,” PIRA said.

Roughly 25 percent of the premiums paid by the public when they acquire a non-life insurance product (for example, fire or property insurance) actually go to the national, local government taxes, and the controversial fire tax.

Higher capital requirements means higher premiums thus higher tax collections for the national coffers. Or pass-on costs of the insurer to the insured.

“Remember, if the insurance products are not required, people will not buy because its expensive,” the PIRA representative said, citing as the comprehensive third-party liability (CTPL) for auto insurance as a classic example.

 In the case of the RBC, the capital is based on the type of products the insurer is selling using the universal measure of solvency formula. The measure of solvency, in simple terms, determines how much is the surplus total admitted assets compared to the net premiums, and that 10 percent of its premiums must be in liquid assets to pay for claims.

Government wants all insurers to reflect a minimum paid up capital of P175 million representing the period 2011, and P250 million in 2012.

Data from the Insurance Commission (IC) indicate that majority of the non-life insurers have hurdled the P175-million capital level. But there are 25 to 30 players that have not made the mark.

Available data indicate that total premium income in 2010 grew to P20.7 billion.

But the top 10 insurers account for more than half of the total premiums or over P12 billion combined.

Non-life insurers said that in the long term, government should pull out of the insurance business as it is directly competing with the private sector.

“They are imposing higher capital requirements, more taxes, and they are also competing directly through the Government Security and Insurance System and the Social Security System (SSS),” they said.

It reduces savings and investments that could go to the private insurance companies, and it gives lower returns from the investments (contributions) of the public.