Asean regional integration heightens competition among insurers, banks

MANILA, Philippines - By 2015, the country’s insurance industry will be competing for the thin local market against its counterparts from the Association of South East Asian Nations (Asean). 

And by 2020, it is expected that the entire industry will be fighting for every policy, every premium, every treaty, and every individual and corporate client in the Philippines. 

Threatened by the full implementation of the Asean Framework Agreement on Services (AFAS), are the Philippine life, non-life, reinsurance, as well as actuarial consultancies, and average adjustors. 

For the life insurance industry, Asean insurers can market ordinary, group, industrial, health and accident, and annuities. 

For the non-life industry, it will include fire and allied risks, earthquake, shock, typhoon, floods, tidal wave, marine/ocean, inland marine, marine hull, aviation, casualty motor car, health and accident, burglary, engineering, surety ship fidelity, and surety bonds. 

The same agreement will also affect the country’s banking sector.  

The AFAS is an offshoot of the broader Asian Economic Community (AEC), a concept that would create a power sub-region in the Asia Pacific region. The blueprint of the AEC was formulated in 2007 and the declaration of the AEC roadmap was signed by its member nations in 2009. 

Prior to the declaration of the AEC, the Asean members signed such accords as the Asean Free Trade Agreement (AFTA), the AFAS, the Asean Preferential Trading Arrangement, the Asean Investment Agreement (AIA), and the Initiative for Asean Integration (IAI). 

According to Dr. Alladin D. Rillo, Asean Secretariat member, all these are multilateral treaties, which have to be implemented. 

The AFAS predetermines a free flow of services between member nations and the ability of service providers, such as the insurance companies, to supply services across borders. 

Rillo said that in fact the liberalization rate of the insurance sector had already started with some country’s reaching as high as 98 percent “liberalized.” 

“The Philippines’ life and non-life insurance industry has already reached a liberalized rate of 75 percent,” Rillo told participants of the 2012 PIRA Stakeholders Convention last week. 

However, Rillo admitted that the AFAS “was still a work in progress.” 

“There are still a lot of barriers to reduce or takedown. There are still a lot of tax, customs regulations and tariffs that must be harmonized,” he said. 

Regulations for Philippine insurers are different from the other insurers in the region, and vice versa. 

Nonetheless, Asean member nations need to achieve deeper liberalized and integration of insurance markets. 

“The Philippines need to develop financial infrastructure, harmonize regulations and standards, and strengthen countries’ capacity; and ensure that market players develop outward-looking strategies to compete in fast changing regional financial landscape,” he added.