Yolanda proves Phl vulnerability – IAIS

MANILA, Philippines - Super Typhoon Yolanda (Haiyan) is an ugly reminder that developing countries, like the Philippines, are the most exposed and vulnerable to natural disaster risks. The Philippines has one of the lowest insurance penetration rates among the 10-member nation Asean. In 2009, it was placed at 0.9 percent and inched up to 1.7 percent last year.

The insurance penetration rate is the ratio between premium income and the country’s gross domestic product (GDP).

The Asean average penetration rate is three percent, and not surprisingly, the leader in this category is Singapore, reflecting a six-percent rate.

According to the International Association of Insurance Supervisors (IAIS), the strongest typhoon ever-recorded worldwide only stressed the fact that in emerging market and developing countries, a large part of economic losses related to natural catastrophes and man-made disasters tends to be uninsured.

“At the same time, it is often the poorest countries that are most exposed and vulnerable to all kinds of natural disaster risks,” the global industry association said in a report.

Typhoon Haiyan, which struck the Philippines in November 2013, killed around 7,500 people and left more than four million homeless.

Most of its economic losses (estimated at $13 billion) were not insured. Insured losses from Typhoon Haiyan thus remained modest at an estimated $1.5 billion.

But the losses to the millions are immeasurable, as only a few have formal or traditional insurance or micro-insurance.

The IAIS report entitled Global Insurance Market Report (GIMAR) 2014, said that Typhoon Haiyan is a stark reminder of the fact that in emerging market and developing countries, a large part of economic losses related to natural catastrophes and man-made disasters tends to be uninsured.

“At the same time it is often the poorest countries that are most exposed and vulnerable to all kinds of natural disaster risks, including in particular climatological risks as highlighted in a recent study by the rating agency Standard & Poor’s,” the report said.

Both the physical exposure and the mitigation measures in place contribute to the degree of vulnerability in a country. In response to the prevailing emphasis on disaster preparedness and disaster relief at both the national and international levels, the UN General Assembly established the International Strategy for Disaster Reduction which in turn gave rise to the Hyogo Framework for Action (HFA).

“The exposure to disaster risks, including climatological hazards such as typhoons, is in many countries not or not fully recognized. In applying appropriate analytical tools, such as tailored stress testing exercises, supervisors can contribute to better identifying, assessing and addressing disaster risks. For example, by requiring from potentially exposed entities that they stress and assess themselves against a one in 100 years disaster event. This could also contribute to better recognizing disaster risks within a risk based regulatory framework,” the GIMAR pointed out.

Last year, the Philippine non-life insurance industry reported negative net earnings due to the huge claims from damages from Haiyan, aside from other natural- and man-made catastrophes.

Non-life insurers recorded a 69-percent net loss in that period, while the industry reported a modest 11.65 percent net gain in earnings.

It reported an almost 39 percent in the first nine months of 2014, while the entire industry reported a 15.64-percent negative income.

Meanwhile, Swiss Re reported total insured losses for the global (re)insurance industry from natural catastrophes and man- made disasters amounted to $45 billion in 2013.

That was down from $81 billion in 2012 and below the inflation-adjusted 10-year average of $61 billion. Economic losses were around $140 billion last year.

The bulk of the economic losses were accounted for by floods in Germany and some neighboring European countries and by hailstorms in Germany and France.

The GIMAR report called for supervisory focus on the risks emerging from these developments (e.g. internationalization of insurance groups, sectorial concentration and overall underwriting discipline).

Furthermore, insurers face additional regulatory requirements, including those related to current political discussions on promoting growth.

“Uncertainties have been compounded by the lingering uncertainty about future interest rate developments and other risks such as longevity,” the IAIS report said.