Life insurance to sustain double-digit growth

Malaya Business Insight
Tuesday, January 24, 2012
BY ANGELA LORRAINE CELIS

The life insurance industry is expected to sustain last year’s double-digit growth this year, an industry official said.

"Barring any external catastrophic events such as a euro zone meltdown with its contagion effects on the US and Asia, we are optimistic regarding the continuing growth of the life insurance industry in 2012," Mayo Jose Ongsingco, Philippine Life Insurance Association (PLIA) immediate past president, said.

"We are projecting to sustain the 2011 growth in 2012," Ongsingco, who is also Insular Life president and chief operating officer, said.

Ongsingco said that total premiums could have grown to around 20 percent in 2011 compared with the previous year.

"This will be driven by an estimated growth in new business premiums of around 40 percent year on year," Ongsingco said.

The official 2011 figures are yet to be disclosed.

Ongsingco said that some of the factors that would influence the industry’s growth this year would include the same macroeconomic drivers last year. In 2011, the services sector was the main driver of growth.

He added that the Public-Private Partnership program’s "trickle-down effects," benign inflation, and a possible credit upgrade for the Philippines later this year will also positively affect the industry’s growth.

"Micro insurance, the expansion of the mandatory migrant workers insurance and the implementation of the PERA (Personal Equity and Retirement Account) initiative will add to the growth of the life industry," Ongsingco said.

"Other external events that should be watched would be the resolution of the US debt ceiling issue, the pending bill in the US congress that would curtail BPO outsourcing, and tensions in the Middle East that could disrupt oil supplies and increase prices," he said.

"Clearly, for the Philippine life insurance industry, the growth in new premiums will be mostly attributed to investment-linked product sales and will be exemplified by bank-generated production," Ongsingco said.

Ongsingco also said that one of the drivers of industry growth last year was overall economic growth.

"There is a positive correlation between GDP (gross domestic product) growth and life insurance premium growth. Despite the lingering euro zone and the US debt ceiling crisis, the Philippine GDP is expected to still grow by around 4.7 percent in 2011 although lower than 2010’s 7.6 percent GDP growth," Ongsingco said.

The Philippines’ GDP growth rate for 2011 is yet to be announced by the National Statistical Coordination Board.

The latest data from the NSCB shows, however, that the Philippine economy grew 3.6 percent in the first three quarters of the previous year.

This is less than half the 8.2 percent growth in the first nine months of 2010 and also below the government’s 4.5 to 5.5 percent growth outlook for 2011.

This year, the government expects the Philippine economy to grow 5 to 6 percent.

"The system was also very liquid with P1.6 trillion in SDAs (special deposit accounts). Some of this excess liquidity was channeled to investment-linked life insurance products," he said.

Ongsingco said that other notable drivers last year were overseas Filipino workers’ remittances, the growing BPO industry, and low inflation.

Earlier, Bangko Sentral governor Amando Tetangco said that remittances of OFWs for January to October 2011 reached $16.5 billion, a year-on-year growth of 7 percent.

Tetangco expects full-year remittances in 2011 to amount to $20.1 billion.

"For 2012, the forecast is $21.1 (billion), there will be a 5 percent growth," Tetangco said.

Inflation in 2011 was 4.8 percent, which is within the government’s 3 percent to 5 percent target.

In 2010, total life insurance premiums grew 23.56 percent to P70.727 billion. The first-year premiums, meanwhile, grew 59.38 percent to P34.28 billion.

The top five insurance companies in 2010 in terms of premium income performance were Philam Life, P11.255 billion, 16 percent of total; Sun Life, P10.63 billion, 15 percent; Philippine AXA Life, P8.36 billion, 11.8 percent; Pru Life UK, P7.36 billion, 10.4 percent; and Insular Life, P7.13 billion, 10.1 percent.

In terms of first-year premiums, the top five were Philippine AXA, P6.64 billion, 19.4 percent of total; Pru Life UK, P5.23 billion, 15.3 percent; BPI-Philam, P4.56 billion, 13.3 percent; Insular Life, P3.27 billion, 9.5 percent; and Philam Life, P2.7 billion, 7.8 percent.

The industry’s penetration rate in 2010 was only 13 percent, but Ongsingco expects this to increase as more policies are sold.

Of this rate, 10 percentage points is covered by group life insurance, while only 3 percentage points is covered by individual life insurance.

"Micro insurance, compulsory migrant workers insurance and the sale of life insurance policies as a PERA-qualified product will definitely increase the penetration rate," he said.

Ongsingco noted that micro insurance in particular will definitely improve the penetration rate as more persons will be covered by life insurance.

Micro insurance is defined by the Insurance Commission as an activity providing specific insurance, insurance-like and other similar products and services that meet the needs of the low-income sector for risk protection and relief against distress, misfortune and other contingent events.

With most of the banks and other financial institutions centered in key areas, the Philippines is a prime spot for micro insurance and microfinance.

"The natural target markets of micro insurance are the lower-income and small individual entrepreneurs who are normally unable to access regular life insurance," Ongsingco said.

Ongsingco said that there are some life insurance companies already selling or considering micro insurance products, although the number of companies was not disclosed.

"There are however some issues to be threshed out such as in underwriting, selling and eventually, claims evaluation/settlement," he said.

"Micro insurance has been launched successfully in South America and we are studying the use of similar models for the Philippines. Moreover, BSP has allowed thrift, cooperative, and rural banks as distribution channels for micro insurance," he said.

The BSP, aiming to increase public access to needed financial services, approved in 2010 the marketing, sale and servicing of micro insurance products by rural, cooperative and thrift banks as well as other financial institutions.