053107: Insurance industry crackdown

The announcement of the Insurance Commission (IC) on the possible withdrawal of the licenses of 15 life and nonlife insurance companies for their failure to meet the minimum capital requirements of P100 million is seen to signal an industrywide crackdown that is meant to benefit the insuring public. This just goes to show that Insurance Commissioner Evangeline Escobillo is bent on seeing to it that the industry follows the risk-based capital framework that has become the global standard. Eventually, Escobillo has set forth a graduated capital increase that would see a minimum capital requirement of P500 million by end-2011. The P100-million initial capital hike was supposed to be in force by December 31, 2006. Those who failed to meet the minimum capital have to cough up the difference for them to continue doing insurance business. And that is just fair, since other companies have followed the capital-requirement rule, which, after all, is for the good of the industry. Before the IC implemented the capital-raising exercise, through Department Order 27-2006 on September 1, 2006, Commissioner Escobillo ordered a thorough actuarial and market analyses, including comparison of the country’s insurance industry with that of its neighboring countries and similar economies’ capitalization requirements. IC’s action is expected to draw flak from those to be affected, but, for Commissioner Escobillo, that is par for the course. In fact, the new commissioner’s setting a P1-billion capital requirement for new insurance companies has drawn considerable criticism, but she is not flinching from her position as she has just the interest of the investing and insuring public at heart. For her, adequate capitalization is needed for the insurance industry to sustain public and investor confidence while ensuring that the locals can compete regionally and globally. According to the IC, “the insurance industry” has been on the uptrend contrary to assertions that it is on a “downtrend,” a fact being highlighted to question the wisdom of the commission’s P1-billion capital rule for new entrants. “For 2006, the life insurance industry’s premium income increased to P51.3 billion from P47 billion in 2005, or a 9.14-percent annual growth. The first-year premiums rose to P17.5 billion in 2006, from P15.8 billion in 2005, or a 10.9-percent jump. On the other hand, the nonlife gross premiums posted 13.6-percent annual growth, from P28.9 billion in 2005 to P32.8 billion in 2006,” the IC said. Those figures back up the IC’s forward-looking scenario for the insurance industry, which is seen to grow some more with the financial literacy that the overseas Filipino workers and other families are now acquiring through the help of the government’s information campaign, ranging from that of the Bangko Sentral ng Pilipinas’s offer of new financial products via the banking system to the Philippine Stock Exchange’s small-investor program for the investing public. The surge in interest in initial public offerings has given rise to other financial products that include the insurance takeouts. It is a tough call for Commissioner Escobillo, but she has to implement the letter and intent of the department order on minimum capital as it would redound to the benefit of the emerging investors in insurance products. The industry cannot allow any company failure, which could arise from the lack of adequate capital. In the financial world, it is a truism that enough capital could allow a company to withstand any financial shock. Commissioner Escobillo should continue reforming the industry and she should not allow criticisms to take the better of her, especially from implementing the IC rules, since the commission can ill afford any perception of weakness in the industry. Not at this time, when there is a welling up of financial literacy that effectively nudges the savings rate. The insurance industry is one mobilizer of savings that could help the economy by way of loans to companies and, on this score, she is on the right direction in seeing to it that the industry is financially strong. She deserves our accolade for having the balls to face unfounded criticisms.  E-mail: hugagni@yahoo.com

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