Global Banking and Finance Review interview Patricia Echauz Chilip, President and Chief Executive Officer of Standard Insurance Company, Inc. the 2014 award winner for Best Non-Life Insurance Company Philippines to find out about issues facing the insurance sector and Standard Insurance.
What are some of the challenges you see facing the non-life insurance industry and how is Standard Insurance addressing these challenges?
One of the biggest challenges has been the catastrophic events, now considered the new reality, and which has created havoc in the industry. The latest of these was Typhoon Haiyan (locally known as Typhoon Yolanda), which was the strongest typhoons ever recorded globally, and certainty the Philippines’ deadliest typhoon ever recorded.
Standard Insurance has been well prepared for these catastrophic events. The Company is supported by a very dependable total insurance structure that has been well in place and which has earned a solid reputation of dependability during recent years’ weather-related catastrophes. These insurance systems and structure of the Company have demonstrated a good track record of managing catastrophe-related losses, underpinned and supported by comprehensive risk modeling software and reinsurance protection from highly rated reinsurers, grounded on stringent risk underwriting, as well as visible and extensive infrastructure, which includes the most extensive nation-wide network of car dealer business partners and the country’s largest and capable claims and technical adjustment team.
Said total insurance structure includes the following:
- Reinsurance Structure:
Our reinsurance support is financially strong and has the capability to respond to claims. For the protection of our clients as well as of the company, Standard Insurance does not deal with any local reinsurer. The Company’s reinsurance treaties are mostly under excess of loss basis and supported by highly rated international reinsurers, which have buffered the Company from the impact of high severity losses of the recent catastrophic events.
- Risk Engineering Capabilities:
Our Risk Engineering Group, the only one in the industry, is composed of engineers who have been trained in risk assessment and the use of Zurich Risk Engineering’s risk grading system called CRS Database. We insure only those risks that we understand and assess properly, together with their coverage and endorsements. In this manner, questionable claims are avoided thus facilitating their proper settlement.
The Risk Engineering also does relevant studies such as “Determining Earthquake Capacity for an Insurance Portfolio in Metro Manila” thus giving the Company a macro view of “what could happen” and containing risks against earthquakes.
- Catastrophe Risk Management System (CRMS):
Integral to the insurance structure is the application of the Company’s comprehensive risk modeling software, the internally developed Catastrophe Risk Management System (CRMS) where the Geographic Information System (GIS) or digitalized hazard mapping is applied to the assessment of natural hazards, such as earthquake and flood risks. Risk accumulations are thus controlled.
- Simple but well defined Underwriting Guidelines:
The Company continuously assesses its risk portfolio, underwriting guidelines, and supporting systems so that these remain relevant to the changing times. With the series of catastrophes that plagued the country, the Company recently set up its ‘New Directions for a Sustainable and Profitable Book’.
The Company continuous to focus on disciplined underwriting, fast claims turn-around, and sustainable profitability.
- CAT Response Initiatives
This include the creation of a catastrophic response team, composed of claims and technical people, supported by logistical requirements that is essential to claims servicing when disaster strikes.
- Disaster Recovery Plan
This ensures that in the event of a disaster or a catastrophe affecting our Head Office data center, a Disaster Recovery Team, can immediately recover the Company’s critical IT systems from an alternate site, within the prescribed Recovery Time Objective (RTO).
Another major challenge is the intense competition facing the non-life insurance industry, with seventy non-life insurance companies competing for a relatively small market, the latter as a result of the minimal penetration rate.
Our strategy amidst extreme competition is simple – OUR STRATEGY WILL STAND
- Speed of Claims Service
- Trustworthy and Knowledgeable Sales Force
- Accessibility through distribution network and Online Sales
- New thinking and innovation that reduces costs
- Disciplined Underwriting that ensures acceptable risks, intelligent pricing and sustainable growth
How are capital requirements impacting insurance companies in the Philippines?
The Amended Insurance Code of the Philippines mandates the graduated increase in capitalization, to increase every three years, initially at Php250 million by June 30, 2013, Php550 million by December 30, 2016, Php900 million by December 31, 2019, reaching Php1.3 billion by December end, 2022.
This graduated increase in capital requirements is expected to result in more mergers and acquisitions among its members, or at worst, companies deciding to surrender their licenses altogether, weeding out weaker and smaller insurance companies, some of which have resorted to unhealthy competitive practices just to survive.
This amended provision, together with other changes incorporated into the Amended Insurance Code such as wider investment outlets, loosening bancassurance restrictions and financial reporting framework more aligned to internationally-accepted accounting standards, among others, are expected to pave the way for a stronger insurance sector, making it better prepared for the integration of member-economies of the ASEAN in 2015.
How have automotive sales and construction activities impacted the non-life insurance industry?
Premiums from fire and car insurance account for close to seventy percent of the total premiums generated by the Industry. As such, the main growth drivers of the non-life insurance industry remain to be dependent on car and residential purchases.
The year 2013 set a new time record of 16% growth in new car sales, from 156,649 units in 2012 to 181,283 units in 2013. The upward spiral of sales growth continues in 2014 as total units sold as of October has reached 192,005, for a year-on-year growth of 30%. Such is this year’s remarkable performance that the Chamber of Automotive Manufacturers of the Philippines Inc. has already escalated its 2014 end of the year sales target to 250,000 vehicles, from the original projection of 230,000 vehicles.
In the meantime, the property sector remains vibrant, showing no signs of slowing down, even as the country recuperates from the massive destruction caused by super typhoon Yolanda. Most property remains bullish on the economy and sees more areas for growth. Real estate developers continue to acquire lands and build, BPO (or Business Process Outsourcing) offices continue to grow and prices in Makati Central Business District (CBD) rises from seven to twelve percent.
Philippines is vulnerable to natural catastrophes, what initiatives are taking place in the insurance sector to help prepare for CAT events?
The Industry recognizes the vulnerability of the Philippines to natural catastrophes and have initiated several initiatives:
- The Philippine Insurers & Reinsurers Association (PIRA) and the Insurance Commission of the Philippines (IC) are looking at the possibility of setting up a CAT pool for EQ, typhoon and flood, specifically for residential risk.
- The IC has mandated a minimum five percent reinsurance cover for property catastrophe (EQ, typhoon and flood), based on total accumulated total sum insured (TSI) per insurance company.
- The Insurance Commission of the Philippines (IC) has mandated the industry to offer the Acts of Nature cover (formerly referred to as Acts of God) at tariff rates and commissions.
– Microinsurance, per the Department of Finance (DOF), is “the insurance, insurance-like, and other similar business activity of providing specific products and services that meet the needs of the poor for risk protection and relief against distress, misfortune, or contingent event”. Further, it says, “Since microinsurance products and services are intended to meet the risk protection needs of the low-income sector, affordability of premium payments is low”.
Considering that the Philippines is always hit by typhoons and other natural calamities, insurance protection going down to the grassroots of society, is one huge step towards protecting those who need them most, during natural calamities.
With aggressive support from the DOF and the Insurance Commission, 20.4% of the total population is now covered with microinsurance, and the Philippines having the highest microinsurance coverage among Asian emerging economies in 2013, per the DOF.
Standard Insurance is a leader in the Philippines insurance sector. What do you attribute this success to?
Standard Insurance’s Key Success Factors are as follows:
- Market Reach
Widest branch network and car dealer network across 7,107 islands. We have excellent market reach and we insure all properties from motorcycles in the rural areas to big conglomerates in Metro Manila CBD. We are the direct service partner of Zurich insurance in the Philippines and we are the market leader in Motorcar Insurance, with 25% market share of new cars. Motorcar insurance premiums make up 60% of non-life insurance premiums in the Philippines.
- Underwriting Discipline leading to Competitive Pricing
Our risk selection process is very stringent and we use a wide array of tools to ensure a good risk portfolio. We use trained risk engineers, a detailed Catastrophe Risk Monitoring System specific to our country, and constant monitoring of our motor and property risks. This allows us to price aggressively for risks we do like.
- Efficient Claims Processing
Our claims processing for motorcar has achieved a turnaround time of 24 hours and we have 100 experienced in-house motorcar adjusters who are dedicated to ensuring that repairs are valued correctly and handled properly by our car dealer repair shops.
- Innovation for Motorcar Claims
We constantly innovate in order to serve our clients better. Recent projects include RAPID, a repair valuation system situated in a tablet, which allows access to our central parts database and computes repair costs automatically. We also launched the Floody Carbag two years back. It is an industrialized ziplock bag that seals your car in case of floods. We recently launched our Technical Training and Research Complex, a research and development facility that will allow us to analyze motorcar repairs and claims in an even more detailed lab environment.
- Constant IT upgrades
We build our own IT systems in order to mine our data analytics for even more competitive advantage. We have also built our infrastructure to deliver service with speed and enable the scalable distribution of our products.
- 800 Plus Excellent Professionals
We are a team of 800 insurance professionals with a combined 55 years of experience and deep relationships across the catastrophe-prone Philippine archipelago. Servicing customers in their time of need has become who we are. Our core team of executives has wide backgrounds in finance, banking, engineering, motorcar repair, and underwriting.
Global Stamps of Approval
Our systems have been ISO- certified since 2008, and we maintain a global credit rating of A- (A minus) for claims paying ability. In 2013, we also received the Best Receiving Country from Zurich Insurance for our service to their clients in the Philippines.
Standard Insurance was awarded the Best Non-Life (General) Insurance Company, Philippines in 2013 and 2014 by the World Finance Insurance Awards. It also received Best Non-Life Insurance Company Philippines 2014 by Global Banking and Finance Review.
We have maintained A rated reinsurance facilities for all our products and have strong relationships with all our key partners.
Looking back at 2014, what were the biggest challenges and biggest successes?
The biggest challenge would be handling of the catastrophic events. Nonetheless, the Company’s insurance systems and structures, including our strong reinsurance support have protected us from impact of these calamities.
The biggest success as an insurance company would be, “to be there when our clients need us most”. The growing client base and businesses are testaments to this.