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ASEAN in Focus Keynote
The Risks That Bind Us
By Mr. Michael F. Rellosa
Deputy Chairman, Philippine Insurers and Reinsurers Association (PIRA)
Good afternoon. I would like to thank the Financial Times for the opportunity to speak in this summit. I shall be discussing in broad strokes the latest developments in the Southeast Asian region in this keynote entitled ASEAN in Focus -- The Risks That Bind Us.
This topic is very timely as many of you from Europe have set your sights on our region, being considered an emerging market when it comes to insurance. In my talk, I would like to lay down the groundwork for the succeeding speakers who would discuss bright spots in emerging markets, insurers investing in infrastructure, and insurance as a tool for financial inclusion.
ASEAN just turned 50 years old this year and as you all know, it has begun the ambitious work of integrating the economies of 10 member countries into one.
Though things are shaping up not as fast as experts had expected, still ASEAN is making serious headway in major areas, including banking and insurance.
Let us look at some figures to get to know ASEAN's progress better.
As a single region, ASEAN boasts of a GDP of 2.6 trillion US dollars which makes it the 7th largest economy in the world, and the 3rd largest in Asia, next to China and Japan.
As an integrated market, ASEAN has emerged as the 3rd largest market in the world with a total population of 622 million people, next only to China and India.
As for trade, the volume of goods and services exchanged within ASEAN has increased by nearly 1 trillion US dollars compared to 10 years ago.
And as for foreign direct investments, ASEAN attracted 136 billion US dollars, which is roughly 11 percent of the total FDI inflows all over the world. This is more than double the 5 percent FDI share of ASEAN in 2007.
The people of ASEAN have also been traveling a lot lately, with over 200 million tourists visiting ASEAN member countries last year. This only proves that the region is becoming increasingly connected as new airlines have begun to serve even non-key cities
And as far as the Internet is concerned, the rate of Internet subscription in the region has more than doubled from 11.8 percent of the population in 2007 to 28.6 percent today.
These numbers have been collated to show you the region's progress, yet they have been achieved by each country working individually and not as one.
The biggest challenge, therefore, is to how to integrate these 10 countries whose diversity can rival that of mainland Asia.
Ten countries, with more differences than similarities in terms of land area, languages, religions, political systems, and economic status.
The region is not landlocked like Europe. It has a huge country like Indonesia with 1.9 million square kilometers spread over 18,000 islands and a population of over 260 million people.
It also has a tiny country like Brunei Darussalam with only 5,700 square kilometers -- roughly twice the size of Hong Kong -- and less than 500,000 people.
It has hundreds of languages, dozens of religions, hundreds of ethnic groups and indigenous tribes, and even varying foreign influences.
This last factor is the reason behind the different political systems that can be seen ASEAN. The Philippines, for instance, is known as the Little USA of the east, while Singapore is the little UK. Vietnam and Laos both boasts of French connections while Indonesia has Dutch roots.
Hence we have a region with no single dominant color, no single dominant shape or feel.
It is not surprising, therefore, to hear people from the region say that they could not relate to ASEAN and could not proudly say that they are ASEAN citizens because there is simply nothing for them to relate to.
But unknown to many, there are things that could unite people more than language or cultural identity. And these are the shared experiences they have -- their collective memory.
One of these things is the the economic growth being experienced by each country. Anywhere you go in Southeast Asia, you would see workers building new infrastructures and modern skyscrapers -- a phenomenon we once saw in China. Our region is indeed the next big thing, and the excitement can be felt anywhere you go.
Another commonality among the 10 countries in ASEAN is the young people or the Millennials which comprise more than half of the population.
These young people are fueling investments in technology as more and more businesses begin to discover the power of the Internet and the smartphone in reaching out to this segment.
With massive growth in technology and dramatic changes in the way we do business and interact with one another happening so fast, governments are scampering to come up with new regulations. In our industry, governments are rewriting their rule books or codes to adapt to the changing times.
This is true particularly to countries where insurance penetration is low. In these countries, capital requirements are being raised, and stringent regulations are being placed.
Risks are the common denominator among all members of ASEAN. Just like the ASEAN logo, there is a point in the middle where they join forces, where they are willing to bend themselves and unite.
And this is where the risks are located. The risks serve as the virtual tie that binds them.
These risks have no respect of people. They affect the rich as well as the poor; they baffle the educated as well as the uneducated; and they kill or injure the old as well as the young.
And yes these risks know no religion and have no concept of heaven or nirvana.
One example of such risks that readily comes to mind is this monster -- Super Typhoon Haiyan or what we call in the Philippines as super typhoon Yolanda. With winds reaching 300 kilometers per hour, this typhoon is the strongest ever to hit land. It left behind more than 6,000 people dead in my country.
And yet after wreaking havoc in the Philippines, Haiyan went on to Vietnam to continue its destructive ways. This only shows that typhoons do not respect national boundaries, and they become more destructive because of climate change.
This risk of climate change is transforming ASEAN dramatically and is making people realize that the global economy is interconnected.
And it is through all these catastrophes that people in the region are discovering how important insurance is. And not just insurance for cars or for homes, but more so the insurance for business.
In recent years, historic flooding in Thailand made car manufacturers from Japan and Korea realize that though they are thousands of kilometers away from where it was raining, still their businesses were not immune from the negative effects as the parts being made in Thailand were damaged and could no longer reach their factories on time. Fortunately for them, they have insurance.
This same problem of torrential rains inundating vast tracts of land have been experienced lately by Myanmar and Laos, destroying crops and livestock. Unfortunately for these farmers, however, they have yet to avail of crop insurance or their governments have yet to develop such protection and make it available.
We all know that the he weather has been polarized by climate change, giving rise to names like El Niño and La Niña. As the opposite of too much rain, some countries like Cambodia have suffered from drought that made it impossible for their farmers to cultivate their land.
Add to this the risk of volcanic eruptions.
ASEAN is part of the so-called Pacific Ring of Fire, a network of volcanoes and fault lines that make the region vulnerable to volcanic eruptions and earthquakes.
In recent months, we in the Philippines have experienced major temblors, and many believe these could be a prelude to what experts have billed as the Big One earthquake that could hit the Philippine capital anytime.
Of course we do not want that to happen, but we are preparing nonetheless.
This slide shows an earthquake in Indonesia, another country that has the same risk profile as the Philippines.
These risks of natural catastrophes are all affecting us in the region. That is why I believe that we in the insurance business -- whose business is to deal with risks -- are in the position to push for a faster integration in ASEAN through insurance.
One good example is what we call microinsurance. This is insurance for the low-income sector, or those traditionally considered as uninsurable because of their sorry economic state.
But poor people are the ones who need insurance all the more. Look at this slide. Who do you think would be more affected by catastrophes like typhoons, floodings or earthquakes? Those who live in the tall buildings in the background, or those in the shanties in the foreground?
Of course, those in the shanties. The poor would have no means to bounce back when disasters happen.
In ASEAN, there are more poor people than rich people. And for them to experience the economic benefits of the ASEAN integration, they should first and foremost be insulated from the financial shocks that a catastrophic event would surely bring. And this can be realized through microinsurance.
Another growing concern in ASEAN is the rise of radical extremist groups such as the ISIS. In the Philippines, for instance, our military has been fighting ISIS-funded rebels in the southern island of Mindanao since May this year. This has affected the lives of thousands of people who now require aid from government to be able to rebuild their homes.
This could be addressed again through terrorism insurance, something not very many are offering in this region.
Last year, the whole world was shocked to hear the news of a cyber-attack on a Bangladesh bank, with millions of dollars being traced in Sri Lanka and the Philippines.
This, too, can be addressed by us in the industry as more and more experts are poring in time, talent and treasure into the development of cyber defenses as well as insurance protection against cyber-attacks.
For me, our biggest risk lies not in climate change, nor in terrorism or cyber-crime.
Our biggest risk is the risk of missing the opportunity to use all these challenges to boost our ingenuity and propel our collective desire to work and grow as one.
In the Philippines, we have this tradition called Bayanihan I would like to close with this picture. This is a picture of a house in rural Philippines being transferred to another location. It is a tradition in my country that whenever there is a need to move a house, the entire community – particularly the men – would lend a hand.
We call this Bayanihan, from the root word "bayan," meaning town or country. Bayanihan is a trait that is part of our culture. We see this every time there is a natural disaster in my country. People would stop thinking of themselves and start thinking of the greater good, readily opening their homes to host those who suffered, and generously offering any help they could provide despite their meager resources.
You see, ASEAN is in a very crucial position to lead the world in terms of innovation in insurance, financial inclusion where even the poor can be insured, and ultimately to business integration that crosses borders and fosters unity and synergy among insurance practitioners just like the Bayanihan.
Insurance can unite the ASEAN region as it can very well address the uncertainties brought by all the risks we have mentioned.
My dream for the region is for all of us to have such confident to ride the waves of change.
The waves of change are already here.
We can choose if we want to drown, or just float and be content just to survive.
Or we can choose to ride the waves to propel us forward.
Hand-in-hand, the ASEAN region could grow to its full potential. And one way this can happen is by addressing uncertainty, building trust, and gaining confidence that no matter what happens, insurers will have their back and we'll take care of them through insurance.
Thank you very much.
The leaders of the non-life insurance in the Philippines resolved to take significant steps to improve claims settlement service in the Philippines during 2017 PIRA Non-Life Industry Forum, last Wednesday, October 11, 2017, at Blue Leaf Filipinas in Parañaque City.
Deputy Insurance Commissioner Ferdinand George Florendo told a crowd of over 200 officials from the industry that claims is “the essence, if not the heart, of the insurance value chain.”
“It is only when the claim is paid that the policyholder gets to test or experience the reliability of the indemnity protection that they paid for,” Florendo said.
However, automotive journalist and CNN Philippines host James Deakin, speaking on behalf of the insuring public, said that insurers seem to distrust the public when making claims.
“There’s a feeling out there that when it’s time for us to claim, we’re not really given the same courtesy back. It’s almost as if we’re presumed cheating,” Deakin said.
Deakin shared to the industry concrete suggestions that may improve claims servicing in the country particularly those involving motor car insurance.
“At the heart of the matter is somebody is a Subject of an unfortunate event and that somebody is waiting to get paid,” said PIRA Chairman Augusto Hidalgo in his opening remarks.
Those somebodies also hold the power to strengthen the business, or if they are unsatisfied with claims processing, they also have the power to weaken business by leaving, or worse, choosing to not get an insurance at all, Hidalgo added.
It’s a paradox, Florendo said, that claims is necessary to prove the reliability of insurance products, and yet it is something which insurance companies want to minimize.
He cited a 2014 study by Accenture where 83% of respondents who were dissatisfied with claims processing said that they plan to switch or have already switched to another insurer.
But what is surprising is that 41% who were satisfied with claims processing still said that they were likely or even very likely to switch to another insurer in the next 12 months.
“Delivering average claims satisfaction levels is not enough. The bar has been raised. Insurers need to provide a differentiated claims experience that not only delivers good service but maintains an appropriate financial discipline as well,” said Florendo.
Microinsurance may be one of the answers.
“Sachet insurance. Insurance in bite-size, affordable chunks. If everybody can buy coffee, creamer, sugar, shampoo in sachets, why not insurance?” said Lorenzo Chan, Executive Vice President of Pioneer Insurance and Surety Corporation and the president and CEO of Pioneer Life.
He said that a big turn off for the insuring public is the overly complicated process of filing a claim.
Chan recalled his experience in filing a travel insurance claim after losing two shirts on a flight to Rwanda. “There were forms to fill up, a declaration to sign, I had to call the airline company. It was a long and tedious process – and I’m an insurer!”
“Insurance for the mass market cannot work like that. These people cannot afford to wait,” he said.
“If you’re rich, you can wait for a month, you can even wait for six months. But if you’re poor, your only option is to go to a loan shark to bury your dead. Or a kid may have to stop going to school. These people may not be even able to recover,” said CARD Pioneer Microinsurance President and CEO Geric Laude.
He added that there are over 80 million individuals in classes C, D, E who need to be insured. Even if one would argue that not all of them would be able to afford insurance, a generous halving of that number for the sake of estimation still shows that there are at least 40 million individuals who need insurance.
“Those are the people who need insurance, probably more than the AB market,” Chan said.
If these people get covered with microinsurance, they would not need to wait in long lines for dole outs and donations when calamities like Yolanda strike.
Having fast and efficient claims processing is key for the continued growth of insurance companies. Laude shared how word of mouth influenced people to get insured with CARD Pioneer.
This is why they do not have advertisements on TV, or on print, or on social media. “Our clients do the advertising for us,” he said.
Deakin said that the requirements for claims need to be trimmed, especially if there are better substitutes for requirements like police sketches.
“You’ll go a long way to regain the people’s trust and removing all these hurdles that people see as… you see it as necessary, and I agree with that, but the motorists doesn’t see it as that. They see it as excuses,” he said.
Some companies have already started trimming down requirements by looking for alternative sources of information.
Chan shared that during Yolanda, Pioneer worked with local partners who knew the locals to help identify where they lived instead of appointing surveyors and adjusters to head to a field of flattened houses.
He also recalled that local partners and the local government were also instrumental in aiding the processing of death claims as they were tapped to check and countercheck claims by identifying the deceased.
Laude also suggested that companies may find alternative sources of information to support claims and detect fraud.
“We can reinvent the rules of insurance but the principles stay the same,” he added.
Deakin further suggested that insurance companies should do away with police sketches and instead incentivize the use of dash cams by providing discounts. He added that on-scene photos taken through mobile phones could also be used.
He also said that police reports should not be necessary when no one was injured.
“There’s so much room for extortion, there’s so much room for inefficiency,” Deakin said.
“The police report, some money’s thrown under the table and it’s written in favor of somebody else.”
Aside from these, Deakin also recommended that an independent website or app be set up for the sole purpose of taking queries and complaints from the insuring public. He also wishes that insurance companies partner with ridesharing services like Grab and Uber to offer in-app microinsurance, where riders will be shown the option to add as little as P5 to insure the ride or their luggage.
Solutions for faster claims processing and fraud detection using technology were also presented by Merimen CEO Trevor Lok, Tagit founder Herve Alfieri, and FPG Insurance CEO Ramon Dimacali.
Dimacali even recalled approving a claim while he was in Turkey, all made possible through technology.
Western Guaranty Vice President Bernard Gerard Reyes shared that his company needed to improve their claims system and work on electronic claims settlement. While Marsh Philippines Senior Vice President Paulo Garcia walked through the role of the broker in claims settlement, from pre-loss, to the loss event, up to post-loss.
The discussions proved to be fruitful as the convention produced four resolutions for the Philippine Insurers and Reinsurers Association (PIRA) to act on, two of which stemmed from Deakin’s talk.
PIRA Deputy Chairman Michael Rellosa presented the following resolutions:
- For PIRA to create an app to allow the insuring public to ask the insuring public to ask questions relative to insurance.
- For PIRA to simplify claims documentation by allowing the use of dash cam videos and onsite pictures sent to the insurers digitally, subject to the Insurance Commission’s approval.
- For PIRA to initiate a study on the best practices on microinsurance claims processing and apply this to other lines.
- For PIRA to study and find out if its members have common needs that can be solved through an industry solution provided by a third-party vendor.
Truly, this year’s industry forum, which is the first to focus solely on claims, was a great success.
“A forum such as this will help industry players, stakeholders and even the IC in shaping industry practices and set the strategic direction of regulation which are imperative in the development of the insurance industry,” said Florendo.