ADB backs first earthquake insurance pool in Phl

MANILA, Philippines - The first public-private earthquake insurance pool will be launched in the country to protect small and medium enterprises (SMEs) and the residential sector, two of the most vulnerable from natural catastrophes.

The plan is supported by the Asian Development Bank (ADB), which has committed an initial $500,000 technical assistance (TA) grant.

The project aims to develop a financially sustainable pilot earthquake catastrophe insurance pool covering middle class and mid-sized enterprise property owners.

The ADB said the pool would reduce to a large extent the potential liability on government.

“The earthquake catastrophe insurance pool will strengthen national private insurance companies and their ability to underwrite new policies on catastrophe risk, and enhance their capacity to proactively manage and transfer risk to international reinsurance companies,” it said.

Insurance Commissioner Emmanuel M. Dooc said the private sector, both domestic and international, and government will create the earthquake insurance pool.

A pool is necessary due to anticipated huge amount in claims in the event of an earthquake.

The pool is structured in four layers, with an assigned range of coverage amount for each layer.

The first layer will be composed of individual local non-life insurance companies that will cover the smallest amounts of claims, for example, claims ranging from P100,000 to P1 million. The second layer will be composed of international re-insurers that will cover, for example, claims ranging from P1 million to P10 million. The third layer will be government and the top layer will be likely be the major non-life insurance firms.

The Philippine Insurance and Reinsurance Association (PIRA) represents the local non-life insurance sector, while the Department of Finance (DOF) and the IC will represent government.

Dooc admitted that the formation of the earthquake insurance pool is still in the study and surveying stage. In fact, the original target for the launching of the pool was in 2015.

In the past few weeks, there have been a number of earthquakes and volcano eruptions most of which are located in the Pacific Ring of Fire.

The Philippines is one of the countries that lie in the path of the Pacific Ring of Fire, which is a series of oceanic trenches, volcanic arcs, and volcanic belts and plate movements. The Ring of Fire has 452 volcanoes and is home to over 75 percent of the world’s active and dormant volcanoes.

From 1983 to 2012, storms killed 24,281 persons while floods accounted for 2,013 deaths in the Philippines. In the same period, 99.6 million were directly affected by the storms while 14.9 million by floods.

According to the National Statistics Coordination Board (NSCB), economic damage brought about by storms amounted to $5.9 billion while damage due to floods amounted to roughly $1.2 billion.

More than 45 percent of these damages were from the storms that occurred from 2003 to 2012 while more than 28 percent were from floods.