Insurance Commission issues stern ruling on premium rates

MANILA, Philippines - The Insurance Commission (IC) has issued an order instructing all non-life insurance companies to observe the minimum prescribed rates in insuring their houses and other properties against natural calamities.

IC Circular 21-2010 said that undercutting rates would jeopardize the financial solvency of insurance companies and their ability to settle claims.

It prescribes a minimum rate of 0.10 percent of the total insured amount for natural risks such as earthquakes, and another 0.05 percent for typhoon and flood. These rates are added to the basic property insurance that usually covers only fire and lightning.

The IC likewise deputized the Philippine Insurers and Reinsurers Association (PIRA) to monitor compliance and report violations. PIRA is the umbrella organization of 85 non-life insurance companies in the Philippines.

“Insurance companies has been undercutting premium rates or virtually giving away the coverage for these risks for free just to get a bigger chunk of the business. Such a practice, endangers the industry in the long run because it could lead to non-payment of claims by certain insurance companies due to lack of reserved funds,” the commission said.

PIRA chairman Michael Rellosa said the circular is beneficial to all, especially to the insuring public, which relies on insurance as a tool in protecting their most assets, such as their houses and its contents.

“By observing the correct rates, insurance companies can ensure that they will have enough funds to pay their clients if and when a natural calamity strikes,” he said.

The non-life insurance industry paid more than P15 billion in damages due to floods caused by typhoons Ondoy and Pepeng.

“The Philippine insurance industry is one of the most tightly regulated in the world. The only reason why a minimum rate is enforced is to prevent a bad practice from becoming a habit which in the long run can affect the ability of some companies to pay claims,” he said.

The PIRA chief executive explained that insurance is a device where people who face a common peril contribute to a common fund, out of which those who suffer a loss due to such peril are indemnified.

“We have to ensure that the common fund is enough to pay for a catastrophe such as another Ondoy or worse a major earthquake,” he added.

Last April, the top 25 non-life firms signed a covenant pledging non-practice of undercharging premiums for property insurance and strictly follow the tariff to ensure that adequate funds are available if and when natural disasters strike.

The private sector effort also resulted in the formation of a task force to set a roadmap that inspired IC 21-2010.

Representatives of the top 25 non-life insurers also swore to report incidents of under-charging and other malpractices related to natural catastrophes and natural perils.