MANILA, Philippines - Global financial and insurance giant Starr Insurance Holdings Inc. has openly expressed its support for the proposed Philippine earthquake fund.
Starr Insurance Holdings chairman and chief executive officer Maurice “Hank†R. Greenberg said they are prepared to support efforts of the country’s insurance industry to establish an earthquake fund that would address future catastrophes.
“Whatever we can do to be helpful, we certainly will do so,†Greenberg said in a recent press briefing in Manila.
The Starr chief executive said they are aware that the Philippine Insurance Commission (IC) and the Asian Development Bank (ADB), along with the private insurance firms, are working on a mandatory earthquake fund.
“No one is capable of telling in advance what the amount of damage an earthquake can result in,†he said. “You must have a plan that will address the most likely damage, and the least likely damage.â€
The recent earthquake that struck the island of Bohol and some parts of Central Visayas was estimated to cost an estimated P1.6-billion in damage.
Last May, Starr International Insurance (Asia) Ltd. received its certificate of authority (CA) to operate in the Philippines as a non-life insurance firm. It is a subsidiary of Starr Insurance Holdings.
It is the second major global insurance player that entered the country’s non-life insurance industry. It is also looking to introduce healthcare services.
With the help of the ADB, the country will be launching its first-ever public private earthquake insurance fund to protect small and medium enterprises (SMEs) and the residential sector, two of the most vulnerable from natural catastrophes.
The ADB also committed at least $500,000 in the form of a technical assistance (TA) grant.
The proposed plan is in its final stages and the proponents are looking for congressional sponsors to pass a law making it mandatory whenever SMEs and residential owners renew their annual permits from the local government units (LGUs).
Larger corporations are already tapping private insurers for natural catastrophe protection.
The proposed plan is to develop a financially sustainable earthquake catastrophe insurance pool covering middle class and mid-sized enterprise property owners. The pool will be composed of government and private insurers thus reducing the potential liability on government.
“The earthquake catastrophe insurance pool will strengthen 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.
ADB country director for the Philippines Neeraj Jain said that the earthquake fund is necessary as well as unique as it must immediately address the need of earthquake victims.
“For example, when ones home is destroyed or damaged, the owner wants quick reimbursements of the damages by the insurance company. Owners do not want the engineers to come and make an assessment and take six months. In earthquake insurance, one must get the money quickly because the owner needs to start rebuilding. It is a different business model,†Jain said in a separate interview.
Proponents said that it must be mandatory similar to the compulsory third-party liability (CTPL) in the transport sector. That will ensure the sustainability and commercial viability of the fund.
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.
Globally, total insured losses are estimated at approximately $65 billion from natural catastrophes and man-made disasters last year. Natural catastrophes alone will lead to over 11,000 lives lost and roughly $60 billion in insured claims.
According to global insurer and reinsurer Swiss Re, total economic losses from the disasters are estimated at $140 billion. Economic losses include uninsured part of the property losses related to the catastrophes.
It is however lower than the record $120 billion in insured losses registered in 2011, which likewise experienced a record number of floods and earthquakes. What is alarming is that it is also two consecutive years of historic losses arising from record earthquakes and floods in Asia Pacific and South America.