Interview: Peter G Coyiuto
What potential is there for growth in the life insurance segment, and how can penetration be raised?
PETER G COYIUTO: There is a strong positive correlation between insurance penetration and per capita GDP growth. Whatever the sophistication of products or strength of distribution networks, for protection products to become viable basic necessities first need to be covered and disposable income available. Once the population has protectable assets and income, insurance can play a role in nurturing wealth creation. The Philippines is one of ASEAN’s most underpenetrated markets for insurance, whether measured by number of people insured or the ratio of premiums to GDP. Malaysia’s per capita GDP of roughly $11,000 and Thailand’s of about $6000 are reflected in their higher respective insurance penetration levels.
Pushing financial literacy is one way to accelerate penetration, yet this will not generate significant results unless people first have money to invest. In countries like China, only once per capita GDP picked up did financial literacy have an impact on penetration growth. The Philippines’ susceptibility to natural disasters has led to some growth in overall awareness of the value of protection products, in both the life and non-life segments, but not enough to create an inflection point in insurance penetration. Even overseas Filipino workers, despite their higher incomes as reflected in remittances, do not carry much weight in insurance companies’ premiums income. This remains a tough segment to tap given regulations that make it hard for local insurers to engage with overseas Filipinos. Traditionally, such workers are reached via manning agencies and show the most presence in medical premiums.
A chief enabler of income growth is improved infrastructure, driven by both public and private spending. If development of infrastructure is not pushed, GDP will not grow more than 5-6%, whereas in a country like the Philippines it should amount to 8% considering its population growth rate of 2%. Once per capita GDP is improved, one can talk more about protection, as there is then something to protect. Otherwise, commoditised investment tools like variable unit-linked products will dominate. Better infrastructure would strengthen connectivity and unlock the potential of economic sectors that will then generate more wealth and more insurable citizens. It would also enable the flow of capital from main cities into provincial areas, thus decentralising premiums from Metro Manila.
How can insurance companies better align their strategies and products with new market segments and with conditions specific to the Philippines?
COYIUTO: Although some customisation can be done to adjust products to cater to the mass market, real growth in penetration will ultimately depend on traditional distribution channels, whether professional agencies or bancassurance. There have also been developments in other channels such as micro-insurance, shopping centres or pawnshops. Solving infrastructure bottlenecks, however, would enable the country to move beyond dependence on business process outsourcing and remittances from overseas workers by nurturing sectors like tourism to provide increased opportunities for wealth generation. The government’s plan to boost infrastructure spending to 5% of GDP is a major push to address this. Even from a distribution perspective, infrastructure is key, as this enables agents and distribution channels to reach potential clients.
In what ways can ASEAN integration spur diversification and cross-border trade in the sector?
COYIUTO: The domestic insurance industry is preparing for ASEAN integration by sizing up and capitalising on local networks to boost their competitive edge vis-the state to be able to compete with banks on trust functions; currently non-banking institutions cannot operate trusts. Although the sector has been largely liberalised in the Philippines, ASEAN integration will bring further imperatives for domestic companies.
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