Catastrophe risk insurance premiums are updated

Non-life insurers have recently welcomed the first of two changes to the premium table for earthquake, typhoon and flood risks that will come into effect for policies issued from November 1st.

By Circular No. 2022-34 of July 14, the Insurance Commission approved a revised rating structure for all catastrophe risk policies, which all non-life insurance companies and intermediaries are required to adopt.

The circular stipulates that the minimum insurance premium, which is currently 0.1 percent for earthquake risks and 0.05 percent of the insured sum for typhoon and flood risks, is not only diversified in terms of tariffs, but also diversified according to type of construction and risk zones.

Risk types related to flooding and typhoons classify the construction of a structure as ‘high quality’ if constructed from reinforced concrete and steel, or ‘other’ if constructed from timber, masonry or unknown material.

Risk types related to earthquakes classify the construction of a structure as “high grade” if it is built with reinforced concrete, steel and timber, or “other” if it is built with masonry and unknown material.

This means that with an insured sum of, for example, 1 million p., the premium would cost 1,000 p. (earthquakes) or 500 p. (typhoons and floods).

Following suit, the new plan for minimum premiums on flood and typhoon risks, effective November 1, will range from just 0.047 percent to 0.1 percent, or P470 to P1,000.

Accounting for earthquakes

Also, the new plan for minimum premiums on earthquake risks, effective November 1, ranges from just 0.047 percent to 0.1 percent, or P420 to P1,000.

The Philippine Insurers and Reinsurers Association (Pira) said in a statement that given the increasing number and severity of resulting adverse weather conditions that are at the forefront of many nations’ urgent concerns due to climate change, the Philippines is among the countries to most cause prone to catastrophic risk.

Pira said that given this scenario, a review of the current outdated catastrophe rates had to be carried out as they had not been reviewed in the last thirty years.

“Ideally, these rates need to be reviewed annually, using catastrophe models and statistical analysis that are available to scientists and insurers around the world,” the group said.

“In short, the need to create a more risk-sensitive rating environment would ultimately ensure sustainable premium rates for catastrophes to equally support the sustainability of the insurance industry and ensure its presence and ability to service future catastrophe claims, particularly when it occurs on urgently needed,” added the industry group. INQ

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