DISASTER-PRONE PHL WARMS UP TO ASIAN INSURANCE POOL

Business Mirror | 7 May 2018

THE Philippines is keen on the idea of joining a regional insurance pool to hedge against calamities hitting the Association of Southeast Asian Nations (Asean) region.

Insurance Commissioner Dennis B. Funa said there is a possibility for the country to enter into the Southeast Asia Disaster Risk Insurance Facility (Seadrif), which is aimed at providing climate and disaster risk-financing and insurance solutions to Asean-member countries.

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However, Funa has misgivings that the Philippines may use up more of the fund provided by the facility since the country is more exposed to natural calamities.

“Possible, but I don’t think they want us there. We are exposed to more natural disasters than them,” Funa told the BusinessMirror. “We would end up utilizing more of the funds than them.”

The Seadrif is a regional catastrophe risk pool having similarities to a reinsurance-based disaster liquidity facility, designed to provide participating countries in Southeast Asia affected by natural disasters with immediate rapid response financing.

Finance ministers from Cambodia, Japan, Lao People’s Democratic Republic (Laos), Myanmar and Singapore have jointly agreed to establish and implement the Seadrif this year to strengthen financial resilience among member-countries against climate and disaster risks in the region.

“We look forward to the official establishment of Seadrif by the end of this year and to continue working with our colleagues in Asean,” Singapore Finance Minister Heng Swee Keat said during a forum the 51st Asian Development Bank (ADB) Annual Meeting at its headquarters in Manila.

First in Asia

THE agreement for the Seadrif implementation was signed by the finance ministers of the five Asean member-states last Friday at the sidelines of ADB Annual Meeting.

Japanese Finance Minister Taro Aso pointed out that the joint agreement to establish the Seadrif is the first of its kind in Asia, and is a step closer to getting the facility working.

“It will be the first disaster-risk facility in Asia,” Aso said. “Today, we achieve the first step, and our next goal is to actually establish and launch the facility.”

Last year, a memorandum of understanding was signed by Cambodia, Japan, Laos and Myanmar, for the establishment of a country-led regional technical working group (TWG) on disaster-risk finance and insurance. The TWG aimed to work toward developing the Seadrif.

The World Bank has thrown its support on the idea by providing technical assistance for the establishment of the facility. The assistance was provided by the World Bank Group’s Disaster Risk Financing and Insurance Program (DRFIP), with the support of the World Bank Disaster Risk Management Hub in Tokyo.

“This is the first of such facility in Asia and certainly in Asean, so it is an innovative regional solution to narrow the protection gap,” Keat said, adding that Seadrif beneficiaries will be Cambodia, Laos and Myanmar.

According to Keat, the facility “has potential for us to support risk management for other Asean countries in the future.”

“And that’s providing reinsurance against a range of natural catastrophic risks,” he added.

Importance

STILL, Funa underscored it is important to have disaster risk insurance to mitigate effects of risk brought about by natural calamities.

Funa pointed out that the country experiences a total of $3.5 billion in damages yearly due to typhoons and earthquakes and around 20 typhoons make landfall in the Philippines every year.

That is why the Philippine government has placed various financial-protection schemes, he said, citing the Development Policy Loan with a Catastrophe-Deferred
Drawdown Option (CAT-DDO 2), which provides $500 million of standby financing.

“That is why we have the CAT-DDO program facilitated by the World Bank on insuring the
government assets,” Funa said.

He added, however, the commission is still studying the proposal of the Philippine Insurers and Reinsurers Association for insuring private residence and establishments.

“That is a more complicated matter because it will probably require legislation to implement,” Funa said. “And, of course, the matter on how to enforce it is very tricky.”

He also cited the Disaster Risk Reduction and Management Fund under the general appropriations Act. All of these fall squarely under a general plan called the National Disaster Risk Reduction and Management Plan 2011-2028, according to Funa.

Programs

ALSO in July last year the Philippines launched a parametric catastrophe risk-insurance program for government properties with the collaboration of the Department of Finance, the Government Service Insurance System, World Bank and the United Kingdom Department for International Development.

Under this program, the GSIS, as the insurer, will provide catastrophe risk-insurance coverage for the national government, with priority for those agencies involved in disaster risk-management, and 25 selected and disaster-prone provinces.

The premium for program was allocated under the National Disaster Risk Reduction and Management Fund of the 2017 General Appropriations Act (RA 10924) in the amount of P1 billion ($19.5 million), inclusive of cost for documentary stamp tax. Premiums have two categories: disaster-specific and province-specific.

For disaster-specific premiums, P500 million of the fund will be allocated 79.2 percent (P396.1 million) for typhoons and 20.8 percent (P103.9 million) for earthquakes. The other P500 million will be province-specific and split equally among the 25 provinces at P20 million each.

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