Solons to probe capital hike order for insurance companies
The House Committee on Banks and Financial Intermediaries is set to conduct a probe on a controversial order of the Department of Finance (DoF) that could lead to the closure of dozens of Filipino-owned companies and loss of thousands of jobs in the insurance industry.
House Resolution number 2299 filed by party-list representatives Teddy Casiño (Bayan Muna), Raymond Palatino (Kabataan), and Antonio Tinio (ACT Teachers) say that Congress should look into the concerns being brought forth by insurance companies over Department of Finance Order 27-2006 which raises their capital requirement to levels beyond what the industry is capable of.
According to the three lawmakers, the DoF has as a lot of explaining to do to justify the P1 billion capitalization that it requires from local insurance companies by 2016.
“The DOF said it is concerned with the stability of the insurance system in the Philippines, but insurance companies claim that the implementation of the department order will in fact result in the disabling of insurance companies, which in turn will unjustly affect the insuring public,” they said.
The Philippine Insurers and Reinsurers Association (PIRA), the umbrella organization of all non-life insurance companies in the country, has opposed the DoF order since the day it was introduced. The order raises the minimum paid-up capital required of each insurance company from P50 million to P100 million the first year, P175 million the second year, P250 million the third year, until P500 million by 2015.
The DoF initially deferred the said order supposedly to conduct more studies to back it but Finance Sec. Cesar Purisima has proceeded to implement it and even doubled the requirements to P250 million by end of this year, P450 million by end of 2013, P625 million by end of 2014, P800 million by end of 2015 and to P1 billion by 2016.
Purisima has been quoted that he “doesn’t care if insurance companies will close down” as long as the welfare of the insuring public is protected. “Insurance is a business of scale. There is no room for small companies here,” he said. “We xcan no longer have mom-and-pop insurance companies. A lot of these are second and third generation… many of them are actually old but they have not progressed.”
He insisted that the P1 billion capitalization that life and non-life insurers must comply with by 2016 was “not even high enough” relative to the capital levels set by other Southeast Asian countries. However, when asked for figures, he was able to show numbers that are slightly higher than the P175 million required of companies for last year but way below the P1 billion that he wants the companies to reach by 2016.
PIRA has been protesting the P1 billion being required by Purisima as "capricious, whimsical and has no legal legs to stand on."
"Secretary Purisima is saying that the reason he is raising the capital is he wants to protect policy holders. But if you will study the history of the insurance industry, there is no single company that closed down because it failed to pay claims. Even in the aftermath of Ondoy, where the industry paid P11 billion in claims, no insurance company failed to settle its obligation. This only shows that the industry is stable enough and has enough capital for the risks it is taking," PIRA said in a statement.
The partylist lawmakers have taken the cudgels for the small and medium insurance companies, most of them family-owned, which have been in existence for more than 30 years, providing personalized service to equally small and medium-sized clients.
“The fact that majority of the concerned companies are more than three decades old appears proof that size of capitalization is not a major factor for a company’s stability,” the lawmakers said. “The DOF should consider developing a risk-based capital regime, a scheme already adopted by other countries and even being used by banks locally, so as to allow smaller players to compete,” they added.
Aside from private companies, the DoF order will also cause the closure of cooperatives that offer microinsurance, or insurance for poor people, to clients like teachers, farmers, tricycle drivers and others who could not afford to get insurance from big companies.
In a recent public forum, the Insurance Commission itself has acknowledged that these cooperatives, which operate on paid-up capital of P10 million to P100 million, will definitely cease operation once the requirement has gone beyond what they can afford.