THERE are three classes of insurance business under a tariff regime for several decades, namely fire, motor and surety. As previously mentioned, the insurance industry is deep into analyzing what is best for customers and itself – whether to retain but update the current tariff or to discard the tariff controls and go free market altogether.

After a prolonged period of introspection, followed by a period of debate, the industry in an internal referendum voted for what, in its mind, was best. The initial results were inconclusive and necessitated a second and even third round of voting. For those interested in the actual detailed results, they will be made available in the industry association’s web and social media pages. Suffice it to say that the industry favored keeping to an updated tariff for the surety line. For motor, excluding the compulsory third party liability bit, the industry was ambivalent with a slim majority of those who were in attendance who voted opting to come up with its own rating while the remainder leaned towards a free market. For fire, at the third ballot, out of the 47 companies voting, 24 chose to file and use their own rate while 23 opted to go to the free market — a very slim margin for the rate filers.

This is not the end of the saga as the results, while already reported to the regulators during one of the regular dialogues with the Insurance Commission (IC), will have to be accompanied by a paper that would show how the industry would want to manage its transition to a new regime, whether a free market or at the very least a tariff that reflects the market and is sustainable. Please note this exercise was meant to gauge the readiness and willingness of the industry but would need the imprimatur of the commission for it to be implemented and put into practice.

This is going to be a long road to this new regime as the transition is not going to be easy. The industry would first have to determine the deviation of the current market rates versus the IC-approved tariff rates which admittedly have not been updated in some time. To make this possible, the insurers will first have to submit their premium registers for at least 2019 and 2020. Market rates seem to be lower than the tariff and are brought about by steep competition. It is true that the insuring public is favored by such a situation. However, regulations and tariffs must be followed as it ensures sustainable rates. Unsustainable rates can weaken a company’s ability to service claims in the event of a catastrophic peril such as major earthquake or super typhoon. This is why the industry is asking for a moratorium or at least a cap on the penalties that may be levied for breaches of tariff, allowing it a reprieve to be able to get the right industry data and update the stagnant rates that no longer reflect reality.

Without the threat of penalties, the industry together with the regulators and third-party consultants such as the Actuarial Society of the Philippines, can now freely collect the data and statistics needed, in the most granular form available and prospectively, starting from a pre-agreed point in the future.

As this study may take some time, the results of the referendum point to the possibility of using an interim tariff to be put forward by the industry association as a rate-making body and reviewed and approved by the regulators. The target date of say January 2022, can then be proposed. In the meantime, companies will of course be expected to strictly comply with these interim rates and penalties will be meted out based on a strict audit of the IC on premium registers to be submitted by the regulated companies.

Based on the outcome of the study and review, the industry and the regulators may agree on a future regime, whether free market or a tariff best reflects reality and is sustainable and will be in the best interest of the various stakeholders. Difficult maybe, but possible, necessary and opportune.