California wildfires seen to stoke insurance costs
The California fires may be miles away but the heat is felt by the local nonlife insurance sector, which is now projecting premium costs to increase in the near future to offset losses from more destructive natural catastrophes due to climate change.
At a press conference on Wednesday, officials of Philippine Insurers and Reinsurers Association (Pira) Inc. said the raging wildfires in Los Angeles last January contributed to the global “accumulation” of climate change risks that have made reinsurance costs more expensive for insurance providers worldwide.
Also known as the insurance for insurers, reinsurance is a protection that insurance companies can buy to insulate themselves from too much losses. As it is, worsening natural disasters have been stoking an increase in reinsurance prices in recent years as claims go up.
That said, Pira—the umbrella organization of all nonlife insurance firms in the country—said insurers would soon have to offset the higher reinsurance costs through premium hikes. But the group said any increases in insurance prices would still have to be approved by regulators.
“Reinsurance, you can consider it as a key ingredient in your product. So, it’s not sustainable if insurers will continue to price at the same level even though your cost of reinsurance is already very high,” Eden Tesoro, former Pira chair, told reporters.
“Even if you say the insurance cost is high, I think that has to be put in a proper perspective—because companies are actually swallowing a lot of that cost,” Tesoro added.
Latest data from the Insurance Commission showed the total net income of the nonlife insurance sector had dipped by 2.63 percent in 2024 to P8.9 billion, as the 10.15-percent increase in losses outpaced the 6.58-percent growth in premiums earned.
Jose De Vera Jr., head of nonlife reinsurance at the National Reinsurance Corporation of the Philippines, the nation’s sole reinsurer, said the Philippines had experienced a “hard market” in the past two years, resulting in “significant increases” in reinsurance costs.
Still insurable
The reinsurance price hikes, De Vera said, were most pronounced last year. It may be recalled that the Philippines, which is located in the Pacific Ring of Fire, was visited by powerful storms in late 2024, causing massive flooding.
But despite the losses, Michael Rellosa, executive director at Pira, said the local nonlife sector remained liquid and ready to pay the benefits of clients in need, citing the 3.35-percent increase in the industry’s net worth last year.
The good news is despite the Philippines’ high exposure to climate change risks, Tesoro said local nonlife insurance providers are not pulling out of any vulnerable areas, like the Bicol Region and the flood-prone Marikina City. But people in these areas would find themselves paying more for protection plans than those in other areas.
“At most, there is limited [insurance] coverage,” Tesoro said.
“Of course, we want to be there for everyone. But we also need to be sustainable. Because in the long run, we will be doing our clients a disservice if we are not able to manage our business well, which will result in us pulling out because we cannot sustain it,” she added.
