Honeyman: ‘It’s a racket’

Monday, December 12, 2011

BACKGROUND

In 2009, Sun Life Financial carried out an extensive survey to examine what financial provisions we make for our retirement. Not many, was the resounding conclusion. CEO Riza Mantaring said at the time that this shows that Filipinos are financially irresponsible.

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But the 2011 vintage had changed her tune somewhat. In a candid interview with ABS-CBN’s David Celdran recently, Ms Mantaring stated that our opinion of the insurance sector is that ‘It’s just a racket.’

Quite right!

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What to do?

Our perception that the insurance sector has more than its fair share of racketeers needs to be addressed. At present, there are over thirty life assurance companies operating a fragmented industry in the Philippines. There is an Insurance Commission which regulates companies by ensuring that they meet specified capital adequacy requirements. It has also produced an Insurance Code, a not-too-helpful rulebook, which outlines constraints affecting some aspects of allowable insurance products. For example it does not allow me to reach agreement with my insurer as to the value of my house. If we cannot do this, how can we arrive at an acceptable premium that I should pay?

The life insurance sector has its own organization, the Philippine Life
Insurance Association (PLIA). This appears to be an amiable talking shop which sometimes acts as a pressure group to promote the interests of its members. For example, it has, in the past, lobbied government departments to deduct teachers’ life insurance contributions at source. We consider this to be a bad idea. It should be a fundamental principle that salaries should be remitted in full to the employee.

The weakness of the present environment is that there is no government department which protects those who have been duped by the insurance sector.

This is disappointing since the government has a Constitutional obligation to do so. Section 9 Art XVI states…

‘The State shall protect consumers from trade malpractices and from substandard or hazardous products.’

We believe it would help the insurance sector if PLIA developed some disciplinary teeth to keep its members in order. It is rare for a whole organization to be rotten, the Legacy Group is an example, but even relatively reputable insurance companies have rogue elements and factions which can operate with impunity under a regime of indifferent management and inadequate internal audit controls.

It is recommended that PLIA creates a mechanism in which clients who believe they have been mistreated by a PLIA member can be heard. The benefits to the industry would be rapid. Individual abuses would be nipped in the bud and peer pressure from PLIA members would ensure that the errant ones would quickly mend their ways.

It is in the interest of the insurance sector that this be done.

The under-development of insurance in the Philippines is not so much to do with Filipino irresponsibility (Mantaring, 2009) or poverty but much more to do with our justifiable lack of trust and confidence in the industry.

It’s a racket.

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Tourism

Egypt is having problems with its tourism industry. Recently 11% of the country’s GDP, is likely to fall dramatically due to recent unrest.

We have no such problems. Our tourism industry comprises only 1.5% of our GDP but with the great marketing programs promised by incoming Tourism
Sec Jimenez, this is likely to rise. The impact on the economy generally and employment is particular will, we hope, be substantial.

Last week’s welcome announcement that Zest Air will fly direct from Incheon, Korea to Bacolod-Silay Airport should provide a boost to our economy.

We trust that all relevant parties will work together to ensure that everything
goes smoothly. Our Korean guests are likely to be short stay and it would be regrettable if they were burdened with red tape, or problematic transfers from airport to hotel etc.

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(Electricity costs)

These are getting out of hand. The problem is the terms of the contract
between Ceneco and Kepco, signed by Ceneco in late 2007, and approved by the Energy Regulatory Commission.

As far as Ceneco’s member consumers are concerned, the flaw is in that part of the contract which states that if Kepco incurs increased costs, then these costs may be automatically passed on to the consumer.

Predictably, Kepco has indeed been subjected to cost increases and, as contractually agreed, these increases have been transferred to us.

This is the overwhelming cause as to why we paid well under P6 per KWH in January and nearly P10 per KWH in December. The effects of such an unreasonable rate of increase are that business development is impaired, there is real hardship in many homes and, for all of us, a reduction in spending on other essentials.

Is there an alternative? Possibly. The day is coming closer when the feed-in tariffs for various renewable energies are not looking so horrendous. For example, Biomass has a feed-in-tariff of P7 per KWH. Biomass has the advantage that it can be used to generate electricity in Negros. This would support the Negrense economy since our electricity-expenditures would stay in the province.

At present, most of the money we pay goes to Cebu, Korea and to the Indonesian government and its coal-mining industry. Creating jobs in our countryside, surely, is the preferable option. A commitment to use electricity from biomass would, perhaps, persuade the Thomas Lloyd Group which visited Governor Maranon recently, to go ahead with the suggested creation of 3x18 MW power plants in the province.

Early last week, Energy Secretary Almendras reportedly challenged us by saying if we are prepared to pay the appropriate feed-in tariff, then we should be able to have electricity from the renewable energy source of our choice.

It may now be timely to negotiate with the Department of Energy with a view to sourcing at least some of our electricity from biomass.