2018News

DoF moving to tap insurance for public works

By Elijah Joseph C. Tubayan, November 15 2018; Business World

https://www.bworldonline.com/dof-moving-to-tap-insurance-for-public-works/

Image Credit to Business World

THE DEPARTMENT of Finance (DoF) said it is developing a system for assessing risks to public works in the event of calamities, with an allocation mechanism that will allow the participation of private insurers.

“We want to develop this strategy in which we can have a way to analyze our risks to decide how much we will take on and how much we will pass on to the insurance market, not only for our national government assets but also for assets at the local government level,” Finance Secretary Carlos G. Dominguez III said in a statement yesterday.

Mr. Dominguez said it is “irresponsible” to push for a $170-billion infrastructure program without a comprehensive disaster risk financing and insurance program other than what is allocated in the national budget.

This year, the government has set aside P25.5 billion for the National Risk Reduction Management Fund, a calamity fund.

A risk model developed by the World Bank for the Philippines estimates that the country risks losses of P177 billion a year to public and private-sector assets arising from typhoons and earthquakes.

Aside from the coverage of its public assets with the World Bank, the DoF also said that it wants to work with insurance group Lloyd’s, as well as Citigroup Inc. for reinsurance contracts and coverage for state assets.

The DoF in September met with executives of Lloyds in London to learn global best practices for fiscal resilience amid exposure to disaster risk.

The government said crop damage and the destruction of public infrastructure due to recent typhoons was partly responsible for slowing third quarter economic growth to 6.1% from 7.2% a year earlier.

The DoF is also pushing for a national risk evaluation system for the national and local governments, to pave the way for them to access risk protection resources.

Mr. Dominguez said that forming a national insurance system is an “enormous task,” as the Philippines is just starting to put together its national asset registry.

Insurance protection for public assets would shield the fiscal situation from disaster-related shocks. The government seeks to maintain a budget deficit of 3% of gross domestic product this year to finance its spending, and hit that level in the first nine months of the year.

The DoF said that while some state assets are insured, most are “either inadequate to indemnify the government or lack the budget for premium payments.”

Mr. Dominguez said that the creation of a Department of Disaster Management and Resilience (DDMR), legislation on which is pending in both chambers of Congress after being certified as urgent by the President, would complement efforts to improve the government’ insurance coverage, as well as the program to inventory the government’s assets and property through a national asset registry system.

The registry is currently being piloted by Department of Education (DepEd), Department of Public Works and Highways (DPWH), Department of Health (DoH), Department of Social Welfare and Development (DSWD), and National Irrigation Authority (NIA), in coordination with the Treasury bureau.

Last year, the government along with the World Bank and the UK’s Department for International Development launched the Parametric Insurance Policy, insuring $206 million worth of national and local government properties. The Government Service Insurance System provides the catastrophe risk-insurance coverage for the national government and selected local governments, while the World Bank acts as the intermediary to transfer risks to selected international reinsurers.

The DoF also wants the Philippines to be a sponsor for a catastrophe (Cat) bond float offered by the World Bank.

A sponsor pays premiums to the issuer in exchange for insurance coverage for disaster-related damage. The issuer then offers securities to investors.

The Cat bond allows the sponsor to share calamity risks with bond investors. The sponsor will receive the principal in the event of a catastrophe. — Elijah Joseph C. Tubayan

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