A Special Report from the Philippine Graphic
The Philippines is located in a prime spot for trade and tourism, being blessed with a tropical climate, beautiful beaches and sceneries.
But the country’s location also leaves it vulnerable to natural calamities.
With the country sitting in the Pacific Ring of Fire, earthquakes and volcanic eruptions—the same phenomena responsible for glorious mountains, rock formations and islands—are much more frequent compared to other regions in the world.
Typhoons also frequently visit the country. In a year, an average of 20 tropical cyclones enter the Philippine Area of Responsibility. Approximately 10 of those become typhoons, around eight of which make landfall, and around five will cause significant damage.
Nature can deal the country double whammies too. In October 2013, a magnitude-7.2 earthquake hit the Visayas region, leaving 222 dead, 976 injured, eight missing, and P2.25 billion in damages. Bohol took the worst hit, as the quake toppled several historical structures, including the oldest church in the region, the Church of Our Lady of Light.
Just three weeks after the quake struck, Super Typhoon Yolanda pummeled through the Visayas region. With raging winds up to 315 km/h, the typhoon, known internationally as Haiyan, was one of the strongest on record and left 6,343 dead, 1,058 missing, and P145 billion in damages. Leyte, the hardest hit by Haiyan, is still recovering to this date. But just recently, a magnitude-6.5 earthquake shook the province and wrecked P271 million in properties.
One would expect that with the frequency of natural disasters the Philippines faces yearly, Filipinos would be better prepared. “Unfortunately, despite the regular occurrence of natural calamities in our country, it seems that we are often caught unprepared,” said Michael Rellosa, the deputy chairman of the Philippine Insurers and Reinsurers Association (PIRA), in a lecture delivered at the Asian Institute of Management.
But why? Rellosa, who is also the president of Fortune General Insurance, says it all boils down to how funds are spent and accessed by local government units, and how government property is insured. He explains that typically, a government, in times of disasters, will first use government reserves and contingency funds. If it needs more money, it can use contingent credit lines and post-disaster credit. In the event of disasters of historic proportions, insurance proceeds, catastrophe bonds proceeds, and international donations will be the source of funding for relief, recovery, and reconstruction operations.
However, the Philippines has a different approach. The first line of funding is the contingency fund, called the National Disaster Risk Reduction and Management (NDRRM) fund. The NDRRM fund for this year has been slashed in half from P38.9 billion to only P15.8 billion, and as of March 2017, only P5.77 billion remain as P10 billion was spent for relief and recovery operations in response to “Nona”, “Ferdie”, “Lawin”, and “Nina”.
“One major problem with NDRRM funds is not just the shortage of funds but actually the use, or more specifically the non-usage of such funds,” Rellosa explained. He discussed a 2015 Commission on Audit report which stated that more than P1 billion in disaster relief funds given to local governments were underutilized or misused.
“Some P595 million in disaster funds were disbursed only in November 2015 to the Local Government Units, thus preventing timely implementation of post-disaster projects,” he said. Many LGUs in Metro Manila did not allocate millions of pesos from the NDRRM fund to their local risk reduction and management funds. At least P128 million of the Quick Response Funds given to the Department of National Defense (DND) were not used for quick response, but for repairs of DND facilities.
In addition to the lack of funding and the use of whatever funds left for purposes not related to disaster prevention and response, accessing the NDRRM funds is also difficult. “It seems our government has made it too hard to access these funds that our government units [...] find it impossible to put the funds to use in the most effective and efficient way you know,” Rellosa said.
He said that problems in accessing the NDRRM fund are due to the lengthy approval process for the fund releases, which delays recovery and reconstruction projects, and the lack of clear criteria or rules to get funding approved.
“I was told that in many areas, the approval and release of NDRRM Funds can take from months to years,” Rellosa lamented.
After the measly and difficult-to-access NDRRM fund is depleted, the Philippine government can turn to the World Bank for a $500 million loan, especially in the aftermath of an extremely destructive disaster. But usually, the government would jump straight to the top of the risk layering model and use international donations to fund calamity response. Issues with insurance also plays a big part in post-calamity recovery and reconstruction.
Rellosa explained that government property insured with the Government Service Insurance System (GSIS) are not automatically insured for typhoons and may be grossly underinsured. “In Leyte and Samar, most of the government buildings destroyed by Super Typhoon Yolanda were found to be not insured,” he said.
The GSIS insures government properties for fire, but not other calamities. Rellosa also said that most, if not all of government properties, are insured based on depreciated values and not on the cost of rebuilding them.
According to Rellosa, insurance with GSIS, as the case of Yolanda shows, only covers fire and does not cover natural calamities, since it requires additional premium and government agencies find this an added expense. Aside from these problems, the sluggishness of traditional insurance claims handling also causes trouble for victims of natural disasters.
Rellosa showed that these systems in the country are far cries from the systems in place in Turkey, Mexico, and the Caribbean. Turkey created the Turkish Catastrophe Insurance Pool which insured all urban residential buildings on registered land for earthquakes. Mexico established the Fund for Natural Disasters which gets 0.4 percent from the annual federal budget and accrues interest in a trust fund. The Caribbean Community government’s Caribbean Catastrophe Risk Insurance Facility, which is similar to business interruption insurance, ensures that they will have short-term liquidity if hit by a hurricane or earthquake.
But the future in the Philippines is not too bleak. There have been initiatives to improve financing and insurance mechanisms in the aftermath of calamities.
“There are moves to introduce a joint catastrophe insurance for local government units, set aside a P1 billion budget intended to buy insurance and to pay for other mitigation initiatives, and set up a catastrophe insurance pool for homeowners and small businesses,” Rellosa said.
Laws have also been enacted to increase DRRM funds and streamline the approval of its release. R.A. 10121 sets a minimum of 5 percent of regular income sources to be allocated as local DRRM fund. Rellosa said that this law also enables local government units to use 70 percent of the fund for disaster prevention, while 30 percent of the fund goes to a special trust fund for five years.