Tightening the reins in the Philippines

Although they worry that the burden of regulation is a barrier to business growth, almost every risk professional StrategicRISK spoke to for the 2014 Philippines Risk Report considers the introduction of new laws to be a generally positive step.

Current president Benigno ‘Noynoy’ Aquino came to power in 2010 after campaigning on a platform of anti-corruption. His actions post-election have demonstrated that this remains the most fundamental aspect of his government strategy.

The effect of this crackdown has been to increase business transparency, using regulation as the primary tool. The process has been slow – not only in terms of how businesses now operate, but also in achieving the targeted aim of reducing corruption.

Nonetheless, the strategy is working, and risk professionals accept that the regulatory burden on business, even when over-restrictive, is a necessary price to pay if it ultimately means being able to operate on fair terms.

“We see regulations as a welcome improvement, especially for stopping corruption,” says Kenneth Lopez, head of insurance and claims at Ayala Land, the largest property development company in the Philippines.

Risk managers say businesses accept the additional bureaucracy for this reason, but argue many of the complexities lie at local level.

“Of course, we will still face problems with local governments regarding rules and dealing with their regulations,” says one risk manager on condition of anonymity.

“Nevertheless, it is always essential to have good relations with local government.”

Power play

Staying abreast of regulatory issues is a hard risk to manage, particularly for companies operating nationwide as many local jurisdictions need to be considered.

However, although there are complexities for most industries, these pale by comparison to those faced by firms operating in the power sector, which is the most heavily regulated in the Philippines.

Chris Dale, chief executive of Aon in the Philippines, explains why utilities face particular close scrutiny: “The economy is fundamentally driven by the power industry, and it appears that the government feels that it has been effectively allowed to call the shots. However, the government now wants more control of power, both power supply and pricing.”

Although Dale agrees regulation is no bad thing “provided it promotes good governance”, the overall approach to regulatory issues differs from that in many other countries.

“For instance, my experience here of insurance regulation compared to the UK is that it’s more focused on the industry itself than the UK, which seems driven more by the protection of consumers.”

However, Enrique ‘Jet’ Pampolina, head of enterprise-wide risk management at electricity distributor Meralco, believes power regulations are aimed at helping both.

“Much of the regulation – particularly over public utilities – has been skewed around competing claims of finding the right balance of an acceptable rate for end-consumers, while allowing a decent return for investors in capital-intensive businesses.”

Irrespective of who regulations are aimed at, without doubt, risk professionals in the Philippines must pay particular attention to regulatory issues.

It is not so much the introduction of new laws, but also the need for greater attention to existing ones that lies at the heart of the government’s regulatory strategy.

No more blind eyes

Moreover, this applies to all sectors, including insurance. Graham Edwards, president and chief executive of JLT in the Philippines, says: “Noticeably, we are not so much seeing a swathe of new regulations as witnessing more of a focus on enforcement, where there used to be a lot of blind eyes being turned.

“Regulations have been tightening in the Philippines, with good reason. In our industry, the Insurance Code has been revised recently after hardly being touched since the 1970s. It has now been given a much-needed major overhaul.”

For more on the regulation debate in the Philippines, download StrategicRISK’s 2014 Philippines Risk Report, which is sponsored by Zurich and supported by the Pan-Asia Risk & Insurance Management Association (PARIMA).

All StrategicRISK’s Asia-Pacific country reports are available here.