Acts of God

Most Metro Manila households and commercial and industrial establishments affected by Ondoy’s wrath may slowly be getting back to shape, but not so for the insurance industry which is working overtime to process the deluge of claims.

Philippine Insurers and Reinsurers Association, which represents 87 non-life insurance companies, estimates insurance losses from Ondoy’s floods at P11 billion, and this is just a “very conservative estimate.” Most of the areas affected the most – Pasig, Cainta and Marikina – are industrial and commercial in nature.

One warehouse full of inventories for Christmas already filed a claim for P200 million. A well-known shoe factory reportedly lost some P100 million worth of leather materials. Thanks to insurance that covers acts of God, or extreme risk, not everything was lost.

But we all know that the two business concerns mentioned above are just a few of those that will be indemnified by insurance coverage. The biggest damages that will have to be fully shouldered by owners are damages to their residential homes and other personal property, i.e., vehicles, which have been partially or fully submerged in water and mud.

Wake-up call

For some, the killer typhoon Milenyo which hit Metro Manila in 2006 was a wake-up call – but largely only for car owners – to protect their investments with insurance that includes acts of God. Not many had thought thousands of homes could be affected by a typhoon.

Most Filipinos are insurance-averse, and if they do grudgingly cough up the money for insurance coverage, it is not comprehensive enough. For most homeowners that pay for property insurance, this is usually only for fire damage.

But with the kind of damage that the metropolis saw during Ondoy, and with possibly more to come if we are to believe Al Gore’s PowerPoint presentation on global climate change, Filipinos should seriously look at getting that extra insurance coverage against flooding and even earthquakes. In other words, the whole caboodle that goes under AOG.

Motor vehicles

There is also a healthy discourse now ongoing on the pros and cons of AOG coverage for motor vehicles. Of the total estimated insurance claims of P11 billion, at least P1 billion is being allotted to motor vehicles that were submerged or totally wrecked when swept away by the raging flood current.

But this only represents around 10 to 20 percent of the damage on affected automotive vehicles. The industry estimates that some 14,000 cars got flooded at the height of Ondoy’s onslaught of Metro Manila.

Most of those with AOG cover belonged to fleet accounts. Their insurance companies either gave them the AOG cover on a discounted premium or even for free as a bonus in getting their account.

You can count the number of car dealerships that require extreme risk coverage on vehicles they sell. This is because many customers who want to save a few thousand pesos often insist that the AOG clause be removed. Ondoy however is strongly changing this view.

An exclusion

Comprehensive insurance for motor vehicles protects vehicle owners only against accidents and theft. The AOG is a standard exclusion – this is the practice all over the world. Since it is an exclusion, one needs to pay an additional premium to include it.

The average premium the industry charges for AOG is between 0.5 to one percent of the sum insured. So for a P1 million car, an AOG cover could cost between P5,000 to P10,000 additional annual premium.

It may be substantial especially for ordinary wage-earners. But what is P5,000 when the cost of repairing a flooded car could reach to P200,000. We’re not even talking about the inconvenience especially to one-car families. Some will not be available until early next year because of the abnormally high number of damaged vehicles.

Filipinos generally view insurance as an expense, not as investment. They think it’s useless to spend on insurance since this is rarely applied. But insurance is just like the spare tire inside the trunk of your car. You may think it just eats space – until you experience a flat tire. Then, you realize how important that “useless” thing is.

Re-insurance

The other highlights that have surfaced with Ondoy – and the string of typhoons before and after it – is that we have a healthy non-life insurance industry that boasts of a net worth of P57 billion, if we are to believe a report by the insurance commission published in 2008.

Therefore, P11-billion estimated claims should be easily settled using the available funds. Now is the time though for all those fly-by-night insurance companies to be weeded out, and the insurance commission should be on the lookout for them.

The industry is also well reinsured, meaning it is well covered by reinsurance treaties with global reinsurance companies. Reinsurance is basically the insurance of insurance companies. The reinsurance companies abroad pay for the losses which the local insurance companies reinsure with them. This ensures that the local companies remain healthy.

Again, insurance firms that have not been diligently reinsuring their risks will be hard hit, and the insurance commission should be ready to mitigate any possible financial repercussion should such a case emerge.

Insurance week

Incidentally, the insurance industry is celebrating Insurance Consciousness Week every third week of October. With most of insurance firms having some form of public service, now is a good time to go visit them and have that chat regarding the value (and cost) of the right insurance.

Now, more than ever, should Filipinos take a second – even third – look at the benefits that could be derived from insurance protection, especially against extreme risks. The country is visited by at least 20 typhoons that bring floods and landslides, hit by earthquakes and experience tsunamis every so often. Should we ask for more reasons? –Rey Gamboa (The Philippine Star)

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.