Insurance for the unexpected

Memories of tropical storm “Ondoy” that devastated Metro Manila and surrounding provinces in September 2009 still cause the motor insurance industry to wince in pain.

After all, Ondoy is considered the costliest natural disaster to hit the Philippines since the 1991 eruption of Mt. Pinatubo and the single most expensive insurance event charged to the local insurance industry’s books.

The estimated damage of Ondoy that killed close to 400 people and displaced 4.1 million others is as high as P11 billion, including extensive damage to motor vehicles.

According to Lilet M. Castillo, first vice president, motor and special lines division of Pioneer Insurance, Ondoy was “the most expensive learning experience for the motor insurance industry.”

“All stakeholders—policyholder, underwriter, motor dealer shops, car manufacturers, government—were caught unawares by the magnitude and extent of the loss sustained by thousands of motor vehicles, plus the work to be done in the adjustment and settlement of the flood claims,” Castillo told the Inquirer.

And the level of insurance claims would have been even higher had all motor vehicle owners had insurance policies that covered so-called Acts of God or Acts of Nature, referring to natural calamities such as earthquakes, typhoons and storms.

As many car owners discovered to their horror when they brought their waterlogged cars in for repairs, their comprehensive insurance policies were not as comprehensive as they would have liked, as these did not include damage due to Acts of God.

Thus, with the rainy season coming and with it the possibility of another Ondoy, motorists would do well to check the fine print of their comprehensive insurance policies to make sure that they cover Acts of God or Acts of Nature.

It is by no means automatic.

According to Celestino Ang, senior vice president of Prudential Guarantee and Assurance Inc., comprehensive insurance mainly covers for loss—in case the vehicle is stolen—and damage, when the car is involved in a collision.

Acts of God coverage, on the other hand, requires an extra premium equivalent to a maximum of 1 percent of the value of the vehicle.

So for a vehicle worth P1 million, which will mean most vehicles owned by middle-income earners, Acts of God coverage will mean an extra P10,000 premium. For a luxury vehicle worth P6 million, Acts of Nature premium will cost P60,000.

The extra premium is really quite pricey, which is why before Ondoy happened, Acts of God coverage sales were insignificant. But it’s a totally different story after Ondoy hit when many vehicle owners hit by Ondoy had no choice but to either declare a total loss on their vehicle or shoulder the repairs themselves.

Ang estimated that for PGA, insurance claims following Ondoy reached P270 million, the single-biggest payout in its history. Still, it had to deal with numerous irate car owners whose claims for repairs were turned out because their insurance policies did not cover Acts of God.

“A lot of car owners were of course angry. We just had to explain that their policies did not cover Acts of God. The problem is that our awareness of insurance is not very high and people try to save as much on premium as possible,” Ang said.

Ondoy, however, changed the insurance picture dramatically. These days, car owners see the value of buying Acts of God insurance, which provides the insured the fair market value of the car at the time of loss.

“After Ondoy, people became more aware of the need for insurance. In our case, there was a significant increase in the level of purchases of Acts of God coverage because people saw what happened during Ondoy,” Ang said.

“Following the flood-loss claims brought by typhoon Ondoy in 2009, we have continued to sell Acts of Nature (AON) cover to our clients, albeit, doing the selling prudently, especially in the assessment and acceptance of accounts,” added Castillo.

Buyers used to be understandably wary of the products such as Acts of God coverage that insurance companies are pushing. But it does come in handy when the time comes.

“Of course we recommend to our insured to buy everything that is available, but then they say that we are just forcing them to buy. But insurance is for covering the unexpected, like Ondoy,” Ang said.