Calamity insurance: Some ‘acts of God’ come at a price

Long before tropical storm Ondoy hit the country in September 2009, the “act of God” (AOG) coverage was an optional feature for Filipinos with non-life insurance.   Back then, some companies gave AOG coverage for free to attract clients, said Celestino Ang, president of Prudential Guarantee and Assurance Inc. It was only after the tropical storm that cost billions in widespread damage that insurance companies saw value in AOG, according to Ang.   Known also as “act of nature,” AOG coverage are contained in natural peril policies that provide the insured with varying scopes of contingency cover on motor vehicles, stocks or properties damaged by natural disasters such as floods and earthquakes.   When Ondoy and Pepeng left a swath of damage amounting to more than P68.2 billion, more Filipinos realized the value of the AOG coverage and were interested in paying the additional premium for insurance against calamities, according to the Philippine Insurers and Reinsurers Association (PIRA).   The “penetration rate”—the industry indicator of how many people have coverage—for non-life insurance is now pegged at less than 5 percent. Pre-Ondoy the rate was at 2.0 to 2.5 percent, PIRA’s Benedicto added.   After 2009, payment for AOG coverage has increased. Based on latest data from PIRA, premiums for AOG rose a year after Ondoy – P13.5 billion for motor vehicles in 2010 from 12.1 billion in 2009, while around P18.5 billion were paid for properties from P17.6 billion.   “People learned from the sad experience,” said Ang. 'Calculated risks'   However, the change may not have been deep or widespread enough.    In a country lashed by at least 20 storms each year, it would seem that Filipinos would opt for insurance against calamities. But despite an increased awareness, “that did not necessarily translate to more Filipinos buying ‘acts of nature’ covers,” Benedicto said.   With Typhoon Gener and the enhanced southwest monsoon, the country saw another deluge caused by heavy rain, which poured 687 mm of rainfall in 48 hours. Ondoy dumped 455 mm in a 24-hour period.   PIRA chairman Pedro Benedicto said “acts of God” insurance claims this time around may barely reach half of Ondoy’s damage figures, which hit P11-12 billion in insured losses.   In fact, this peril policy in non-life insurance might prove elusive for clients in flood-prone areas. Companies providing insurance against natural disasters prefer to service clients living in less disaster-prone areas, the country’s insurance experts claim.    There’s a catch.   Although the insurance industry is a “business of risk,” veterans in the industry said their companies tend to be “selective”, preferring those who live in less disaster-prone areas.   According to the country’s Insurance Commission, it’s business as usual.   “On the side of insurers, pipili siya ng clients. Siyempre negosyo rin ‘yun eh. Otherwise (kung ang clients ay sa flood-prone areas) it will be ‘sure ball’ na madalas magki-claim ang clients sa policy,” deputy commissioner Viba Chiong said.   Prudential’s Ang said they needed to qualify the risks involved, preferring those that would “not expose ourselves unnecessarily.”   “We should be selective in our clients… (Although) insurance is the business of taking risks…the risks we are taking must be calculated.”   But that doesn’t mean there’s no chance of granting insurance to disaster-prone areas – it just has to come at a heftier price. “People are asking me if I am going to insure a burning building. Yes, but at what price? (It should be) at the value of the burning building,” the Prudential president added.   For example, for motor vehicles, the premium payment is pegged at 0.5 percent of the vehicle. For properties, it depends on what calamity caused the damage – 0.1 percent for earthquake, 0.025 percent for typhoon, and another 0.025 for floods, Benedicto noted.    For clients living in disaster-prone areas, there are conditions to be granted an AOG cover – they would have to build risk-reduction measures with their properties to prevent the damage by calamities.   To protect themselves from unnecessary risks, non-life insurers were less likely to grant insurance to those who live in flood-prone areas like Marikina, Malabon, Navotas and Cainta, Rizal, observed Benedicto.   “Medyo alanganin yung lugar. Titingnan muna namin kung saan eksakto yung lugar,” said Benedicto, who is also the president of Republic Surety and Insurance Co.   He instead cited the living hubs of most insurance companies’ favorite clients – first class residences in Forbes and Greenhills, for instance, where drainage system was well-planned to prevent flooding.   “‘Yung mga first class subdivisions, talagang kinocover ‘yan ng maraming insurance companies. Stable kasi doon eh. Maganda ang drainage system,” Benedicto added. — ELR, GMA News