BusinessWorld
Posted on February 28, 2011 10:57:18 PM
BY DIANE CLAIRE J. JIAO
AMID forecasts of a stormy summer, the insurance industry is gearing up to provide the public with better protection from typhoons and floods after the devastation wrought by Ondoy and Pepeng in 2009.
"We are more prepared than before because we’ve already gone through very strong typhoons," non-life insurer Federal Phoenix Assurance Company, Inc. President Ramon Y. Dimacali told BusinessWorld yesterday.
"It’s a common practice now for the protection from acts of God to be automatically costed into the premiums of insurance products," he explained. "Then, it is up to the consumers if they want to opt out of it."
Non-life insurance typically only provides coverage from accidents and theft for cars and fire and lightning for property. Protection from damage caused by natural disasters such as typhoons, floods and earthquakes, which are considered acts of God, is not included.
An estimated 75% of all property losses caused by typhoons Ondoy and Pepeng were uninsured for acts of God, Lacson & Lacson Insurance Brokers, Inc. managing director Salvador L. Lacson said in a text message yesterday.
Since then, awareness has spiked, Mr. Lacson said.
"For our company, all our insured have coverage for natural disasters," he said. "Brokers also make it a habit to advise the insured about the importance of acts of God coverage."
Banks have also began to require acts of God coverage for property acquired through housing and car loans, Mr. Dimacali said. Companies are also insuring their car fleets against natural catastrophes.
But this awareness may be short-lived given the additional costs, warned Mario C. Valdez, general manager of the non-life group Philippine Insurers and Reinsurers Association (PIRA).
While rates may vary among different insurers, annual premiums usually cost 1% of the value of the property. Acts of God coverage costs an additional 0.5%, he said. A car worth P1 million would effectively be charged P15,000 in premiums per year.
"Filipinos are very aware now, but after two or three years of paying premiums, they could think, ‘Forget it.’ They could think that typhoons [as strong as Ondoy] only come once every 10 years," Mr. Valdez said.
Awareness could also wane in areas which don’t experience many disasters, he added.
"It’s more economics than awareness. At 0.5% per year, it can be quite expensive," Mr. Valdez said.
Mr. Lacson said customers who approach him have also expressed the reluctance to shell out so much money. However, he said he asks them, "For every peso you save in premiums, how much do you lose in potential claims?"
Disaster-prone
According to the German Agency for International Cooperation’s (GIZ) Study on Demand of Insurance for Natural Catastrophes, the Philippines is one of the countries most prone to natural disasters. An average of 25 typhoons hit every year and Ondoy and Pepeng racked up an estimated P30 billion in overall damage.
Global reinsurance leader Munich Re also singled out Asia as the region most vulnerable to losses caused by natural catastrophes.
"Weather-related catastrophes worldwide and in Asia have tripled since 1980, and the loss potential is rising," Francis Savari, Munich Re Singapore head of client portfolio management, said in an e-mail on Friday.
According to Munich Re data, 32% of the 19,500 loss events from 1980 to 2010 happened in Asia. The region also had 51% of the 2,275,000 disaster-related fatalities during the 30-year period.
Moreover, Asia had an estimated $1.140 trillion in overall losses from natural catastrophes during the 1980-2010 period but insured losses only totalled $66.6 billion.
Major factors for the increasing losses are a rise in population, higher value concentration in extremely exposed regions and climate change, Mr. Savari said.
Reinsurance
To help insurers deal with the destruction caused by natural catastrophes, many industry players have begun seeking partnerships with reinsurance companies abroad.
Reinsurance is insurance for insurance companies, or a practice of spreading the risk to other parties.
Federal Phoenix’s Mr. Dimacali explained: "Most companies don’t usually get reinsurance. But Ondoy sunk entire warehouses, factories, and shopping malls. That is a very big pay-out, more than one insurer can absorb."
Insurance companies are now striking agreements with reinsurers abroad by paying them a portion of the premiums they receive. In return, the reinsurer helps pay for the obligation when a large claim needs to be settled.
"We’ve also began getting reinsurance for car claims, which are usually very small. But when a disaster hits, it’s not just one car that gets damaged. It could be all the cars in the Marikina and Cainta area," Mr. Dimacali said. "The industry probably paid P2 billion in car claims alone after Ondoy."
Broker Mr. Lacson added that the ability of insurers to quickly settle claims -- no matter how large -- would encourage more customers to purchase non-life insurance.
"Ondoy hit Metro Manila in September 2009. By the year-end, we were able to settle all motor claims. Also, 95% of all property claims were settled," he said.
Munich Re’s Mr. Savari did not disclose figures on the portion of their reinsurance business that comes from Philippine insurers. He admitted, though, that there was a "substantial rise in reinsurance demand and interest over the last years."
"With the rise in natural catastrophes, the higher living standards in the Philippines and the increasing capital requirements we expect this to increase further," he said.
Microinsurance
The low-income sector, meanwhile, remains an untapped market.
"They are the most vulnerable because they don’t have enough capital. Sometimes, their cars and their homes are still being paid off," Mr. Dimacali said.
Reinsurance giant Swiss Re emphasized the need for microinsurance.
"The more pressing challenge is how to protect those who are unable to purchase insurance protection for themselves, but whose lives and properties may be directly affected by natural catastrophes. The government may need to step in here," Swiss Re Vice-President Sandra Capay said in an e-mail.
Last month, the Insurance Commission approved a microinsurance product called Buhay, Bahay, Kabuhayan.
The product is designed to give P10,000 worth of coverage against death from accidents or damage to property/business from natural calamities. Consumers can buy up to three units for a total coverage of P30,000.
A Buhay, Bahay, Kabuhayan contract is good for a year.
In an earlier interview, the PIRA’s Mr. Valdez said eight non-life insurance companies had already expressed interest in offering the product this year.
GIZ and Munich Re have also partnered with the Cooperative Life Insurance and Mutual Benefit Services (CLIMBS), an umbrella organization of cooperatives, late last year to offer a natural catastrophe insurance product to 1,600 cooperatives with nearly a million members.
The product, CLIMBS Weather Protect, insures a portion of a cooperative’s loan portfolio so it remains liquid in the event borrowers, affected by natural calamities such as storms, default.
Eighty cooperatives are already set to insure their portfolios this year, CLIMBS Executive Vice-President Isagani B. Daba has said.
"With our product we strengthen the cooperative’s capacity to offer their members financial relief at that time where it is most needed," Munich Re business development manager Thomas Mahl said in an e-mail on Friday.
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