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Should you get insurance coverage for acts of God?

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THE AMATEUR video taken at the UERM parking lot during the height of typhoon Ondoy showed what happens to cars when flood gets to them: they float and bump into each other, and become heavily damaged.

The flood was considered by insurance companies as an act of God, and those without coverage for it sadly could not claim for damages.

We asked Arthur L. Panganiban, EVP/COO of Gotuaco,Del Rosario Insurance Brokers, Inc., an all-Filipino professional insurance broking and consulting firm in the Philippines, what this is all about and here is what he said.

Q What are considered acts of God? A  An act of God is an act occasioned exclusively by forces of nature, uncontrolled and uninfluenced by human intervention and which is of such character that it could not have been prevented or escaped from  by any amount of foresight or prudence. This is due to natural causes such as earthquake, typhoon, floods, volcanic eruptions and the like. If it might have been avoided by human prudence and foresight, it cannot be considered an act of God.   

Q Why is this not automatically covered in a standard comprehensive motorcar insurance policy? A  A standard comprehensive motorcar insurance policy covers the following risks:   1.  Physical damage due to normal vehicular accidents (collision of the unit with another vehicle or with property or to some extent, with a person); 2.  Theft; and 3.  Excess Third Party Liability Insurance for Bodily Injury and Property Damage  (covers liability of the insured against third party claim for bodily injury and/or death and property damage)

A review of "General Exceptions" under Section IV: Excess Liability Insurance will even indicate that Acts of God is a standard exclusion under the motor car policy but has through the years evolved into an extension of cover (a buyback, if you may) that can be purchased for an additional premium.

Insurance has a statistical base and is dependent on the law of large numbers. Insurers will insure a large group of homogenous risks in order to predict losses with a reasonable degree of accuracy and to spread the loss evenly over the group. This likewise affects the pricing of insurance products.

Unfortunately in the Philippines, nobody buys flood cover unless they are in a flood prone area therefore resulting in a narrower pool for insurers. Acts of God cover therefore have not been made a standard cover under a motor car policy for this reason. However, it may be offered as an extension /rider to the motor policy for an additional premium.

Q Is this also part of non-life insurance for property/houses? A  The main risks covered are fire and fire caused by lightning. Natural perils such as earthquake, typhoon and flood are available to clients as an extension to the fire insurance policy for an additional premium (under the term Allied Perils). The term "Acts of God" is not used under the fire insurance policy and is not treated as a group of coverages. Generally speaking, the specific natural perils such as those mentioned above that are covered, excluded from coverage, are listed, clearly stated and defined in the policy.       Q Is it wise to get coverage for Acts of God? Ultimately, you'll need to decide how much of a risk Acts of God are to you and your property, whether it be a house or a car. An additional P2,000 may suddenly make your car insurance seem expensive. However, having peace of mind that your insurer will take care of your problems, no matter what the cause of damage, can be very reassuring. It is prudent to consider the effects of global warming in the changing weather conditions in the Philippines now that it has become a reality.         

Q Please comment on the increase in premium for Acts of God insurance coverage after Typhoon Ondoy. Is this justified? Why or why not? A Although reinsurers would disagree, Acts of God was not really considered by most Filipinos as a peril that we were exposed to until the likes of Typhoon Frank in 2008 which severely affected Iloilo and neighboring areas and now Ondoy directly affecting Metro Manila (understand that up to now, provinces directly affected by this typhoon have yet to make a complete recovery).

AOG cover was previously even extended for free by most insurers to unit owners. However, in the light of global warming and the possible future effects it will have on the Philippine weather conditions insurers have now agreed that it is a real peril which we are exposed to as a nation and should therefore be covered and priced appropriately.

At present there is a market consensus that AOG cover for motor shall be priced within the range of from 0.5% to 0.7% of the vehicle sum insured. If your vehicle was involved in the current Ondoy claim you will note that detailing alone for the car would cost somewhere from P5,000 to P10,000. There will be an additional expense to the insurer if they have to replace electrical wiring and the like damaged in the flood. With all these the cost to clients for an AOG cover will actually not be as expensive and will be justified. Total expenses for a unit completely submerged in typhoon floodwaters are estimated to amount to around P150,000. Often, it is a prudent decision to pay an additional premium than shoulder all the expense to restore a unit affected by a natural peril listed under Acts of God cover.

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This page contains a single entry by Karen Galarpe published on November 4, 2009 4:48 PM.

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