Non-life insurance industry faces record claims

By Judith Balea,

Posted at Sep 28 2009 10:59 PM | Updated as of Oct 01 2009 10:10 PM

Non-life insurance industry faces record claims 1Flood insurance costs at least P400 a year

MANILA - Non-life insurance companies could be facing the biggest compensation claims in history in the wake of a powerful storm that battered Luzon over the weekend, causing billions worth of damage to property.

Unofficial data released by the government placed total damage to property brought about by tropical storm Ondoy at P1.4 billion, and damage to roads and bridges at P1.3 billion.

Although the non-life insurance industry hasn't done its own calculations yet, claims are certain to amount to billions of pesos, as many homes and cars were destroyed and swept away by floodwaters while thoroughfares became impassable all over the capital.

"This might result to the biggest, largest property claims in Philippine insurance history," Melvin Esteban, Generali Pilipinas chief marketing officer and senior vice president, told ANC.

In a phone interview with, Deputy Insurance Commissioner Vida Chiong said "insured" losses in Saturday's typhoon might be in the range of the 1990 Luzon earthquake, one of the deadliest and costliest natural disasters that hit the country.

"It will be billions. I'm sure losses are bigger this time."

Yet, she said insured losses would be nothing compared to the losses that "people without insurance" would be shouldering.

Acts of God and nature

Amid expectations of a deluge in applications for claims in the coming days, both Esteban and Chiong doubt that all of these will be accommodated by insurance firms.

According to them, only insurance policyholders who availed of additional coverage against the so-called "acts of God" or "acts of nature" will be paid for all the damage to property wrought by the recent typhoon.

Esteban explained that usually, people neglect to avail of coverage for acts of nature since they think that the chance of being victimized by such is remote.

However, sometimes, the decision not to buy insurance for natural disasters isn't conscious at all. Esteban said many insurance agents fail to explain to their clients that normal policies do not cover these, but only accidents or theft for vehicles, or fire for homes.

"That is why it is really important that we explain it to them so they are not surprised during times like this," noted Esteban.

Esteban said typhoon or flood insurance costs P400 to P500 per year, only a drop in the bucket compared to the amount of damages one would shoulder when not covered.

Chiong said the same thing, noting that insurance policies of such types charge an average 0.05% of the value of the property per year.

This means that a P1-million car would only require a premium of P500 annually.

Data from the Insurance Commission showed that in 2007, premiums collected by the country's 87 non-life insurers for typhoon and flood insurance amounted to only P130 million and P70 million, respectively, compared to the P2.96 billion for fire, and P540 million for earthquake.

Data also revealed that the insurers' loss ratios of 254.16% for typhoon and 69.83% for flood are much higher than the 37.50% for fire and 0.58% for earthquake.

Lower loss ratios mean that insurance companies are making profits. Higher ratios, on the other hand, reflect firms' poor financial standing because they are not collecting enough premiums to cover claims and pay expenses.

Non-life insurance industry faces record claims 2
(click the table to enlarge)


The recent catastrophe that hit the country highlights the need for insurance companies to continuously strengthen their capital bases so that with any shock--which may come in the form of unexpected large claims or devaluation of their assets and investments--they would have enough funds to dip on.

After being locked in bitter-sweet negotiations with industry players in the past, the Insurance Commission is now implementing strict capital standards which require firms to gradually increase their net worth and paid-up capital to P500 million and P250 million by 2011.

The commission is imposing increases each year that will be the basis for renewal of insurers' licenses.

In 2007, earnings of non-life insurers rose to P1.95 billion from P1.5 billion the previous year while those of life insurers jumped to P10.73 billion from P8.57 billion. - By Judith Balea,