Should having ‘Acts of God’ Insurance be the new normal for vehicle owners?

Enid Viana was horrified as the Toyota Altis she was driving stalled and started to float along Buendia. Enid was probably not the only person to undergo that experience on Sept. 19, as Typhoon Mario caused severe flooding in several parts of Metro Manila.

With floods becoming a regular occurrence for most parts of the Philippines, I wonder whether the average vehicle owner is prepared for damages brought about by typhoons, flooding and other natural calamities.

According to the Insurance Commission, only 28.75 per cent of the Philippine population had life insurance as of 2013.  While the Commission has no data on the number of individuals with vehicle insurance, general observations seem to show that most Filipinos do not procure insurance for themselves or for their properties.  In a country that gets hit with an average of at least 20 typhoons a year, vehicle owners might need to take a second look at what protection measures they need.

Does it make sense to insure vehicles against typhoons and other natural calamities?  What type of insurance is needed to guard against these events?

Most vehicle owners think they have the required insurance after their car registration is obtained.  After all, a Compulsory Motor Vehicle Liability Insurance (more popularly known as “TPL”) is required by law before a vehicle may be registered with the Land Transportation Office.  Contrary to the misconception that having TPL means a vehicle owner is properly “insured”, this mandatory insurance or “Compulsory Third Party Liability Insurance” has very limited coverage.  TPL only insures against liability for death or injuries of third-parties and/or passengers arising out of the use of the insured vehicle.  TPL coverage is further limited by the Insurance Code’s definition of who are considered “third-parties”.   Third parties exclude the vehicle owner’s family members up to the second degree of consanguinity or affinity, members of the household, or employees.  Thus, insurance coverage under TPL won’t apply if a vehicular accident caused injuries to the vehicle owner’s child or mother-in-law.

Vehicle owners who want more protection against vehicle-related risks often purchase Comprehensive Insurance.  Comprehensive Motor Vehicle Insurance has a wide coverage by insuring against damages or liabilities caused by collisions, fire, explosion, lightning, burglary, theft, or malicious acts.  But the term “comprehensive” is misleading because insurance policies of this type normally do not insure against all types of damages, like those caused by “Acts of God” or “Acts of Nature”.

Acts of God ordinarily refer to events which are caused by nature or without the intervention of man such as typhoons, hurricanes, floods, hail, tsunamis, wildfires, earthquakes or tornadoes.

While flooding is now a common cause of damage for vehicles, it is not standard for Comprehensive Motor Vehicle Insurance to insure against this risk.  To protect a vehicle against this type of risk, a Comprehensive Motor Vehicle Insurance must specifically indicate that the coverage includes “Acts of God” or “Acts of Nature” events or “AOG coverage”.

Currently, there seems to be no Insurance Company in the Philippines that offers AOG coverage as a stand-alone insurance policy.  Thus, vehicle owners who want to be protected from the risks of flooding must purchase a Comprehensive Motor Vehicle Insurance and add AOG coverage on top of that.

According to Inigo Garcia, senior vice president for operations & claims at Trinity Insurance Brokers Inc., comprehensive car insurance premiums or “Compre Premiums” per annum usually cost around 1.8% to 2% of the value of the insured vehicle.  To add AOG coverage, the cost is usually an additional 30 to 40 per cent of the compre premiums.  Using those cost estimates, a Comprehensive Motor Vehicle Insurance for a car worth P1 million would cost around P18,000-P20,000 in compre premiums per year.  To add AOG coverage would require additional premium payments of around P6,000 or P8,000 on top of compre premiums costing P20,000.

Enid Viana shares that the Comprehensive Motor Vehicle Insurance with AOG coverage for their Toyota Altis cost them a total of around P25,000 annual premium payments.  For the flooding incident, she had to pay an additional “participation fee” of around P3,000 based on the terms of her insurance contract.

Does it make sense for vehicle owners to spend for comprehensive motor vehicle insurance with AOG coverage?  Perhaps.

My guess is, Enid’s total premium payments to insure the Altis for 2014 is cheaper than the cost to repair the damages to it from that single Typhoon Mario flooding incident.  Enid also shared that the cost of flood-damage repair was her second insurance claim in 2014 since her Altis was previously implicated in an accidental damage caused to a neighbor’s car.

Apart from the financial costs of motor vehicle insurance, some people are also apprehensive of the “hassle factor” which comes with documentary requirements for making insurance claims.

Asked whether it was complicated to claim her insurance coverage to repair her Altis, Enid says that it was surprisingly easy and convenient.  She said that apart from submitting her statement on what transpired during the flooding incident and some basic documentary requirements, her insurance company coordinated with Toyota directly.

I am not one to blindly advocate for insurance coverage.  After all, buying insurance policies can be a waste of money when the insured person or property is never or hardly exposed to the risks insured against, or if the insurance company makes it unreasonably difficult for the insured to make claims.  But I do believe that a properly functioning insurance coverage administered by a reputable insurance company may benefit motor vehicle owners.  For example, insurance can protect a motor vehicle owner from the financial shock of suddenly having to shoulder unexpected expenses brought about by accidentally parking his vehicle in a flood-prone area.

Other considerations must be taken into account.  According to Mr. Garcia of Trinity Insurance, vehicle owners who live in higher risk or flood-prone areas may be required to pay higher premiums.

The value proposition of having comprehensive insurance with AOG coverage may still be unconvincing to some people.  But for vehicle owners living in the Philippines—a country that now ranks third most Disaster Risk Prone in the World (based on a 2013 World Risk Index Report of the United Nations University for Environment & Human Security)—having AOG Coverage might be worth considering.

Some tips that I would also propose for those considering vehicle insurance are: (1) determine the circumstances of how and where you use your vehicle (do you often take your vehicle to areas exposed to risks of natural calamities?); (2) canvas for affordable premium rates among different insurance companies; (3) ask friends, your car dealers and/or other insured vehicle owners for recommendations on insurance companies based on their experience (I was impressed with Enid’s hassle-free experience that I ended up inquiring about the Insurance Company she was using); (4) check whether the insurance company you are considering is duly licensed and registered with the Insurance Commission (you may do this by simply checking the list provided at www.insurance.gov.ph).

According to Government forecasters, Typhoon Mario brought almost a month’s worth of rain in a single night.  If climate change or the “new normal” has heightened the magnitude of natural hazards we now face, the new normal for vehicle owners might mean having AOG coverage as the general rule rather than the exception.

Karen Jimeno is a junior partner at Jimeno Cope & David Law Firm and a law professor in various law schools. She is also a TV host for LegalHD at Solar News Channel. She graduated from UP Law School and Harvard Law School and is licensed to practice law in the Philippines and in New York. She is currently the Director for Communications & External Affairs of the Presidential Assistant for Rehabilitation & Recovery of Yolanda-affected areas.