Motoring trends 2015: Acts of God insurance coverage swells to 60-70%

THE motoring community—including its insurance sector—learned a valuable lesson as a series of typhoons and other natural calamities hit the country and whipped up a storm of people who wanted to get their cars covered.

Figures from the Philippine Insurers and Reinsurers Association (Pira) showed that the number of vehicles insured against Acts of God or Acts of Nature coverage swelled as widespread flooding became the new norm—with or without storms.

“When in the past we had only around 20 percent of vehicles with Acts of God coverage, now we can say we have 60 to 70 percent,” Pira deputy chair and spokesperson Michael Rellosa told the Inquirer a week after Tropical Storm “Mario” (International name: Fung-wong) and the southwest monsoons (habagat) flooded Metro Manila in September.

Rellosa said the trend started after Tropical Storm “Ondoy” (international name: Ketsana) hit Metro Manila in 2009.

“Ondoy was a wake-up call. Filipinos are now are more conscious of the risks they face,” he said.

Ondoy’s flashfloods left about 500 people dead and caused over P11 billion worth of damage to real property, farms, and infrastructure. Reports also said it damaged an estimated 14,000 motor vehicles in the metro alone.

The Acts of God insurance covers damages to the vehicle caused by natural disasters such as floods, typhoons, earthquakes and volcanic eruptions. The insurance, however, would cost an additional premium of 0.5 percent of the vehicle’s market value.

More than triple

Despite the added costs, Rellosa said the number of vehicle owners of those who avail themselves of Acts of God coverage, in addition to the traditional comprehensive car insurance, more than tripled compared before Ondoy levels.

Consequently, the surge in motor insurance contributed to the growth of the nonlife insurance sector, further expanding the growth of the sector.

Rellosa said in October, the sector was even posting growth rates “slightly higher” than the gross domestic product growth.

Latest industry data showed that 31 percent of the direct premiums produced by the nonlife sector came from motor car insurance, while 36 percent came from fire insurance.

Car insurance was growing as most dealers and sellers required insurance coverage in their financing schemes, Rellosa told the Inquirer.

The latest industry data showed that domestic vehicle sales in the country are at 41.7 percent in September, reaching the 250,000-unit target by the end of the year.

Asean integration effects

Rellosa, however, warned the public on the downward spiraling prices of nonlife insurance products amid intensified competition in the entry of regional players because of the Asean economic integration in 2015.

“Some companies think they are more efficient than others. But the danger is we don’t really know how much the costs and risks are,” he said.

“I don’t think we’re doing the clients a favor by giving them cheap insurance,” Rellosa added. “If the contributions are smaller, the cost of the risks also becomes lower. The pot may not be enough when a disaster of a huge magnitude hits.”

Lemon law

In July, President Aquino signed the Philippine lemon law, or Republic Act No. 10642, which aims to protect consumers from businesses and trade malpractices related to the sale of motor vehicles.

Under the law, consumers who buy brand-new cars and experience defects within a year of purchase may demand for either a refund or a replacement if after four repair attempts by the manufacturer, distributor, authorized dealer or retailer, the defects remain unresolved.

The newly-minted law specifically refers to the lemon law rights period: “12 months after the date of the original delivery of a brand new motor vehicle to a consumer or the first 20,000 kilometers of operation after such delivery, whichever comes first.”

The new law received different reactions from the motoring community; some were thankful but others said the rights period were inadequate for substantial car defects to manifest itself.

For auto industry veteran Arnel Doria, head of marketing and sales of Automobile Central Enterprise Inc., 12 months is enough time for factory abnormalities to surface.

“Factory defects should be differentiated from problems arising from wear-and-tear and misuse (usually defined in the warranty manual),” Doria told the Inquirer.

However, Kotse.com online expert Leslie Sy said the length of protection provided by the law should be longer or equal to the car manufacturer’s warranty period.

Extended warranties

“Why settle for a half-baked law? If it is going to get passed now, it should have the full protection as it was intended in the first place. It does not make sense if the lemon law only protects car buyers for one year when the manufacturer’s warranty is two to three years or longer,” Sy explained.

Pira’s technical committee is studying the implications of lemon law on the motoring and insurance industries.

“Manufacturers or car owners buy extended warranty covers from insurance companies as protection from breakdowns that may arise after the warranty of the vehicle had elapsed,” Pira said.

“With the Philippine lemon law in place, it may be wise for insurance companies to review their policies and for manufacturers and car owners to consider the importance of this risk management tool.”