“How assuring is your insurance?” by Michael C. Sabado (October 12, 2009)

SUITS THE C-SUITE By Michael C. Sabado
Business World (10/12/2009)

While Acts of God are insurable, most put their faith in a basic comprehensive coverage
Because of the Philippines’ geographical location, we are probably forever exposed to the terrible effects of natural calamities like typhoons and earthquakes. Ironically, the Philippines is also one of the countries which can be considered as severely under-insured in both life and health insurance and non-life or general insurance.

Insurance represents an effort to provide some measure of certainty in an uncertain world. Its basic purpose is to protect individuals from those risks that are insurable. Through insurance, we transfer to professional insurers all or part of the risks we face on a daily basis. The concept of transferring risk forms the basis of insurance.

One of two major types of insurance is the non-life or general insurance. Non-life or general insurance is directed against perils that may destroy property. Next to life itself, the protection of private property is immediate priority for anyone. Non-life insurance, which broadly includes fire, marine, liability, and casualty insurance, affords this protection.

As tropical storm Ondoy and typhoon Pepeng hit Metro Manila and other provinces in the last three weeks, hundreds of thousands of Filipino families were deeply affected. So many lives were lost, while damage to farms, infrastructure and motor vehicles that were submerged in floodwaters ran into the billions and these have become more evident as the waters receded.

The struggle to cope with the aftermath impacts not only on the morale of the victims but on the economy as well. Further, loss of both life and property can be crippling financially if the potential risk is mismanaged. This can be the perfect time for you to consider your insurance policy as your salvation.

A deluge of claims
The damage caused by both Ondoy and Pepeng will certainly result in a surge of insurance claims. And with the typhoon season hardly over, more damage to property and losses are being anticipated. Forecast losses of insurance companies may not hold true anymore and may have to be revisited. Some insurance executives may already have had sleepless nights trying to estimate the amount of seemingly substantial compensable losses. But because damage caused by Acts of God (AOG) or force majeure is traditionally excluded from comprehensive insurance, insurance companies are spared from compensating losses of policyholders. It would be safe to assume, however, that a few may have opted for AOG coverage.

Insurance companies have in place adequate processes to address the surge of insurance claims arising from AOG. Insurance companies are aware that because of the cutthroat competition in the industry, an inefficient loss indemnification process can lead to customers shifting to the competition. And to avoid losing customers and continue keeping them, indemnification is usually fast-tracked.

The disadvantage, however, is that adequate due diligence to evaluate both the validity of claims and the appropriate amount of compensable losses is relaxed. This may prove catastrophic as insurance companies may indemnify losses more than they should. Worse, insurance companies could end up compensating multiple claims under one insurance policy or fraudulent claims. But these can be avoided.

With clean-up operations still underway and as some parts of Metro Manila remain under water, the actual reporting of losses from policyholders may take a while and this is quite normal in the Philippine insurance industry. Given this lag, insurance companies might consider making use of the time to estimate losses from AOG. Insurers can exploit the window of opportunity from the delayed reporting of claims. There may just be a few policyholders with AOG exposure and an inventory of enforced policies may be started. This will keep the insurance company a step ahead of the potential claims.

The next step is for insurance or call center agents to be trained to offer assistance to policyholders who may have been severely affected. Based on reports obtained, experienced in-house estimators or adjusters can make preliminary estimates of losses which can be very useful when actual claims are finally reported. Determining the qualifying exposures early enough will facilitate the loss indemnification process and it may actually save the insurance company the time, effort and money for unqualified and invalid claims. Further, this anticipatory procedure will be appreciated by clients and can spell the difference between loyalty and shopping around for a new insurer.

For the public, this is a lesson to be learned. The next time you shop for property insurance, read all the provisions and riders before making comparisons. Make sure that you are dealing with reputable insurers and be as inquisitive as you can with your choices. Clarify terms used by insurance agents and make them expound on what risks are covered. After all, that is what security blankets are all about.
(Michael C. Sabado is an assurance partner of SGV & Co.)

This article was originally published in the BusinessWorld newspaper. It is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.