By Rea Cu & Jonathan L. Mayuga
FAITH and fate may be different in spelling but are similar when applied to Filipinos’ attitude toward fire—a disaster that brings a hazy future—and fire insurance.
“I don’t know, maybe we’re fatalistic; leave it up to God or ‘maybe that won’t happen to me,’ etc.,” Philippine Insurers and Reinsurers Association of the Philippines (Pira) Executive Director Michael F. Rellosa told the BusinessMirror when asked why, despite the number of fire incidents amid rising temperature, the market seems to be getting cold to getting fire insurance coverage.
Data from the Insurance Commission (IC) showed that while net premiums written for fire insurance have been rising from 2013 to 2017, the number of policyholders of fire insurance in the country tapered off in 2016 to 2017.
IC data also revealed that net premiums written for fire insurance amounted to P4.787 billion in 2017 and P4.907 billion in 2016. On the other hand, the number of policyholders of fire insurance coverage declined in 2017 at 1.423 million from 1.434 million in 2016.
Prior to 2016, however, policyholders of fire insurance increased in 2015 at 1.435 million from 1.086 million in 2014 and 970,313 in 2013. Net premiums written for fire insurance—the amount the insurer gets to keep for assuming risk—hit P3.608 billion in 2015 from P3.266 billion in 2014 and P3.098 billion in 2013.
Recorded incidents
NONETHELESS, fire is a tragedy—both deadly and costly—that Filipinos are no longer oblivious to.
Bureau of Fire Protection (BFP) records revealed that a total of 83,199 fire incidents took place from 2014 to 2018.
This means that an average of nearly 16,640 fire incidents happened every year, or 45 a day, during the 5-year period. Of the total, it was determined that 1,180 fire incidents were intentional or recorded as cases of arson. About 63,303 were found to be accidental while 413 of the recorded fire incidents were undetermined. A total of 18,303 cases are still under investigation.
During the 5-year period, 74,437 structures were affected, with the total estimated damage to property reaching P30 billion. A total of 408 civilian fatalities were recorded; three firefighters died.
On the other hand, the number of injured civilians reached 3,998 with 406 firefighters suffering from injuries.
The BFP identified the top three causes of fires as related to electrical connection, lit cigarette butts and open flame. Any of the three leading cause of fires can be purely accidental or incidental. The latter could lead to a denial of a fire insurance claim, according to documents obtained from the BFP.
The BFP, however, does not keep tabs on the number of incidents covered by fire insurance as the bureau’s statistics is focused on the type of structural fires, whether involving residential, commercial, or industrial units or structures.
Ensure the future
RELLOSA said the only reason some people secure insurance “is because it’s required; maybe because they borrowed the money to build the house from the bank.
“If you are financing your house you are required. But if that’s a house that you inherited, and you didn’t spend a single penny on it, you don’t see the importance of insuring or you realize it too late after a fire or a [Typhoon] Yolanda or something.”
Supt. Romeo A. Pepito Jr. of the BFP, however, underscored the importance of having property insurance coverage.
“It is very important; fire can happen anytime,” Pepito said in mixed English and Filipino.
Pepito, chief of the BFP’s Fire Arson Investigation Division under the Directorate for Intelligence and Investigation, said fire can occur anytime, anywhere, with millions if not billions worth of property going up in smoke in a matter of hours.
Fire can completely destroy an entire building and cost millions, or even billions of investment, he added.
Rellosa said in an interview that the basic policy a person can get to cover one’s dwelling place from fires is the standard fire and lightning insurance offered by nonlife insurance companies.
Allied perils coverage
RELLOSA said it is important to be covered by the standard fire and lightning insurance as this can help the person rebuild his or her house or condominium unit as well as the contents inside the abode should fires occur. The basic fire insurance can also be expanded to include allied perils coverage, which protects the policyholder from damage brought about by natural calamities.
“[Having fire insurance is] important: how do you expect to rebuild your house? A house is a purchase that you don’t just [do] at the end of the month,” Rellosa said. “You spend years saving up for a house and then it will just disappear in a flash because of a fire. It would probably take another 10 years to build another house.”
Meanwhile, Liberty Insurance Corp. Assistant Vice President for Marketing and Sales Antonio Roderick B. Cabusao also said it is better to secure fire insurance, and even go as far as purchasing allied perils insurance coverage, as this will easily provide funds in terms of building a new house should a fire or natural disaster destroy it.
This will make starting over easier for the person or the family who lost their house or assets, he explained.
“A house is the most valuable asset of a person. In the event that the house gets burned or damaged due to typhoon, flood, earthquake or other natural catastrophes, it would take some time for that person to have that house rebuilt or restored,” Cabusao told the BusinessMirror. “And in a worst case scenario, not be able to have it fixed at all due to lack of money, that’s why its very important for people to see the value of insurance. Fire insurance is there to restore the original position of the insured before the time of the fire or natural catastrophe.”
Coverage basics
STAKEHOLDERS of the insurance industry said that apart from the Philippines being a country prone to natural disasters, the low insurance penetration rate also reinforces the need for more Filipinos to be covered not only by fire insurance but other forms of insurance as well.
Based on the Insurance Code, “fire insurance” is an insurance against loss by fire, lightning, windstorms, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies.
“Again, the basic coverage is fire and lightning [insurance] but we can add to that,” Rellosa added. “Under a fire insurance, we can also cover what we call allied perils like flooding, typhoon, earthquake, those you can buy just as long as you already have the basic fire and lightning cover.”
According to a World Bank Group and Global Facility for Disaster Reduction and Recovery report titled “Building Resilience,” the Philippines is one of the most disaster-prone countries in the world.
It said that weather-related disasters happening in the country account for 90 percent of annual damage and cause an average of 0.7 percent of losses in terms of growth in the country’s gross domestic product.
The report also stated that at least 60 percent of the Philippines’s total land area is exposed to multiple hazards, and 74 percent of its population is considered at risk.
In December 2018, the IC reported that the country’s insurance density has increased by 16.12 percent to reach P2,053.58 per capita as of end-September 2018, which was previously at P1,768.49 in the same period for 2017.
Insurance penetration as of the third quarter of 2018 also saw an increase by 0.12 percentage points to 1.76 percent, from 1.64 percent during the same period in 2017.
The IC said insurance density is defined as the ratio of premiums to the total population while insurance penetration is measured as the ratio of premiums to the country’s GDP.
Use of property
THE Pira Fire Manual of Rates, which provides the respective tariff rates for fire insurance policies, was issued in 1986 by the IC to fix the rates for fire insurance according to factors such as the location of the property, type of materials used for the construction of the house or building, number of occupancy and the nature of the use of the property.
Furthermore, there are four categories in terms of the nature of the use of the property that is included in the assessment, namely, if it’s for residential, warehouse, general, or industrial use.
In his opinion piece published in the BusinessMirror last March 2018, Insurance Commissioner Dennis B. Funa said that tariff rates are imposed on fire insurance so as to address the cut-throat competition plaguing the insurance industry.
“Premiums being paid are not commensurate to the risks being carried by insurers. In other words, insurers are undercharging. This scenario can eventually affect their ability to meet their obligations under the policies. Thus, insurers cannot set the premiums lower than the prescribed rates. The premiums can go higher, but not lower,” Funa said.
Despite the set tariff rates, the IC still recorded violations in terms of following the set tariff rules, with penalties collected by the IC reaching P21 million in 2015 from only P5.41 million in 2014.
“Nonetheless, widespread breaches have been observed that have led the IC to issue repeated reminders and reiterations to the industry. Violations of tariff rules for the year 2014 reached 3,368 breaches which resulted in the collection of P5.41 million in penalties collected by the IC. Of the total breaches, 65.77 percent and 21.56 percent were attributed mainly to motor car and fire policies, respectively. In 2015, insurers paid a total of P21 million in fines for breaches of tariffs,” Funa added.
Judgment call
RELLOSA explained that fire insurance coverage covers the building or house, or its contents, with the rates depending on the factors stated above.
“[It covers] building or contents,” Rellosa explained. “Contents can include everything from improvements, like flooring, cabinets, lights, fixtures; all of that can be insured. [Contents also include] furniture, your personal effects, your books, your clothes.”
Firstly, insurers consider which structures are being covered, i.e., if it’s a house or commercial space, among others.
Afterwards, they look at what materials make up the building or house. Houses made of wood have a higher tariff rate because these are more prone to risk compared to a condominium unit made of cement or steel.
“If you are covering a building or its contents, they will look at what the building is made off; a wooden house would have a more expensive rate than cement house because the wooden house would readily burn versus a cement house,” Rellosa added.
He also emphasized that insurers can’t cover structures made of light materials like bamboo houses, etc.
And then they look at the use of the property, be it for residential (meaning houses), general structures (schools or hospitals), warehouses for the storage of goods, and industrial like factories.
“So you look at the building itself which is construction, the occupancy, then you look at the location, when you say location it means are you in an area near the fire department, or an area that’s congested,” Rellosa added. “And then finally you look at whether it’s exposed, meaning, you may be in a good location but your house is next to an explosives factory.”
Occupancy assessment
A residential tariff of 0.1 percent is slapped for houses or buildings in zone one or the zone considered as a low-risk zone, with the rate increasing if the area assessed is under higher zones which can go up to the fifth zone. The rate also changes if the house or building is considered as Class A (if it is built of cement) and Class B if it’s made of wood.
“So they have corresponding standard rates, the tariff is the rate arrived at actuarially,” Rellosa explained.
For structures under the industrial category, there are also occupancy levels being looked into for the right tariff amount. Industrial occupancy 1 would be the level where it is less risky, meaning, the structure produces low-risk items like aerated water or bricks; while occupancy 5 means the structure produces highly combustible items like rag grinding, mattresses and pillows.
Under the category of industrial occupancy 1: cold storage and radio broadcasting are included, among others; occupancy 2 includes agriculture equipment, corn mills, distillery; occupancy 3 with alcohol, acids, rattan, rice mill, and plastics; occupancy 4 with ammonia, asphalts, adhesives; and occupancy 5, including explosives and foam, among others.
“For example, you have a house covered so the rate is 0.1 percent but the structure next to you is industrial occupancy 5 with a rate of 0.5 percent: your 0.1 percent becomes 0.5 percent also,” Rellosa added.
“You take on the risk if you are exposed. That is the tariff. The rate for exposure of cat [catastrophic] perils at the IC is a minimum of 0.15 percent.”
For allied perils the minimum rate shall be 0.05 percent, and extended coverage is 0.010 percent for basic fire insurance.
Needing assurance
Lorna Macaraeg, an apartment compound owner in Makati City, opted to buy fire insurance so that if accidents happen she can rest assured she wouldn’t start from square one in terms of rebuilding her property. Macaraeg’s only source of income is from renting out units of her apartment.
“I bought insurance for all three units of my apartment because I just want to be assured that whatever happens, be it a fire or a flood, I get financial support to help me rebuild if it gets destroyed,” Macaraeg said.
She explained that if a unit of her apartment is covered for around P2 million, she pays premiums of around P4,000 to P6,000.
But not all Filipinos share Macaraeg’s sentiments when it comes to insurance, as IC’s data showed a decrease in the number of policyholders in 2016 and 2017.
Loopy numbers
BROKEN down, net premiums written for fire insurance by residential establishments amounted to P622.236 million in 2017, P1.032 billion in 2016, P977.170 million in 2015, P815.954 million in 2014, and P816.669 million in 2013.
Net premiums written for general structures amounted to P2.247 billion in 2017, P1.782 billion in 2016, P1.281 billion in 2015, P1.036 billion in 2014, and P1.346 billion in 2013.
For warehouses, net premiums written amounted to P492.240 million in 2017, P626.073 million in 2016, P464.494 million in 2015, P414.218 million in 2014, and P333.507 million in 2013.
Finally, net premiums written for industrial buildings amounted to P1.425 billion in 2017, P1.466 billion in 2016, P885.326 million in 2015, P999.603 million in 2014, and P601.310 million in 2013.
Furthermore, residential fire insurance policyholders reached 779,970 in 2017; 632,826 in 2016; 710,742 in 2015; 517,882 in 2014 and 502,439 in 2013.
Those who sought coverage for General establishments reached 363,137 in 2017; 434,793 in 2016; 475,724 in 2015; 370,504 in 2014 and 315,781 in 2013.
Warehouse fire insurance coverage holders totaled 87,540 in 2017; 144,597 in 2016; 90,292 in 2015; 76,744 in 2014 and 68,749 in 2013.
Policyholders for industrial structures reached 192,610 in 2017; 222,439 in 2016; 158,372 in 2015; 121,490 in 2014 and 83,344 in 2013.
Mandatory vs. expense
CABUSAO explained that fire insurance is not made mandatory in the Philippines since majority of the people find insurance as an additional expense only and do not understand the importance of its coverage.
Citing a study, he said insurance is always on the last item in the expenditures of households.
“The only time it becomes mandatory is when the assured avails of a housing loan where the house is required to be insured or when the house is used as collateral in a loan for whatever purpose it may be.”
The Pira explained Filipinos can easily avail themselves of of fire insurance nowadays since more distribution channels are made available—namely, talking to an insurance agent, going straight to the insurance company if the person doesn’t have an agent yet, or just going online through the websites of insurance companies.
“There are some companies where you can already purchase fire insurance online because it’s one of the basic covers. And there are also some that let you pay online and then they send the policy to you or through email where you can print your own policy at home,” Rellosa said. “But the traditional way would be to go to your agent and then the agent brings it to your house. That’s the original way but now you can do everything online.”
Assessing damage
The process in claiming fire insurance is also easy, according to Rellosa, noting that it only takes about a week for the third-party adjuster to assess the extent of the damage and for the insurance company to payout for simple claims.
“It [claiming] is easy. You just report it then they send a third party adjuster to find out what the loss is about, how much is the loss, and how the fire happened. So, if how it came about is contemplated under the policy, then it’s paid for,” Rellosa added.
The adjuster is an independent third party entity, that doesn’t belong to the insurance company, the job of which is to determine the quantum and the cost of the loss. They are licensed by the IC, so you have local and foreign adjusters.
Cabusao said the policyholder must report the fire incident to their respective insurance company within 30 days.
“When the property gets damaged due to fire or allied perils, the assured must report it immediately to the insurance company within 30 days from the date of the incident,” Cabusao said.
Yet to be concluded
AS fire insurance only covers accidental fire, fire investigators are put on the spotlight every time an insured building is gutted by fire.
Senior Fire Officer 1 Ace Carolino of the BFP Public Information Services told the BusinessMirror that insurance companies request fire investigation reports from the concerned fire station every time a fire strikes a building that is covered by fire insurance.
“Some insurance companies also send in their own investigators to look into fire incidents,” Carolino said. He added there are times that as a policy, insurance companies want to make sure there is no foul play even after fire investigators have ruled out arson.
“Insurance companies sometimes request for our fire investigation reports to use as basis in evaluating insurance claims,” he explained.
An investigation, from the beginning of the fire up to the generation of the final investigation report, must be completed within 45 days, Carolino said.
The second report is the progress investigation wherein fire investigators have already established some of the vital information, such as: the origin of fire, the cause of fire and, possibly, the presence or absence of fire accelerants. These data could lead to the conclusion that foul play is involved or the incident is a case of arson.
Expert fire or arson investigators are usually called as expert witnesses if and when a case has been filed in court against a suspect, or in the case of insurance claims that somehow reach the courts.
Under investigation
According to Pepito, fire insurance fraud is a problem confronting the insurance industry.
He said intentionally setting fire to an insured building is not new but he said it is almost impossible to dupe law enforcement and even the insurance company.
“When a building gutted down by fire is covered by insurance, insurance companies almost always send in their own investigators. Some of these are experts from abroad to determine insurance fraud,” Pepito said. “Once they learned of the foul play, the policyholder loses the policy and will face a criminal case.”
On the part of the BFP alone, he said, it will be impossible for insurance fraud to squeak past expert fire arson investigators.
“All reports from the Fire Stations go to the BFP National Headquarters,” Pepito added. “Before that, it goes through the BFP District and Regional fire or arson investigation units.”
Getting new skills
The detection of fire accelerants can be done through field work or through laboratory tests.
The use of a canine to detect the presence of fire accelerants is sometimes employed in highly developed countries, making fire investigation swift and efficient.
There are other signs or prima facie evidence that could lead fire investigators to suspect arson. This happens when there are more than one origin of a fire, or the subject building hit by fire has a prior record of attempted arson or even questionable fire incident, Carolino said.
The BFP’s fire investigators, he added, undergo a series of training and special schooling before they become fire investigators.
“Sometimes, they are sent to the FBI [Federal Bureau of Investigation headquarters] in the United States for training.”
At the minimum, aspiring fire investigators undergo schooling at the Philippine Public Safety College (PPSC).
The PPSC system is the umbrella organization that comprises the various institutions for the uniformed personnel for the institutions or bureaus of several government agencies.
Aside from these, Pepito said the BFP offers training to fire investigators to enhance the investigative skills of fire arson investigators of every fire station in the Philippines.
All hands on deck
CABUSAO added that after reporting the fire to their respective insurance company, the reporting person will be asked to submit to the Claims department or Assigned Adjuster the following documents: photocopy of insurance policy; proof of premium payment; fire certification or fire investigation report; a sworn statement of witnesses, if any; and an affidavit of loss.
The adjuster would also furnish forms on the sworn statement of formal claim; non-waiver agreement; and interview sheet, if applicable.
The processing of claims only gets complicated if there are disputes as to the cost and quantum of the loss.
“Remember, the whole idea of insurance is indemnity, you will be paid as to how much is the loss. So, items that have aged or been used over time…already have a depreciation. That’s where it takes long,” Rellosa said.
In line with enlightening more Filipinos with the concept of insurance, Pira continuous its financial literacy efforts and campaigns to make the public see the importance of the financial tool, with most of the insurance companies in the country also doing their part to increase the knowledge of Filipinos in line with insurance.
“It cannot just be the IC or the insurance companies; it has to be a concerted effort by everybody. It has to be all at the same time,” Rellosa added.
Image credits: Roy Domingo, Nonoy Lacza