Oct 17, 2013

Earthquake Insurance in the Philippines -- or the Lack of It


The earth can turn violent once in a while.  It is a living breathing planet, after all.  Proof of that was the recent earthquake that hit the island provinces of Bohol and Cebu in the Philippines.  The ground shook suddenly and so violently that many people died and a lot of buildings and infrastructures collapsed with major damage.


A  house fell into a river after the earthquake in Bohol.
(REUTERS/Erik De Castro)


While natural disasters like earthquakes are rare, the financial impact can be devastating to its victims.  For businesses, damage to buildings and properties can put a big hole in the business' capital, since rebuilding the structures can be expensive and takes time.  The financial aftermath may even endanger the business' survival.

For homeowners who are victims of earthquakes, the loss of residence is a natural disaster in itself, since the cost to repair the damages or rebuild the house can be as financially devastating as the earthquake itself.

The Philippine Insurers and Reinsurers Association (PIRA) recently said that a very few percentage of buildings and properties in the country have earthquake risk cover.

Earthquake cover is only a part of the fire insurance policy, and it is by default excluded from the standard fire policy.  It is the option of the client to either leave the earthquake insurance cover out of the policy, or buy back the risk cover.

Because it is not mandatory to purchase earthquake insurance, industry reports estimate that only 12% of the country's structures are covered by fire insurance policies.  And out of this, only 20% have earthquake insurance enabled.  In a country that sits on many active seismic faults and trenches, this is courting disaster, indeed!

There's some hope at the end of the tunnel, however.  Just this year, the Asian Development Bank initiated the project study on Structuring a Public-Private Earthquake Insurance Pool in the Philippines which aims to develop a catastrophe insurance pool that will cover small- and mid-sized enterprise property owners.

PIRA is currently coordinating with ADB and the nation's lawmakers to craft a bill that will make earthquake insurance mandatory for residential, small- and medium-sized enterprises.  When this bill becomes a reality, property owners in the Philippines will be less vulnerable to financial damage brought by this natural disaster.

But while a mandatory earthquake insurance legislation has not yet materialized, it is up to the property owners to buy a risk cover against earthquakes and include this in their standard fire insurance policy.  Admittedly, it is an additional cost,with a low probability of being applied.  But the recent earthquake in Bohol and Cebu teaches a lesson in preparedness against the potential risk.

As a property owner, if you are deliberating on whether or not to buy earthquake insurance, the following factors can help you decide to finally buy one:
  • If you live in a high-risk, earthquake-prone area
  • If you have calculated the cost to repair or rebuild, and it is more than your resources can cover in the event of an actual earthquake
  • If your property is not properly fortified against sudden earth tremors and seismic activities

Keep safe everyone!


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