insurance frequently ask questions

1) Q: What is “Insurance”?

    A: Insurance is a system of managing a pool of risks and uncertain losses that may be incurred by individuals or entities that have insurable interests over resources. This system involves the transfer of a/the risk/s from one individual or entity to another, in exchange for a consideration, known as the insurance premium.

          It is also a system of pooling the resources of the "fortunate many" to pay for the losses of the "unfortunable few".

2) Q: What is a “risk”? a “peril”?

    A: The term risk refers to the probability of getting involved in accident that will result to an undesirable loss. It is the potential that an activity or action will result to an undesirable loss. The primary function of insurance is to deal with various risks being faced or confronting the Assured and his/her assets.

          In insurance, specific kinds of risk that may give rise to a claim are called perils. It is the danger or hazard that will result to a probable loss arising out of accidents such as but not limited to violent and visible collision at sea, land or air; fire, earthquake, flood, typhoon, etc.

3) Q: Who is the government agency in charge of regulating all insurance companies operating in the country?

      A: The Insurance Commission of the Philippines is the primary government agency tasked to monitor the operations of all insurance companies in the country.

4) Q: What is the primary difference between a life insurance and a non-life insurance company?

  A: A life insurance company provides indemnity to the policyholder’s life and limb in the event of injury or death. On the other hand, a non-life insurance company deals with the protection of the Policyholder's various resources or assets and providing indemnities thereto.

5) Q: Why should I get a non-life insurance coverage?

    A: An individual or judicial person or firm has varying classification of resources or assets which they utilize or operate for personal or business purposes that provide them with benefit such as shelter, comfort and profit. While these benefits can contribute to the owner's success, damages to such resources or asstes and/or damages brought about by the use of such resources or assets can also cause not only financial setbacks or losses to the owners but can also include serious liabilities to other parties. Owners therefore have the option to secure insurance coverage depending on their specific needs and budgets to protect themselves from the aforesaid financial losses and liabilities.

6) Q: What are the products commonly offered by non-life insurance companies?

   A: In general, majority if not all non-life insurance companies operating in the country offer the following insurance lines: motor car, fire, casualty, marine, engineering, aviation, and individual/group/ travel/health personal accident; but, like IAC, some companies also offer customized or specialized products such as but not limited to comprehensive general liability, golfers’ insurance, homeowners’ insurance, robbery/burglary, theft and blanket insurance, property floater insurance, marine hull, etc.

        Like IAC, a select number of companies who have been granted an administrative order by the Office of the President of the Republic of the Philippines also offer surety services, such as judicial bonds, civil bonds, criminal bonds, financial guaranty bonds, performance bonds, and many more.

7) Q: Is a non-life insurance coverage expensive?

      A: Contrary to the perception of  some people, the cost of buying non-life insurance coverage can be very affordable and, in some cases, tailored-fit to the client’s budget. Furthermore, the premium rates charged by non-life insurance companies are very minimal compared to the peace of mind and the relief in cushioning the impact of financial setbacks that may be availed in the event of loss.

8) Q: What factors affect the cost of insurance?

    A: For properties, some of the factors which may affect the cost of insurance include the property’s age, type of construction (and/or kind of materials used in construction), location, security features, loss history, amount of coverage or the property's fair market value and other economic factors. For motor car or automotive insurance, the year model or the actual condition of the vehicle itself, the driving record of the owner or driver, as well as any increase (or decrease) in the cost of replacement parts and labor can also be additional considerable factors. Meanwhile, the cost of casualty insurance may also be affected by higher (or lower) cost of medical services, attorney’s fees, inflation (or deflation) in the prices of commodities, etc.

9)Q: What is a “Compulsory Third Party Liability” Insurance? “Comprehensive Motor Vehicle" insurance?

    A: The law requires all motor vehicle owners to secure a compulsory third party liability (“CTPL”) insurance to answer for any damage which may be caused to other persons and/or their properties during the course of the insured motor vehicle’s use (i.e. where the accident had been caused by the insured motor vehicle). In addition to the CTPL, most, if not all insurance companies like IAC also offer comprehensive motor vehicle insurance (sometimes, also known as automotive insurance) for motorcycles, private cars, commercial vehicles, passenger vehicles, cargo vehicles, etc., which, in addition to the CTPL insurance coverage, also includes coverage against (1) any bodily injury which may be sustained by the vehicle owner and/or his/her passengers, and/or any damage to the insured vehicle resulting from traffic collisions, and (2) any further liability that may arise from there.

10) Q: What is a “fire insurance”? What is its coverage? What are insurance companies’ bases for indemnification for fire insurance policy claims?

        A:  Fire  insurance  is  a  type  of property insurance which covers against any damage sustained by an insured property due to the occurrence of a fire or any of its allied perils. It may also provide coverage to either the structure itself or its contents or properties spread in different locations.

             A standard policy coverage usually includes protection against damages brought about by fire and lightning only, but a client may also opt to avail of other additional policy inclusions such as Riot, Strike & Malicious Damage (RSMD), Typhoon and/or Flood or other allied perils (falling under the “extended coverage”) in exchange of a minimal additional premium.  Such “Extended Coverage” may include loss or damage directly caused by explosion, aircraft, vehicle and smoke, among others.

    

        In the settlement of a fire claim, most if not all Insurance companies engaged the services of Fire Loss Surveyors or Adjusters to thoroughly examine the cause and origin of the fire, the debris and other circumstances surrounding the incident. It collates documents relating to investigations of the Bureau of Fire Protection, gathers information from witnesses and computes the total losses in terms of the property’s present fair market value minus the salvage value, if any, and the cost of reconstruction or replacement of the property. The Final Report of the adjustment company is then forwarded to the insurance company, which, in turn, is reviewed, evaluated and used by the insurance company as one of its bases in the settlement of fire loss claim. 

11) Q: What are other special non-life insurance products?

   A: Other special non-life insurance products include golfer’s insurance, homeowner’s insurance, travel insurance, micro-insurance packages etc. In addition to these special lines, some companies like IAC can also customize special product packages to suit each client’s needs.

12) Q: What does the term “insurable interest” mean?

      A: A person is considered to have insurable interest over a property if he/she will sustain financial losses and/or would suffer from other forms of losses in the event of the property’s loss or damage. All insurance companies require that all persons getting insurance policies have insurable interests over the properties they want to be covered by insurance.

13) Q: What are two policy conditions which, if violated, will void entire policy?

        A: Non-Payment of premium, absence of insurable interest and concealable or misrepresentation of facts about the status of the property being insured are some of the few conditions that can result to the rescission of the insurance product.

14) Q: What is the difference between an insurance agent and an insurance broker?

        A: An insurance agent is different from an insurance broker in the sense that an insurance agent sells insurance products for and on behalf of (an) insurance company/ies while an insurance broker normally has a relationship with more than one insurance company. Insurance agents are classified as either general agents or ordinary agents (with the former normally having a “General Agency Agreement” with one or more principal insurance companies). Meanwhile, insurance brokers work for the customers and match their needs with the appropriate insurance company and package.

           All insurance agents and insurance brokers must be licensed by the Insurance Commission before they shall be allowed to sell any insurance product and/or represent any insurance company.

15) Q: What is “Underwriting”?

   A: Insurance Underwriting refers to the process by which “underwriters” measure and evaluate risks, decide on how much coverage should a client obtain for a given risk, determine how much premium will be commensurate with the exposure presented by a given risk, and/or decide on whether the insurance company should accept or decline a risk.

           Each company establishes its own set of underwriting guidelines to aid its underwriter/s in determining the acceptability of a given risk. Underwriters may either decline a given risk or compute an appropriate premium which have been “loaded” or in which various exclusions have been specified.

16) Q: What is Reinsurance?

        A: Reinsurance is insurance that is purchased by (an) insurance company/ies from another (reinsurer) insurance company. It is a means of sharing risks to limit the total loss that the original insurer/s will sustain upon the occurrence of a disaster.

17) Q: What is “Surety”?

       A: A surety is a form of guaranty offered by insurance companies like IAC where they assume responsibility for one party's (principal's/obligor's) obligation to another party (counterparty/obligee). In the event that the guaranteeing insurance company, (also known as the “surety”) will be required to pay or perform the obligor/ principal’s obligation to the counterparty/obligee, the surety will be given a right of “subrogation” which will allow the surety to use its contractual rights and to recover the cost of making payment or of performing the principal’s obligation in its behalf.

18) Q: What are the requirements for filing a claim?

        A:  The law requires reglamentary period within which a claim must be filed but in the meantime that initial documents relating to the accident are not yet available, the property owner (Assured) is advised to immediately give a “NOTICE OF CLAIM” to the insurance company. Upon receipt of such notice, the insurance company shall provide a “checklist” of the requirements to be submitted by the property owner, depending on the type or nature of claim being filed. Thereafter, the Assured shall be required to submit documentary evidences such as proof of valid insurance policy, investigation reports, photographs of damages, estimates of loss, witnesses to accident and other proof of loss that will substantiate the claim.