Friday, January 9, 2009

Compulsory Third party Liability Insurance

Motor vehicle owners of private car, commercial vehicle and public utility vehicle are required to purchase CTPL insurance prior to a LTO renewal of vehicle’s registration (Section I of the coverage parts of an insurance policy). According to the Insurance Code of the Philippines, Section 374 provides:

“it shall be unlawful for any land transportation operator owner of a motor vehicle, to operate the same in public highways unless there is in force in relation thereto a policy of insurance or guarantee in cash or surety bond issued in accordance with the provisions of this chapter”.

This Insurance covers loss of life and limbs of third party whenever accident occurs involving a motor vehicle. This requirement is embodied in the Insurance Code of the Philippines (PD 1460, as amended by PD 1814) It is not enough for a land transportation operator owner of a motor vehicle to have confidence or to rely on the coverage of SECTION I and SECTION II, because they will encounter any unforeseen events such as bumping another vehicle or any other property, hitting a pedestrian and injure the passengers inside the vehicle.

Comprehensive motor vehicle insurance is expensive, but it is more expensive and impractical if a fortuitous event will occur such as collision, own damage, theft to name a few. There are various ways and means to make the policy affordable e.g. discounts, reducing the market value of the vehicle and other underwriting practice.

Spurious CTPL’s have been a thriving bogus business for pirates. These unscrupulous insurance companies well unsuspecting motorist registering their vehicles third party liability insurance that turn out to be fake.

Those legally competent insurance companies have altogether refused to sell insurance inside the premises of LTO because they cannot compete against the fixers who sell their fake CTPL’s.

The vehicle owner who registered did not even care on CTPL insurance, as far as they are concerned, purchasing a CTPL (whether fake or not) is part a of procedures to make the transaction completed in one day. In addition, most of them did not even know the amount of benefits stipulated in the insurance policy.

The limit of liability of CTPL, which is P100, 000, is not sufficient and reasonable to protect the public. The hospital bills, amount of medicine including professional fees of physician needed in a simple accident is far very difficult to anticipate because of the amount of damage the driver may possibly encounter. However, the excess coverage of comprehensive insurance will prove to be an effective source of indemnification if the CTPL coverage has been exhausted. Vehicle owners could not avail comprehensive insurance because most of the insurance company has criteria in insuring a vehicle and these are: the age of vehicle, the types of vehicle (PUV most of the time have been rejected because of its extensive exposure to hazard and peril), imported vehicles with no parts support locally and the like.

Vehicle owners did not pay attention to the coverage of comprehensive insurance because it is expensive. They have to take the highest duty of care whenever they use their cars. The moment they encounter an accident and the CTPL coverage have been exhausted, they have nothing to do with it but to get money from their own pocket to participate completely in a claim.

The car nap cases were down by 34% this year. The report indicated that only 945 incidents of car napping were reported in the time period, as compared to the 2004 figure of 1,440. It also revealed that 454 stolen vehicles were recovered; five car napping syndicates neutralized, 136 persons arrested and 99 car-napping cases were filed in court.

These figures point to one thing: that the police forces, with the strong backing of the community, are slowly winning the war against criminality, towards making our society and streets peaceful and crime-free. (Available at http://www.pcij.org/imag/PublicEye/crimestats.html)

The number of crimes recorded last year is nowhere near the high levels recorded during the last half of the Aquino administration, but do not be fooled into feeling any safer. Even the statistics released by the Philippine National Police show that the total crime volume in 2002 escalated to 85, 776, or an 11 percent rise from the previous year.

The drive against car thefts and kidnapping, which are classified as non-index crimes along with smuggling, illegal possession of firearms and explosives, and crimes against chastity. According to the PNP, car thefts fell by five percent and kidnap-for-ransom cases by a whopping 32 percent.

Total Crime Volume = Non-index Crimes

Average Monthly Crime Rate = [(Total Crime Volume/12 months) x 100,000 population]/population of region or country

Crime Solution Efficiency = (Crime Solved/Crime Volume) x 100%


Non-index crimes: Crimes against persons (parricide/infanticide, maltreatment, kidnapping); crimes against property (estafa and falsification, malicious mischief and damage to property); crimes against morals and order (prostitution, vagrancy, alarm and scandal, assault/resistance to authority, corruption of public official, gambling, slander and libel, threat and coercion and trespassing), crimes against chastity (abduction, seduction, lascivious acts) and other crimes (illegal possession of firearms, explosives and ammunition, concealment of deadly weapons, smuggling, car napping and prohibited drugs)

Figure 1 A quick guide to PNP’s crime statistics

The data shows the formula on how compute the average monthly crime rate and the crime solution efficiency.

The non-index crimes are enumerated including the car napping cases pertaining to the study of the motor car comprehensive insurance.

Year

Total Crime Volume

Increase

Average Monthly Crime Rate

Increase

Crime Solution Efficiency

Increase

1990

137,678

-

19.14

-

No data

-

1991

119,300

-13%

16.26

-15%

No data

-

1992

102,670

-14%

13.70

-16%

No data

-

1993

94,401

-8%

12.35

-10%

No data

-

1994

93,317

-1%

11.63

-6%

76.93%

-

1995

79,248

-15%

9.62

-17%

87.10%

13%

1996

76,916

-3%

9.08

-6%

89.34%

3%

1997

71,080

-8%

8.11

-11%

90.69%

2%

1998

71,576

1%

8.17

1%

91.27%

1%

1999

82,538

15%

9.42

15%

91.36%

0%

2000

80,108

-3%

9.14

-3%

92.34%

1%

2001

76,991

-4%

8.23

-10%

90.89%

-2%

2002

85,776

11%

8.97

9%

89.24%

-2%

Figure 2 Selected Crime Statistics for 1990-2002

The data revealed the total crime volume per year including the car napping cases. The average crime rate per year fluctuates and the most numbered was in year 1990 with a total crime volume of 137,678. The highest increase was in year 1999 with 15 percent increase.


Region

2001

2002

Increase

1

3,297

3,144

-5%

2

2,609

2,575

-1%

3

7,476

8,009

7%

4a

13,003

12,189

-6%

4b

No data

491

-

5

3,770

3,733

-1%

6

4,017

4,071

1%

7

9,888

13,028

32%

8

2,833

3,010

6%

9

3,625

3,228

-11%

10

3,032

4,187

38%

11

2,652

2,455

-7%

12

2,919

2,844

-3%

13

1,104

1,169

6%

ARMM

536

686

28%

CAR

1,432

1,737

21%

NCR

14,806

19,220

30%

Total

76,997

85,776

11%

Source: Philippine National Police

Figure 3 Total Crime Volume, By Region, 2001-2002

The public should not be too quick in drawing comfort from these figures. For one, there were still 2,055 recorded car thefts last year — not exactly a reassuring figure. In Metro Manila, six cars were stolen every day in 2002.

For another, the police's crime statistics are limited to the incidents reported to the precincts. In a country where confidence in authorities is rather low, reporting crimes to the police was not exactly done on reflex.

The effort of the authority is adequate for us to enjoy safety while leaving a vehicle outside the malls, parks and other recreational places but it is more essential and practical to secure a policy that will cover a property specifically that of a motor vehicle against theft and own damage regardless of its expensiveness.


Recommendations


1. On CTPL:

The non-life insurance company should inform the vehicle owners regarding the benefits, methods of indemnification and policy limit or exclusions because CTPL is mandatory by law that during registration of motor vehicle, a CTPL insurance is required. The insurance against third party will ensure social responsibility of every vehicle owners.


2. On Comprehensive Insurance:

Comprehensive insurance is an additional protection for the passengers, third party liability and it will protect the vehicle against theft, own damage., bodily injury, property damage and personal accident of the passengers and the driver The private insurance company should therefore educate their agents, brokers or agency about the schedule of benefits of comprehensive insurance once the vehicle owner use the public highways with their vehicle. This will ensure that the vehicle owner will take care of the responsibility of using their vehicle once they encounter accident.


3. On the problems encountered by the vehicle owners during the enforced
period of CTPL and Comprehensive insurance:

On the problems encountered includes that some of the vehicle owners purchased a fake or bogus CTPL policy. Some of them cannot collect claim to insurance company when fortuitous event occurred using their vehicles in public highways. The vehicle owner should verify if the insurance company was accredited by the LTO. In addition, the moment they receive the policy, they should verify at least the authenticity of the insurance to the issuer insurance policy to ensure authenticity of CTPL.

The problems encountered during the enforced period of Comprehensive insurance as regards deductible may be anticipated if the vehicle owners are well informed of the policies they are buying, some of them do not even care because comprehensive insurance is one of the indispensable ingredients of a mortgage contract so long as the vehicle has not yet fully paid by the debtor because the vehicle remains the property of the mortgagee until and unless the account has not yet paid.

In summing up the schedule of deductible for Personal Car is 1 percent of the sum insured minimum of two thousand whichever is higher. The participation applies in every occurrence of a claim and loss within participation is not covered under Section III loss and damage of the comprehensive motor car insurance.


4. On the plan of action that can be implemented to eliminate issuance of spurious CTPL insurance policy:

The GSIS should take over the issuance of CTPL insurance policy or the sole issuer of CTPL insurance. The GSIS is already doing business successfully with government vehicles. If the government will provide linkage between GSIS and LTO computer network, the vehicle owners will save time and effort in registering their vehicles and making claims because GSIS computers are hooked up to those of the LTO regarding pertinent information in making claims. In addition, this will eliminate fake, duplicate and spurious COC because authentication of policy will be issued once with only one vehicle when registered and will prevent fixers and middlemen, thus minimizing corruption and it would provide additional dividends to the national government from the proceeds of the business. It should not be feared that this proposed recommendations would effectively turn into a monopoly and shut off legitimate non-life insurers from the lucrative business of CTPL insurance, GSIS should reinsure a portion of premiums to other legitimate insurance company so that non-life insurance company still earns from this business. However, indeed, it will create a healthy competition among insurance companies because the subject matter of CTPL is only one of the few coverage of the motor car policy, that of a comprehensive policy. The comprehensive insurance is very expensive that is why, with this set-up, the insurance company will now then compete to reduce their underwriting rates and guidelines in computing the premium just to win the business. In other words, comprehensive insurance will be affordable.


5. On the policy directions may be suggested by the researcher from the available data from LTO and Insurance Commission:

The Land Transportation Office revenue collections increases yearly and it shows a greater number of registered vehicle per year based on the available statistics. It is not the public that is hurt by fake CTPL insurance policies, through accident claims that are never paid. The government is also deprived of substantial revenues that could have been if all CTPL policies issued were legitimate. Data from the Insurance Commission indicate how massive and how lucrative the motor car insurance has been. Considering the average of P7.19 billion premiums earned from motor insurance in year 2004, with a corresponding tax due to government of P1.61 billion at 22.5 percent of premiums. In addition, if GSIS will take over the CTPL issuance, a commission of 8 percent per policy would have been accumulated.

The actual premiums collection reported by the insurance companies only amounted to one half of what is collectible which means that almost half of the CTPL insurance issued to registered vehicles was unreported and presumably fake. Assuming that P3.59 billion was unreported a potential P8.08 billion revenue loss in 2004 alone. Thus, over the years, the government has losing billions of pesos in this time of fiscal crisis.