These 2 simple but complicated terms are very essential in the world of Non-Life Insurance. A lot of people are confused with it and i will try to explain it the way it should be understood.
In a motor car policy, insurance always base the amount to the FMV or Fair Market Value. They have the list of all the car models locally available. The list is consolidate by PIRA ( Philippine Insurers and Reinsurers Association). Lets focus on the “locally available”. This means that PIRA only has FMV of the cars locally available excluding Subic Cars, CDO Cars, Grey Imports because they don't have any basis for the said fleet.
PIRA, INC. today is the umbrella organization of the non-life insurance companies operating in the Philippines. PIRA stands for “Philippine Insurers and Reinsurers Association.” Previously PIRA stands for “Philippine Insurance Rating Association”, its name when it was organized in 1954.
PIRA has gone a full circle as, although PIRA originally was organized as a rating organization establishing rates and policy wordings, on January 1, 2005 PIRA had assumed the functions of its predecessors while retaining its original function.
Being members of PIRA, INC., all non-life insurance companies, including its agents, employees and representatives are required to follow the rates plans, schedules, rules and standards filed by PIRA, INC. and approved by the Insurance Commission. Any company who violates the rules and provisions of the Manual of Rates will be guilty of a breach and shall be subject to penalties imposed under the Insurance Code. (Section 356,l Title 7, Chapter IV) Members of PIRA are also penalized by PIRA under rules and regulations agreed upon by the members.
Both the Insurance Commission and PIRA, INC. are doing they duty of protecting the interest and rights of the policy-holders as well as those of the insurers. The Insurance Commission sees to the compliance by all sectors with the r
equirements under the law and PIRA, INC. is maintaining discipline among its members by policing its own ranks.
This is the reason why your insurance agent will always ask you how much is your purchase price to determine if it is with in the FMV set by PIRA. The reason for having Tariff rates is to ensure that companies will be continually viable and financially sound in order for them to be able to meet their obligation on claims. By having a Tariff, these objectives are attained because the rates have been determined by the Insurance Commission to be adequate, reasonable and not excessive.
Going back to FMV and Actual Value. In some cases like for Toyota, Honda and Ford, the FMV and AV is somehow similar or approximately not far from each other. But in most cases like for Nissan, Hyundai, Kia, Mitsubishi, BMW, Audi, Mercedes Benz and so on, the FMV and AV is very very far. You know why? because the resale value of the latter list is lower than the Fair Market Value. Take this as an example, a 2002 BMW X5 3.0d can now be bought at 2M pesos at the second hand market, but its FMV is around 3M pesos. If you were the owner, you would prefer to insure it at 2M pesos only so that your insurance premium could be cheaper. But you have to consider the value of its car parts also because once you encounter an accident, the insurance will definitely shoulder your cost with the participation fee and the depreciation of parts. BUT if your damaged parts would cost the insurance up to 50%- 60% of the insured value, they would definitely just declare it as total lost and pay you the 2M pesos less the participation and they'll get the car as the salvaged part. Realistically, the prices of BMW parts in the Philippines is sky high so even if you just encountered a minor accident but the cost of the repair is high, too bad that the insurance will not have it repaired already and pay your instead. So the wisest thing to do when this arises, just follow the FMV. The