Do We Need To Insure Ourselves And Our Properties?

Most of us must have come across undesirable and unexpected incidents of fire, accidents, fatalities leading to damage to property, loss of life and substantial monetary losses. In order to mitigate the risk arising from unexpected and untimely losses, the best available solution is to cover the risk with an appropriate insurance. In reality on many occasions it has been observed that individuals and organizations have failed to take adequate insurance cover for potential risks, unless mandated by law.

The Internal Audit Concept
The need for insurance is to reduce the uncertainty related to adverse risk and to provide remuneration for potential future loss of income, assets, health and life. By reducing uncertainty, we reduce the risk of loss, which increases our financial stability and allows for more accurate financial planning, cash flow projection etc.

Insurance Contract
A contract by which the insurer for an agreed fee, accepts the significant risk from the policyholder, by agreeing to Thomas C. Thomas Senior Audit Manager 5 compensate the policyholder or his beneficiary, if the specified uncertain future event (the insured event) occurs, to adversely affect the policyholder. The insurer generally agrees to “indemnify” the insured against losses arising from events covered by the contract.

The insured will not usually profit from the event, but will be compensated by the insurer for the loss suffered.

Insurable Interest
The insured party must have an insurable interest in the contract, i.e. must have a personal interest in the avoidance of the event leading to the loss.

Common Types of Insurance
The common type of insurance includes property, casualty or liability, homeowner, motor, business, financial, disability of various types, workers compensation, life, etc.

Key aspects to be considered while insuring different types of risk
The common types of insurance risk which we come across in our day to day life are Motor, Personal Accident & Sickness, Property Insurance, Marine, Professional indemnity, Worker’s Compensation and Life. I have tried to cover a few basic aspects that need to be considered while taking an insurance policy for three different types of insurance covers:

Property Insurance
The key element in the property insurance is to ensure that sum insured is adequate including the third party liability cover. All the insurance claims are directly linked to the sum insured. Any inadequate cover in the sum insured will lead a proportionate deduction in the settlements of the claims from the insurance company against any losses incurred.

The normal property insurance policy covers the value of the plant and machinery, building, inventories, loss of profit and third party liabilities. The term third party liability means that any incident occurred in the premises of the insured which results in a consequential loss to the third parties. For example, if a fire occurred in the warehouse of the insured which spread over the adjacent warehouses and gutted the entire surrounding warehouses which resulted a huge loss on the insured and the owners of the surrounding warehouses. As per the insurance policy term, the loss incurred to the insured is considered as own damage and the loss incurred to the surrounding warehouses are considered as third party losses. As per the law, the insured is liable to pay all the losses incurred to the third parties and if the insured does not have the third party liability cover, the insurance company will not pay the compensation against third party losses and the insured has to pay the entire claim amount to the third parties.

Also the loss of profit coverage is an integral part of the property insurance. Under the loss of profit coverage, any uncertain events occurred which affect the continuity of the business operation for a certain period, the loss of profit on account of these non-operating period will be covered under the loss of profit insurance cover.

Motor Insurance
The general Motor insurance policy can be classified under two classes–Comprehensive insurance and Third party liability. Under the comprehensive insurance cover the risk of own damage and third party damages are covered, while third party damages only are covered under the third party insurance cover. In other words, in case of any accident occurred due to your fault, the insurance company will pay the damages incurred to your properties and the third parties under comprehensive insurance cover, while under third party insurance cover, the insurance company will 6 pay only to the extent of damages to the third party properties without considering the own property damage.

The other points to be considered while taking a motor insurance policy are the additional coverage such as PAB (personal accident both driver and passengers), Emergency Road Side Assistance, Replacement Car in case of covered accident, Natural Calamities etc. with the payment of additional premium. The normal comprehensive insurance policy covers only the own property (vehicle) damage and the third party damages upon occurrences of any accidents and does not cover any claims against death or personal injuries to the driver and the related parties. The definition of related parties covers the insured’s and/or driver’s family members and/or the employees of the insured in direct connection with the Motor Vehicle caused the accident. Also ensure that the PAB covers the minimum compensation payable as per the applicable Laws of the region. For example in the U.A.E. the minimum compensation payable for death claim is AED 200,000 and certain insurance companies will cover up to AED 150,000 under the PAB policy against death claims which resulted an additional AED 50,000 to be payable by the insured on account of any death case incurred during the policy period due to inadequate sum insured under PAB cover.

One should also look in to the option for agency repair for new vehicles insured in order to cover up the manufacturer’s warranty clause for the new vehicles and normally the insurance company will provide the agency repair for the first year.

Personal Accident and Sickness (Medical):
The common medical insurance policy covers most of the illness except the preexisting disease, dental and maternity coverage which can be included based on the requirements with the payment of additional premium. Also the insured should be well aware of the policy terms mainly the limit covered, policy exclusions, policy deductable per claim (co-insurance), excluded hospitals and clinics, limit required for preapproval etc. in order to avoid unnecessary dispute with the insurance company with respect to their medical claims.

Choosing the right insurer
The main factor to be considered while deciding the insurer is the reputation of the insurer in the market against the promptness and completeness of the claim settlement. Additionally one needs to look in to the value added services provided by the respective insurance companies with the same premium or on payment of an additional premium. In some cases when insuring a major risk, it is also useful to look into the reinsurance treaty, the limit covered under the reinsurance treaty and the reputation of the reinsurance companies.


Notifying and filing claims:
Claims may be filed by insured directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own specified forms along with the respective documents to support the occurrence of the accident such as police report, doctor’s certificate, surveyor’s report, etc. The time taken for the final settlement of insurance claims depends upon the nature of the claims and the claimant completing the formalities of the insurer correctly. In case of any dispute against the claimed amount and claim approved by the insurance company, the insured can approach the court in order to get the rightful claim amount, based on sum insured as per the respective insurance policy.

Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes a thorough investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment.

Conclusion:
In the current scenario, appropriate insurance cover is unavoidable to protect ourselves from the unexpected losses. In order to have proper coverage of the risks, we should have adequate knowledge of the risks to be covered (sum insured) and provide relevant information to the insurance company in order to disclose the required information in the insurance policy. The settlement of claim amount is directly linked to the sum insured and any under insurance will result in a proportionate deduction in the total claim amount and over insurance will cost you the payment of additional premium. One should always read the policy terms and conditions specially focusing on clauses linked to policy exclusion and discuss with insurance provider in case any amendments are required. Once the insurer agreed with the terms and conditions of the insurance policy no amendments are possible at the claims settlement stage. Accordingly each one of us must clearly understand the policy terms and the risk covered under the respective policies before we agree to the policy terms in order to avoid unexpected surprises at the time of claim settlements.