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bi-monthly
HPASA newsletter. |
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October 2010
UNDER-INSURED?
By
Gavin Courtenay at SATIB Risk Solutions
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That there is a trend
within the insurance industry of increased
exposure to high levels of risk due to possible
underinsurance and the application of the
condition of average by Insurers.
Under-Insurance
Under insurance is where your sum insured
(maximum amount that can be claimed in the
event of a loss) is less than the replacement
/ reinstatement cost of the property or
of specified items.
Total Value at Risk
Insurers generally ask the loss adjusters
to comment on the total (or specified item)
value at risk and should this be more than
the sum insured, the proportion by which
it exceeds the sum insured would be borne
by yourselves.
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This means that whilst
your insurance claims payment will
assist you in recovering from your
loss, you may have to partially fund
this reinstatement to what you had,
and depending on the quantum of the
loss, perhaps place you in a situation
where you cannot replace what has
been lost. |
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This could be the cost
of rebuilding the structure or, for
contents, stock or personal property,
the cost of replacing old with new.
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adequacy of the Business Interruption cover
is equally important so as not to impair
recovery of the business following a major
incident such as a fire or flood. |
Under-Insured Claims Examples
Whilst it is rare that there is total destruction
of buildings, under-insurance can also affect
partial losses, e.g. should the actual replacement
value of the total buildings be R 10million and
the Sum Insured is say, R 8million, a claim for
partial damage of R 1million would result in a
claims payment of R800,000 i.e. you would effectively
be your own Insurer for R 200,000, being insured
for only 80% of the loss.
Case
Study
We recently handled a fire claim,
where the total sum insured for buildings
was R 740 000.00.
However the reinstatement / replacement
value was in the region of R1.65million.
The buildings were only insured for 45%
of their replacement / reinstatement value
and therefore the condition of average applied
and the Insured was settled 45% of the claimed
amount and was considered their own insurer
for the uninsured portion of 55%.
Not an enviable position. |
Some Tips to Make
Sure that you are not Under-Insured:
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The sum or value
insured should make provision for
the cost of rebuilding all the structures
on the property (as though
they were completely demolished) including
the cost of demolition, removal of
the debris, cost of plans, professional
fees and importantly VAT. |
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This amount should
allow for any inflation occurring
over the course of the insurance
year and replacement time from
the end of the insurance period
and also take into account any
escalation in the costs of material
and other construction costs.
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Ensure your
sums insured are adequate to cover
all fixtures and fittings
that are to be insured e.g. : boreholes,
paving , electrical (underground )
cables , solar panels ,paved roads
and pathways and wooden walkways etc. |
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Rethink your
base insurance values annually |
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If you have completed
renovations recently
you need to increase your
level of cover |
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Update
your inventory lists regularly |
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Importantly the
sum insured must represent replacement
as opposed to book i.e. not
depreciated value. |
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Call on our
services to assist you in the revaluation
process – we have access
to valuation services, basic information
relating to building prices and are
able to assist in the Business Interruption
assessments |
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| Should
you have any queries
or feel that you
may be underinsured,
please contact your
SATIB representative
as a matter of urgency
on 0861 SATIB 4U
(0861 728 4248). |
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