Principles of insurance, claims mgmt

From B3 what the reasonable man would regard as a material fact, but whether the reasonable man would believe that the information must be disclosed.

So many times, instances have arisen where insurers have repudiated claims due to nondisclosure of material facts. is regrettably, is one of the remedies that insurers can exercise but not easily understood by the insuring public since one would be anticipating prompt settlement of his/her claim.

Indemnity

e main reason why people take out insurance is to safe guard themselves against fortuitous losses. Unfortunately, some members of the insuring public view insurance as way of making easy money hence submission of fraudulent or over priced claims.

is has the effect of pushing up insurance costs since insurers would review rates hence those with nil claims experience will subsidise those with poor claims record.

Indemnity is defined as “the protection or security against damage or loss or security against legal responsibility”.

From insurance perspective, indemnity is the exact financial compensation sufficient to place the insured in the same financial position after a loss as he enjoyed immediately before it occurred.

erefore if the subject matter was overvalued in the policy, the insurers are not liable beyond its true value. e rule of indemnity was calculated to prevent fraud and creation of unjust enrichment on the part of the insured.

Insurers exercise their discretion when indemnifying their clients in the event of a loss and this can be by any means of the following:

Cash payments: after claim assessment, insurers normally draw their cheque or wire transfer the claim proceeds directly into the client’s account.

Repair: commonly applied to motor vehicle claims. After the damaged vehicle has been assessed, repairer is given the authority by an insurer to commence repairs.

Replacement: in this case the insurer opts to replace the damaged item.

Reinstatement: as alluded earlier, the insured is entitled to sufficient payment to enable him to restore the damaged property to its condition before the loss. is may only be achievable if the damaged property is reinstated.

Nonetheless, problems may arise if the client is not satisfied with the final work.

Depending on the policy wording, coverage may be arranged subject to reinstatement condition. Settlement will thus be without deduction for wear, tear and depreciation.

Nonetheless, problems posed by betterment still exist and insurers will limit their liability to cost of replacing with a similar item when new and if the damaged item is no longer available an element of contribution will be required from the insured.

With household policies, settlement for contents will be on a new for old provided the damaged contents are less than X number of years.

Average

e tendency by some policy holders has been to insure their property with a sum insured well below its full value (market value). e effect is that their contribution to pool in terms of premium payment will be less than what they are actually supposed to be contributing ie the insurers will only be receiving a premium for a proportion of the entire value at risk.

In the event of a loss the insured will receive less than indemnity since insurers will assume that he is his own insurer fro the portion of the risk and settlement will take the following formula:

• •

Sum insured x loss amount

Value at risk

If one is to insure his household property for US$5 000, but value at risk is pegged at US$10 000. In the event of a loss of say US$1 000 he should only expect to receive 50% of the claim proceeds since his contribution to the pool represented only 50% of the value at

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