The past couple of months have presented us with the battle against
COVID-19, a global pandemic as declared by the World Health Organization.
If this was a monopoly game, a plane landing on COVID-19 would have
to pick the chance card that would sadly read: STAY HOME, Move directly to your
house, Do not pass by the bar, Do not contract this virus. A sudden change in
the game and resultantly sparking a wave of panic across the country as we have all been confined to our homes.
Now is the time to revisit your insurance contract and get to
understand its granular details. Understand the scope of cover, the exclusions
and, most importantly, your obligations to your insurance contract.
Think of a friend that is always there to pick you up during a
crisis, the first one that you would probably call when you have just been
involved in a car accident. Well, insurance can be likened to that kind of a
friend in the event of a crisis. Simply put, when you take out an insurance
cover you are investing in a friendship that promises to be there to pick you
up when things go wrong. However, just like with any other friendship, there
are some basic understandings & expectations that you need to reciprocate.
Here are some of the principles that you need to understand to reciprocate the
friendly relationship to your insurance contract and avoid any fallouts:
Indemnity
Katleho Masheane ǀ New Business Development Consultant ǀ Minet Lesotho
One of the paramount principles of insurance is indemnity: the
insured shall be restored to the financial position they were in prior to the
loss. The insured shall neither be better nor worse off relative to the actual
loss sustained. Your obligation is to ensure that the sums insured stated on
your insurance contract represent the full value of your insured property to
indemnify you in the event of total loss. E.g., the sum insured for your house
should represent not only the cost of construction but should also incorporate
professional fees such as architectural design as may be required (i.e.
Replacement Value).
Duty of disclosure
Insurance contracts are based on information provided by you as the
insured upon inception of the policy as well as throughout the period of insurance. The duty of
disclosure of material information dwells with you as the insured. In the case
of an Office Equipment insurance contract, material information includes the
decision to take some of your office equipment to operate at home during the
lockdown. If such equipment was covered under a premises-based policy, then
there is a material change in risk which insurers need to be notified of. This
duty of disclosure lies with you, the insured, at all times.
Average
As stated above, disclosure is important to any friendship and
there are consequences for not adhering to this in an insurance contract.
Average is applied in some policies when it can be established that a said
property was insured at a value less than the actual value.
This means that in the event of a claim, you will only be
compensated a percentage portion of your loss. Unstated or understated vehicle
accessories are some of the most common causes of average application in motor
claims.
Duty of care & Prevention of loss
Just like that trusted friend, whom you’ll guard and protect by all
means possible, your insurance contract requires you to take all reasonable
steps and precautions to prevent accidents and losses. The expectation is for
you to act as if you were not insured. In the event of a loss, you continue to
have the obligation to prevent further losses by sometimes invoking emergency
or temporary repairs. The lockdown may not serve as a good enough excuse for
leaving a smashed car window uncovered (or unprotected) for the remainder of
the lockdown.
First amount payable
The first amount payable, as the name suggests, is a payment made
by the insured when a claim arises. This is usually a percentage portion of the
claim subject to a minimum amount for which you are liable. This is viewed as part of retaining or
accepting a portion of the risk. It is also used to deter the insured from
making frequent small claims. The first amount payable is also interchangeably
referred to as “excess” or “deductible”.
Subrogation
As defined previously, indemnity is the restoring of the insured to
the financial position they were in prior to the loss. Once the insured has
been indemnified for a loss, subrogation kicks in and enables the insurer to
assume the legal right of the insured property, the legal right to claim any
future gains from the damaged property for recovery as well as the legal right
of the insured against a liable third party. This includes an insurer’s right
to assume ownership of salvage in the event of a settled claim, therefore do
not be quick to dispose off or sell any salvage from your loss.
The game plan has changed and for some, it has forced us to do
things differently. This means that our insurance contracts need to follow suit
in order to keep abreast with these changes. Perhaps your decision to continue to work from home might prove to
be a saving from office related insurance covers; however, the possible
increase in cyber risk will need your attention.
Whether it is in between the lockdown workout sessions or TikTok challenges, take some time
out to have a look at your insurance contract. Know your obligations to the
current contracts and have those terms on lockdown.
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