By Herman Liebenberg, General Manager – Insure City Insurance Brokers (Pty) Ltd
How to avoid submitting a claim to your broker and realising you have been overinsured, or even worse, underinsured.
When a claim is submitted, especially larger claims, insurance companies will appoint an assessor to determine the overall value of the claim in person, on-site. One thing very few people realise, often only after submitting a claim, is that an assessor doesn’t just evaluate the damage and quantify it; they also assess the value of the structure or object being claimed. At InsureCity, we primarily deal with structures, but the same principle applies to personal insurance.
Let’s assume a building is insured for R 2,000,000 and that building suffers impact damage due to a truck hitting the wall of the structure. For this example, the total damage is R 200,000 (10% of the insured value). The insurance company will appoint an assessor to verify the claim and quantify it.
The assessor arrives and confirms damage to the value of R 200,000. However, they also notice that the building is worth R 3,000,000, not the insured value of R 2,000,000. This means you have been paying premiums based on R 2,000,000, whereas your premium would have been higher if the insured value had been correctly set at R 3,000,000. As a result, the insurance company has suffered what is known as ‘premium prejudice’.
However, they cannot simply deny the claim, so they will apply the following correction to the settlement. Since you only insured 66% of the correct value of the building, they will only pay out 66% of the R 200,000 claim, minus the excess. This amounts to R 133,333.33 less the excess. This highlights why it’s crucial to ensure your insured value is correct, so you receive a full settlement rather than an adjusted one, which could leave you worse off and out of pocket for the difference.
At InsureCity, we apply a 10% inflationary adjustment to all-risk items and structures on all renewals to avoid these kinds of incidents. However, this is not foolproof, as after a few years, you may become over-insured. While this isn’t necessarily a bad thing, it does mean you’re paying more in premiums than you should. This is why, as per legislation, property valuations for replacement values should be conducted by community schemes every three years. Your broker should be notified of this, and the updated valuation should be sent to ensure the correct insured amount is on record. This way, you can be confident you’re paying the correct premium and won’t be proportionately settled on claims.
The same applies to personal insurance, including all-risk items, contents, and similar assets. It’s better to overestimate the replacement value rather than underestimate it, as you risk falling into the ‘underinsured’ category and may be dissatisfied with your settlement.
