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INSURANCE: Think Twice Before Inflating Claims

 



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When it comes to paying out claims, the South African short-term insurance landscape is beset with incorrect perceptions. This is according to Thiroshen Naidoo, Head of Assessing at CIB Insurance Administrators, who says many consumers incorrectly believe that when claiming for damaged or stolen goods, the insurer is either not likely to pay out enough to cover the item, or will attempt to reduce the claim as far as possible.

 

We have found that in some cases, insured individuals are convinced that claims need to be inflated in order to ensure that after an insurer reduces the claim, the settlement amount is equivalent to the lost amount.” Naidoo continues by saying that the insured should realise that this action is in fact fraudulent and may prejudice the entire claim, as well as the insurer’s decision to insure the individual in future.

Naidoo explains that the short-term insurance concept is built around restoring the customer to the same financial position that they were in prior to the claim. “Instead of inflating your claim after a house robbery or damage, you should spend some time reviewing your short-term insurance policy prior to suffering a loss.

One of the most important things consumers can do is to annually assess the value of their household items, check that all items are correctly covered and that any new items have been taken into account,” says Naidoo. “If the Sum Insured reflected on your policy is less than the actual value of your household goods, you are under insured.”

Underinsurance is one of the biggest and most misunderstood areas in the short-term insurance industry. Many clients believe that if they understate the value of their goods, the premium will be lower and will therefore save them money in the long run. The truth of the matter is that underinsurance leaves many insured clients in a very vulnerable place at the time of a claim.

If underinsured, the principle of average will be applied and the claim will be settled proportionately, leaving the insured to cover part of the loss. For example, an individual’s household contents were insured for R50 000 (the Sum Insured), the insured was burgled and  R30 000 worth of goods were stolen (The Claim Amount). An insurance assessor will assess the value of stolen goods and finds that the value of the remaining items is in fact R70 000. The insurer immediately knows that the Sum Insured value was too low and calculates an appropriate value by adding the Claim for the stolen or damaged goods to the value of the items remaining in your home – in this case R70 000 plus R30 000 – the correct amount that the client should have been insured for therefore is R100 000. In this example the individual is considered to be 50% under insured. The amount that will be paid out, due to the formula of average being applied is therefore going to be only R15 000.

It is therefore essential to contact your broker when purchasing an expensive item and ensure that the Sum Insured is updated accordingly. It is also wise to adjust the value of your household contents to reflect inflation at least once per year.”

Naidoo says that the second challenge at claims stage centres on the proof of ownership requirement. “It is quite common to find that insurers are presented with a claim where items of high value are do not have any supporting documents that provide proof of ownership, be it an invoice, product manual or valuation certificates.”

In this situation the insurer might limit the claims payout for the item in question, or even exclude it completely. To avoid this hurdle he suggests that all invoices and manuals for major appliances and high-value items should be filed and stored safely for reference purposes.

Fairness is at the heart of the insurance claims process,” says Naidoo.“If you play open cards with your insurer and advise them of any changes, including changes to the valuation of your insured goods, as required by the policy, then the claims process will run smoothly and the perception of having to inflate a claim to get what you are paying for is completely eliminated.”



 
 
 
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