Insurance is a complex business. Members of the industry are often faced with technical questions that they battle to find answers to. In this new column in FIA Insight we ask the experts to answer questions from brokers about a technical matter that might have them confused
For this issue we spoke to Symone Robinson of Consort Technical Underwriters, specialist construction and engineering underwriters, regarding a question she often gets asked by brokers:
Q:
What is a reinstatement of sum insured?
A:
In the event of a claim, the sum insured is “depleted” and reduced by the amount of the claim. The residual sum insured, is in essence then an “under insured” amount. The sum insured will then need to be reinstated to accommodate the repair or replacement of the material damage loss.
How is the reinstatement premium calculated?
The sum insured is usually automatically reinstated in terms of the policy Automatic Reinstatement Clause in the policy.
For example: The total electronic equipment sum insured of a company amounts to R1 152 155.00. A claim for R34 188.90 is submitted and paid out for the loss or damages. Following the claim settlement, the total sum insured is now technically reduced by the amount of the claim to R1 117 966.10.
In order to reinstate the sum insured to its original value, a pro rata additional premium is calculated on the amount of such claim from the date of the loss or damage to the end of the period of insurance. This effectively ensures that the Insured remains fully covered and potentially prevents the application of average from being applied in the event of another claim during the period of insurance
Failure to reinstate the sum insured
The sum insured is normally calculated based on the full value at risk. This is usually the new replacement value of all the Insured’s assets or property. However, it can be market value or agreed value depending on the product. Therefore, if all or part of the sum insured is depleted, failure to reinstate the sum insured could lead to the Insured finding themselves uninsured or underinsured.
Many Insurers and UMA’s, including Consort, offer technical insurance training for brokers. This is especially helpful if you sell niche and special risk products. Check with your underwriter to see what training they offer that will help you to offer the best possible products and service to your clients.
SOURCE: FIA Insight Magazine – March 2018 Edition.