The benefits of being proactive about risk and insurance

Many people think that if they have the necessary short-term insurance policies place as part of their financial portfolio, they can rest assured that they are covered for any eventuality.?

However, the flipside to peace of mind is complacency. Over time, risk can creep in or increase, and policies that were once adequate to insure your home and contents, vehicles or other assets may prove not to be when they are put to the test. ?

With insurance policies, the maxim ‘out of sight, out of mind’ often comes into play. In the same way that you should review all your investments at least once a year, you should also regularly update and revise your insurance policies.??

This should be a standard part of your annual financial ‘spring-cleaning.’ We all know that the future is uncertain – hence the need for insurance in the first place – and that is increasingly the case nowadays in South Africa.??

It is important to note that being over-insured (that is, paying for unnecessary cover e.g., for assets you no longer own, or which have significantly depreciated) can be as much of an issue as being under-insured. Both can lead to distasteful consequences. As your situation changes – and it will – it is important to also change your level of cover so that it remains appropriate.??

Selma Nieuwoudt is FFG’s Asset Risk Manager Gauteng and has more than 25 years’ experience in the specialised field of short-term insurance. Her approach to client portfolio management is to identify and evaluate potential risks and then determine an effective strategy to control them. ?

“When it comes to short-term insurance, the goal is always to place a claimant in the same financial position that they were in, prior to the loss they have suffered. In the case of a claimant who is under-insured, the insurer's liability will be limited in proportion to the amount of cover as compared to the value at risk. This ratio is then applied to the loss that has occurred. In simple terms, if you have bought only half the cover you should have done, your insurers will only pay you half your assessed loss,” she explains.?

Another factor to bear in mind is the obligation to do everything possible to prevent legal liability, loss, or damage. This is particularly relevant in the case of property – owners must do all they reasonably can to keep their fixed assets in a sound condition and a good state of repair. This includes fixing defects or wear and tear to items such as roofs, gutters, drains, water pipes and tiled areas.??

The importance of disclosure?

“Insurance contracts are based on the information supplied to the underwriters. As you naturally have a far better knowledge of your own business or risk than your insurers, it is vital that you disclose all pertinent information which may influence your insurers’ perception of the risk - prior to inception of cover or renewal,” advises Selma.???

She also adds that any material changes made after inception or renewal must be advised to the insurers. Examples could be particularly risky aspects of a business such as processes, new product launches and signing of leases or contracts which could impose additional liabilities.??

“You do not have to disclose things which diminish the insurers’ risk, or which are either common knowledge or knowledge which is typically waived by the insurer. Where doubt exists, it is better to inform your insurer, as many claims have been rejected on the grounds of non-disclosure or misrepresentation of material information. While over-insurance can be problematic, there is no such thing as over-disclosure in insurance terms.”?

Typical examples of a material change in the risk?

• An insured passenger vehicle is converted into a specialised racing vehicle. In this example, the conversion may result in the increased operation of accidental loss or damage as insured perils, because the vehicle may become unstable and unsafe. It is also likely to be used in a riskier way and at higher speeds. Additionally, its replacement value may increase because of the conversion work done.??
• Alterations which compromise any mitigating measures applicable to the risk e.g., removing security gates or burglar bars or disconnecting or removing alarm systems at a property. In this example, the diminution of the risk mitigation factors would result in a greater exposure to the operation of theft and burglary as insured perils.?
• Alterations and renovations to a building which alter its structure as described in the policy e.g., removing the roof covering, entrance doors, window frames, exterior walls, etc. In this example, the removal of the roof would result in the building and any contents becoming exposed to the increased possibility of theft, storm, hail, or snow as insured perils.?

“Insurance does not function in isolation as the only genuine answer to risk. Rather, its efficiency depends on many factors – with the human element playing a vital part. People’s attitudes to risk, risk mitigation and disclosure are a key contributing factor when situations involving under- or over-insurance arise. It is therefore of the utmost importance to revise or update your insurance policies on a regular basis. Be safe than sorry,” Selma concludes.??

FFG’s team of insurance specialists provide professional advice and friendly service and insurance solutions designed to suit your precise needs as determined by your individual risk profile and the market sector your business operates in.??

Visit www.ffg.co.za for more information.?