MAKING GENERAL CLAIMS Why do some claims fail?

How are claims processed? Why do some claims fail and what can you do to make your claim work?

For smaller claims, your insurers may use his own staff to handle them internally. But for larger, or more suspicious claims, a loss adjuster may be called in to make an independent assessment of the cause of the loss.

But first of all, you need to know what your own responsibilities as a claimant. Of course, when you first bought an insurance policy, you hoped, and so did your insurer, that you would never need to make any claim. But if, misfortune strikes and you have to make a claim, the golden rule is — tell your insurer immediately and confirm it in writing.

This simple procedure protects your position and complies with the policy conditions. It also gives your insurer the best chance of settling your claim quickly. And insurer will want to settle your claim honestly, fairly and promptly because his reputation depends on it.

Another important rule to remember is well entrenched in legal precedents, although it may not actually be stated in your policy. By this, you must take all reasonable precaution to minimize the extent of the damage, including taking steps to bring to task anybody who may have been responsible for the loss, like for example, putting a cover over a hole in the roof to prevent rain from affecting previously damaged roperty is a good precautionary action.

A loss adjuster is a specialist whose job is to find out what really happened. He has to recommend to the insurer how much to pay in the particular circumstances. His presence entails detailed discussions with you, the claimant, in order to reach an agreement in principle on what would be an acceptable and realistic claim settlement.

Stories abound of claimants who deliberately inflate their claims, in the mistaken belief that insurers will systematically reduce them anyway. This is not true in the case of reputable insurers. But no insurer would write out a blank cheque for a stranger any more than you would.

The insurer needs to be satisfied that the loss was the genuine accidental result of an insured peril, that the property was insured for its full value (which is a sore point), and that the amount claimed is reasonable, taking into account its depreciated value before the loss, and salvaged value after it.

Insurers will usually try to sell the damaged property to offset the loss, or alternatively, offer to sell it back to the claimant if the item has some sentimental value.

Insurers may also adjust the claim to take into account ‘betterment’ that is, when settlement involves the claimant getting a brand new item in exchange for a well-worn one.

Insurance is generally a contract of indemnity. Financially speaking, this means that your insurer will try to put you in the same position after the loss as you were in immediately before it. In other words, you should not actually profit from the misfortune.

The only real exceptions to this rule come when you have specifically insured an item on a ‘reinstatement-as-new’ basis or when you have taken out certain special type of insurance such as Personal Accident or Marine Cargo cover, with agreed sums insured, or including an element profit.

The amount of your claim and of your original insurance value are crucial factors. Was the sum insured on the items lost or damaged, and also the total sum insured on all similar property, equal to or greater than their full value?

If not, you have your first problem, because your insurer is entitled to reduce the amount payable in proportion to the degree of your under-insurance. This is known in the trade as the application of the average.

Let me give you an example. You insure your stock for US$500,000, but in reality it is worth US$1 million, and you suffer fire damage costing US$250,000. Under 'Average' you will be paid 50% of the US$250,000 because you have only insured 50% of the value of the stock.

Make sure your claim is reasonable in amount. if it is deliberately way too high, then you risk being accused of fraud. Under these circumstances, not only will you get no joy at all from your insurance policy, but you may risk facing a criminal prosecution.

Insurers understand that claimants sometimes exaggerate claims because of over-enthusiasm rather than a deliberate attempt to swindle. But they will have no sympathy with anyone who tries to pull a fast one.