Dear clients and cooperation partners,
With this Latvian Insurance Newsflash we wish to draw your attention to information again in the press at the beginning of the month about what we see as a dangerous tendency – saving on insurance premiums. This newsflash covers the most important issues to be taken into account when choosing insurance, as well as presenting two examples of how the SORAINEN Insurance Team in Latvia assisted clients in resolving various insurance law issues.
WHAT’S COMMON BETWEEN INSURANCE AND SKYDIVING? IS A SMALL INSURANCE PREMIUM THE MOST IMPORTANT ASPECT?
If we compare insurance with skydiving, then during skydiving the skydiver relies on a parachute to open and ensure a successful landing. Insurance is the “parachute” securing an individual or a company whose property has suffered in an accident – fire, flood and the like. Undeniably, the insurance premium is an important factor in choosing an insurance product. However, it is more important to evaluate and find the right balance between the premium and the cover provided by the insurer. How to do that?
Insurance is not a formality
Insurance of buildings, vehicles and equipment aims to ensure that a damaged or destroyed object is replaced in a comparatively short time without harming normal business operations. Therefore, even when buying an insurance policy just because “the bank requires it”, it is worthwhile verifying that the cover purchased will protect you and your company in case of an accident. Otherwise the company would complete a formal requirement and pay for insurance – but still lack adequate protection.
Ask advice from professionals
A vital factor is that terms of insurance contracts tend to be complicated, while quite often exclusions and conditions can decide everything. Let’s be honest – most of us start to read these conditions only after an accident has occurred. To avoid reading the conditions, it’s advisable to approach a professional such as an insurance broker. The broker’s task is to find the most suitable insurance product for the client by performing a comprehensive analysis of offers. This task involves, not merely finding the cheapest product but finding the product providing the necessary cover for a reasonable price. In other words, the task of the insurance broker is to help the client to be competent in the insurance market. The broker works, not in the interests of himself or the insurer but in the interests of the client. For this advice, the broker is paid but is responsible for the quality of advice given. Additional security for the client’s interests is insurance of the broker’s own civil liability for at least EUR 1.6 million (LVL 1.12 million).
If the company buys an expensive insurance policy that is significant for its operations, then a lawyer’s opinion on the insurance contract terms could sometimes be advisable. This advice is very useful when the insurer is registered in another EU Member State but the parties agree that Latvian law will apply to the insurance contract. In these cases, the contract provisions are usually not adapted to the Latvian legal system. As a result, problems arise after the accident has already occurred and one of the parties understands that the contract wording is incomplete or incorrect. But by then it is already too late.
State everything in detail
Irrespective of whether you choose to ask for advice from an insurance broker or to cooperate with the insurer and its representatives, it is important to provide all information and give honest replies to questions. Providing precise and correct information will help in finding the most suitable product for you, that is, to identify those risks that must be insured. For example, if you lease out premises and your warehouse stores chemical substances, you probably need not only lessor’s civil liability insurance to protect you in case of losses to the lessee’s property but also additional insurance cover in case of environmental pollution. Note, though, that insurance products that cover environmental risks are expensive. If a credit is issued to expand operations of a plant, then it might be advisable to buy insurance against business interruption risk. If a plant suffers in an accident, then until its renovation the company would receive insurer’s payments and could settle accounts with the bank. Of course, this kind of cover is not easy to obtain. In addition, it is necessary to weigh the balance between costs and benefits. The task of the insurance broker or the insurer’s representative is to identify these risks and to inform you about them. This will help you reach a business decision: whether the particular risk should be insured or not.
Concluding the insurance contract is just the beginning
One of the client’s most significant obligations is to inform the insurer about changes to information initially provided. If business in secured premises is interrupted and the premises are no longer secured, then the need might arise to inform the insurer about these changes in writing. The same should also be done if the business is renewed. For the insurer, this information is important for evaluating the probability of occurrence of the insured risk. True, in case of higher risk the insurer may require safety measures or may increase the premium. However, this would ensure that the insurer cannot later refuse to pay indemnity or decrease indemnity on the basis of failure to notify changes to the information initially provided. This principle likewise applies to changes in the list of insured property if a list was initially attached to the policy, as with replacement of production equipment.
If the possibility of occurrence of the insured risk increases then the insurer must be informed in writing and proof should be kept of delivery of the notice to the insurer. Only within 30 days after receipt of this notice can the insurer offer to amend the insurance contract.
Insurance is not a formality; it is a possibility to transfer your risks to the insurer and to ensure that in case of an accident your company is protected. It is like skydiving – we want our parachute to be in perfect order and open at the right moment.
SORAINEN’S TRANSACTION EXPERIENCES IN 2010 AND 2011
Advising CNA Insurance Company Limited
Advising CNA Insurance Company Limited, a leading European specialist commercial insurer, in a wide range of issues under Latvian insurance regulations. Advice covered insurance contract law and complete legal advice during the claims handling process, including assessment of liability of the insurer and its clients, as well as advice on developing litigation strategy and assistance in preparation for court proceedings.
Advising a leading world property-casualty and general insurance organisation
SORAINEN advised a leading world property-casualty and general insurance organisation serving more than 40 million clients regarding the possibilities of recovery by raising recourse claims. One case was a complex matter which involved advising under both Latvian and Lithuanian law. This matter highlighted the advantages of SORAINEN as a fully integrated law firm, with lawyers from two countries closely co-operating to develop strategy from the early stages of the case.