Practical tips for receiving insurance payments

28.07.2010

Eva Berlaus
Country Managing Partner
Ph +371 67 365 014
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Santa Rubīna
Senior Associate
Ph +371 67 365 000
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What makes insurers pay? Eva Berlaus, office managing partner of SORAINEN Latvia, offers practical advice on making the most of insurance claims.

At times the media publish news on another increased-risk fire, damage caused by flooding and other hazards. Is your company insured against these accidents? Some would sigh with relief and say, "There's no need to worry – the property is insured." But is it so simple? Someone said "Insurance is the business of selling "hot air" to the client". To some extent, this is true because when an insurance contract is signed the client receives a piece of paper promising insurance if.... This piece of paper, though, is not the same thing as a new building to replace the one that burned down, for example. But this same piece of paper is what entitles the client to claim for that new building to be built. The crucial question is – what to do in order to turn this promise into a new building?

Firstly – keep phone numbers

Of course, the first thing to do should be to carefully scrutinise insurance contract terms and memorise them, but to be frank people rarely do so. In reality it is more useful to keep the telephone number of an insurance agent or broker because they most likely know the terms of the policy and will immediately come up with suggestions on what to do after something happens. But still one should contact the insurer as soon as possible, as well as study the terms of the policy.

Notifying changes during the contract

There is a myth that the client can walk home after signing an insurance contract and paying the premium and need only return to the insurer when the next premium is due. The truth is not so simple. One of the most significant client obligations is to inform the insurer about changes to information originally provided. The consequences of failing to do so could justify the insurer in decreasing or even refusing to pay the indemnity.

For example, take the case of building insurance. On signing the contract the building is used as a factory and is guarded 24/7. Later, the factory is shut down due to the economic crisis, the equipment is moved somewhere else and the premises are left empty and unguarded. These changes should immediately be notified to the insurer in writing. Quite likely, the insurer can suggest safety measures or even raise the premium – but could not later refuse to pay the indemnity because of not being informed about changes to the original information.
 
It is also advisable to inform the insurer about changes to the list of property insured if a list is attached to the insurance policy, for example production equipment.
 
For shops with a seasonal business that may insure goods stored in a warehouse, it is advisable to constantly make sure that the value of the goods corresponds to the insured sum. For example, the contract is made in winter when fewer goods are in the warehouse but the insured event occurs in summer when the value of the goods exceeds the insured sum – then the insurer could rely on underinsurance provisions and compensate only a fraction of the loss.

If risk increases, then inform the insurer in writing and keep proof of delivery. Within 30 days of receiving this notice, the insurer can offer to amend the insurance contract.

Decreasing the extent of loss – mitigation

Every client understands that in case of fire they have to call the fire-fighters immediately and in case of theft – the police. However, clients are rarely aware of their obligation to do everything to decrease, or mitigate, the extent of their loss. Although this might seem obvious, in practice clients still do not fully understand the duty to mitigate. To illustrate, following the outbreak of fire, the insured and the policy holder must do everything possible to decrease occurrence of further losses. For example, they must take care of security of the building, including locking the door, or adding a temporary roof so that rain does not cause larger losses. Failure to observe this obligation may well result in the insurer refusing to compensate damage that the client could have prevented.

Additionally, repair work should wait until representatives of the insurer have inspected the condition of the building because otherwise the insurer would be denied the opportunity to confirm that the insured event did actually occur.

Giving information and cooperating with the insurer

The client must inform the insurer of the occurrence of the insured event (risk) and the extent of losses. In this context, no mistakes are considered minor or insignificant, while incorrect or incomplete information could justify an insurer's refusal to pay out, as indeed court practice confirms.

Client cooperation with the insurer is a "must" for swift and successful insurance claims. Not always do clients understand and observe this simple rule. In reality, there have even been cases where the insurer has to refuse payment of indemnity because their claims inspectors were not allowed into the building to confirm that the insured event occurred!

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