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Lately there have been several major losses in Ukraine associated with the insured events such as fire in the DataLux warehouse in December 2007 ($ 39 mln worth of indemnity), gas explosion in "Azovstal" facility ($ 31 mln worth of indemnity), or fire in the “Eldorado”’s warehouse in August 2010 ($ 11.6 mln worth of indemnity). The gross volume of indemnities paid totaled to hundreds millions of dollars. Nonetheless many companies purchasing insurance policies are not happy with their coverage. The main reason for it that Ukrainian culture of insurance is not as developed as in mature markets. Let’s try to analyze the main flaws of the insurance that worry the clients.
Frequent are the cases when the insured do not have a clear idea what they really need and make their choice based on the price alone. However quality of the coverage should be your priority when it comes to insuring your own business. In terms of the insurance policies a number of risks covered can be considered the principal criteria of their quality assessment.
There are two types of policies for property insurance such as:
- “Named perils” policies
- “All risks” policies.
First type of policies are most common for Ukrainian market however the second one has long ago caught on abroad. Let’s look into it in more detail.
Contrary to “named perils” policy “all risks” agreement covers any property damage unless it falls within exceptions stipulated by the policy. There is no list limiting the number of risks insured. Very often the corresponding clause of the policy reads as follows:
“If insured property suffers unforeseen, sudden and physical damage by any causes not excluded the Insurer(s) will pay to the Insured the amount of loss in accordance with the provisions of the insurance”
The policy also contains the clause with the list of exceptions which are normally not covered by the “named perils” policy.
That’s why “all risks” policy is more advantageous indemnity wise. Below are several case examples from our experience.
Case 1. Fire in the neighboring building caused the furniture and interior decorative finishes of the insured hotel complex to be damaged by the soot and carbon-black. Is the Insured entitled to indemnification? It depends on whether or not this risk is covered by his “named perils” insurance policy. Judging by our experience, the majority of such agreements limit the coverage of damage from soot and carbon-black only to cases of fire which appeared within the insured premises. This means that the probability of being indemnified is close to zero if the hotel complex is insured by the “named perils” policy. However “all risks” insurance doesn’t exclude such risk from the coverage and stipulates for the full indemnification for such loss.
Case 2. Roof of the logistic complex was damaged during the storm which caused for the interior decorative finishes, equipment and inventory being damaged by water as well. “Named perils” policies normally have quantitative parameters defining each of the natural disasters risks. For example, heavy rain is defined as a rain with over 25 mm/hr precipitation. This means that if the report shows that there have been only 20 mm/hr precipitation during the storm in question, the loss will not be indemnified. On the contrary, “all risks” insurance does not imply such limitations and stipulates for complete coverage of damage caused by natural disasters.
Case 3. In the course of the equipment’s operation the fixture was torn off. The lose detail hit the partition wall, machine tool and column pillar and damaged them all. This accident does not fall within any of the named perils, but is to be fully covered by the “all risks” policy.
Case 4. A storage stand in the industrial site fell destroying the inventory it was carrying. Moreover, another storage stand and interior decorative finishes were damaged as well. Again, “named perils” policy does not provide the coverage for such cases. On the contrary, “all risks” policy does.
Case 5. The insured building was damaged by the jib of lifting crane locating in the neighboring construction site. The owner of the insured building is entitled to indemnification only under “all risks” insurance policy.
Case 6. If an abat-jour, exterior decorative finishes or a balcony of the insured building is damaged by the falling icicles, the indemnification can be paid only in accordance with “all risks” insurance policy.
To sum it up, it should be mentioned that “named perils” insurance covers only for risks specified in the policy, but “all risks” policy provides coverage for all non-standard accidents unless they are excluded by the agreement. The cost of such policy is 10-20 % higher, but it shouldn’t be the reason for the quality of your property insurance coverage to be compromised.
Last, but not the least, the mortgaged property insurance issue should be addressed. A lot of borrowers view the insurance required by the bank as a mere formality. However, if a sum of money one way or another is to be spent on insurance policy, why not pay it for a quality coverage? This issue should be taken into consideration as often are the cases when the quality of an insurance policy manifests itself only after the insured encountered a loss. Not only does “all risks” policy covers your property loss, but also saves your time and nerves.