June 2023 Insurance Advisory: Are You Sure You’re Insurable?
By Ekerete Ola Gam-Ikon
Put differently, the question is: Can you pass the test to enjoy the value of insurance?
To be insured, whether as an Individual or Enterprise, insurance companies undertake an assessment of you, then agree on the appropriate cover and advise on the premium you should pay, usually for a year.
Fulfilling these steps will ensure you’re covered and entitled to enjoy the benefits of insurance. If you fail to fulfil all these steps, you may be considered uninsurable.
ADVICE 1: Know and Understand What’s Required. Insurance can be quite strange and confusing to the uninsured at first encounter.
How can one salesperson walk into your office and tell you that if you pay him/her a disposable amount monthly, he/she promises that his/her company will pay you a certain lump sum in 5, 10 or 15 years depending on your agreements?
Or how dare any Executive promise that his/her Insurance company will repair or replace your N50m/N100m vehicle if involved in an accident or stolen, for such relatively low charge (premium) as N2.5m/N5m?
Or just how does anyone talk about insuring your factory complex valued at N1.5b against Fire and Special Perils for a paltry premium of N4.5m?
How does insurance work? How do these relatively small premiums enable insurance companies to fulfil their promises to clients?
So, let’s keep it very simple. Insurance companies have to generate premiums from many more transactions like those mentioned above, maintain reserves for claims settlement and invest in short and medium-term financial instruments to earn income and honour their obligations. This process requires disciplined management backed by strong reinsurance arrangements.
Hopefully, this has helped you understand a bit of how insurance works to ensure individuals and enterpreneurs like you are relieved when the unexpected happens;
ADVICE 2: Meet and Discuss with an Insurance Professional. The person can be an Insurance Agent, Insurance Broker or Insurance Consultant whom you’ll seek to ascertain, from the beginning, to be more interested in providing answers to your questions than selling his/her products.
Once you’re convinced about the person’s intention, knowledge and capacity, appoint him/her as your preferred Insurance Agent (representing an Insurance Company) or Insurance Broker and Consultant (representing many insurance companies).
Their services are provided to you at no cost because they earn their commissions from the premiums you and others pay to the insurance companies. They are your helpers to becoming insurable.
We see where clients especially individuals try to outsmart their Agents or Brokers to deal directly with the insurance companies to earn the commissions, albeit an act that the law doesn’t permit, causing concerns about whether such characters are insurable;
ADVICE 3: Be Prepared to be Insured. Remember, Utmost Good Faith is one of the Principles of Insurance, which requires parties (the Insurer and you, through your Insurance Broker/Consultant) to provide all necessary information about one another and what’s to be insured even when not requested for.
Sometimes, for example, individuals and organizations seek to avoid providing receipts of purchase for the items they want to insure so that they can state values which will reduce the premium payable on the insurance of their assets.
The effects of such actions are often revealed during the process of claims settlement, if one occurs, and it’s always regrettable for the person who decided to reduce the values of the assets.
In this regard, I’m always quick to bring back the story of the Petrol Station worth N200m, which the Owner, against professional advice, (under)insured for N150m because he claimed not to have money to pay the premium based on the true value of the station.
When the station was razed by fire eight months later, he was forced to go shopping for funds from his bankers, while his Insurers had settled the claims fully and promptly.
To be honest, from my experience, the courage to acquire a multi-million Naira asset is the same required to pay the right premium for the insurance policy you need.
Today, some of us are reducing the value of our highly priced vehicles when we need to do Comprehensive Motor Insurance because the regulatory rate of five percent was announced from January this year.
Even the insurance companies that do this (under-insurance) knowingly due to competition haven’t put you in a good position if it becomes necessary to make a claim. Just imagine a vehicle of N50m insured for N40m due to the difference of N500,000!!
It is important to understand why some people are insured and enjoying peace of mind while some are still asking and discussing how insurance works.
If I’ve helped to resolve some insurance issues for you with this advisory, let me hear from you.
