Henderson addressing attendees at the event.
~ Has to be addressed ~
PHILIPSBURG--“Adjusters, based on the nature of their work, have this thing of just saying you are underinsured at the very beginning of the conversation. This is wrong and must be addressed seriously going forward,” Henderson International Chief Executive Officer (CEO) Neil Henderson said on Thursday.
Henderson was addressing at the time a group of about 90 persons who attended a free information session hosted by Henderson International. The session addressed insurance matters.
Starting at the beginning of the insurance process, Henderson said the information provided to the insurer at the application stage must be as accurate as possible, as this is the moment when the insurer works with that information, and sometimes with on-site inspections to make an assessment whether the property is insurance worthy.
Critical for the insurer at that point is whether the structure is concrete, wood, close to the sea, residential vs. commercial vs. industrial neighbourhood, and mitigating risk factors such as hurricane shutters and proper electrical works, etc.
“It is important to know that not providing enough or misleading information at the application stage can, based on article 320WvK, lead (of course after a specific process) to the policy becoming null and void. You are therefore advised to have your insurance broker assist you with the application process,” he said.
He stressed that any significant change to the risk places an obligation on the insured to promptly notify the insurer of such changes.
“Imagine insuring a minivan. With this minivan, you take kids to school every morning. One day you became so smart that you engineered propellers on the van and start flying the kids, thereby beating traffic and getting them to school on time. Great job, but what does that mean for your insurance policy?
“The risk you presented was a minivan driving on the public road. You paid a premium of US $300 per year. Now you have a helicopter. It should be obvious that such a change will create a different risk for the insurer. Same goes for a private dwelling that has been altered from its original purpose to now be utilised as a restaurant. The risk becomes higher because of the commercial nature, as restaurants statistically are more likely to catch fire than a private dwelling,” he explained.
“If you have an airport insured, it would be understood that you are dealing with traditional passenger movement which is a known risk to insurers. However, when you are going to do expansions/restorations, including cranes and the likes, it means that the risk has changed to one where people can get injured while being at the airport. Such changes must be notified prior to commencing such activities.
“In short, the insurer must always have all the relevant information from you, the client, that will aid them in making a good risk assessment and securing enough re-insurance if need be. The insurer should not be threatened by any situation that can make them bankrupt because you did not give them enough or the right information.”
Accepting the risk
According to Henderson, when the insurer accepts the risk and the client pays the premium it means the insurer will become responsible for the financial consequences of the client’s loss covered under the policy. “Please note, to be insured, you must have paid your premium. That’s the only way to obtain the right for compensation after a loss.”
He explained that insurers are not competent in establishing the value for insurance. This is the competency of a certified appraiser. A policy should be concluded based on the reconstruction value, not auction or market value.
“When there is a loss, you must notify your broker as soon as possible so that this can be communicated to the insurer in the appropriate manner. After reporting the loss, you must get a detailed estimate of what it will cost to repair or rebuild your property. This must be done in a manner that can be explained and justified when you receive questions about the estimate.
“It helps when you take someone professional to help you with this estimate, because if you lost five doors, don’t just go and put down how much five doors cost. You also must take into account the cost of labour to take out the damaged doors and then to replace them. If they are in concrete, you might have to break part of the structure and plaster them back in. So be careful not to short-change yourself by not taking good advice when submitting your claim.”
The insured has the legal obligation to do all that is reasonably expected to prevent or minimise loss/damage.
“In the absence of this obligation, you will no longer see many people taking precautionary measures just before hurricane. For the purpose of insurance companies not having to pay every dollar in losses, which, by the way, would have resulted in all of us paying higher premiums, a deductible was introduced, making the policyholder responsible, in cases of hurricane damage, for the first two per cent.”
On the issue of depreciation, Henderson said if someone has sheetrock in their building from 1982 and they must now replace 100 pieces, it stands to reason that they will not get the price per sheetrock in 2019.
“There will be a margin of depreciation applied, because you will be getting better out of the claim and this is against basic insurance principles. You are not supposed to get financially better nor worse out of a claim settlement. You should be put back in the economic position you were prior to the loss.”
In explaining the main problem after a disaster, Henderson said, “When you have 100 square metres of property and your contractor establishes $1,000 per m2 in 2018 and in 2019 the adjuster after a loss states ‘no, no, no, it is $1,500 per m2’ this becomes a huge problem. You ask the question why?
“Having insurance for a $1,000 per m2 and the adjuster saying it is $1,500 means you will be rendered underinsured, which will result in you receiving $667 per m2 if the property is totally demolished.”
Some of the reasons persons are rendered underinsured are: The adjusters come from different parts of the world and sometimes make the wrong assessment; prices for labour and material automatically go up immediately after a disaster; sometimes people make additions to their building without updating the policy; additionally, not appraising your property periodically will result in inflation also.
He said also that “adjusters, based on the nature of their work, have this thing of just saying you are underinsured at the very beginning of the conversation. This is wrong and must be addressed seriously going forward. A good broker will put the burden of proof on the adjuster and, by extension, the insurance company he/she represents to explain why the property cannot be rebuilt at $1,000 per m2.”
One way to address the complication of adjusters is by putting an independent committee in place after a hurricane that will establish rates for reconstruction of a quality A, B, C and D type of structure. The committee should compile its information from contractors, hardware stores, engineers and architects.
“This, ladies and gentlemen, we believe will become the start of a solution that has been plaguing the entire region.”
The session was held at Henderson International’s parking lot, next to Tropicana Casino in Cole Bay.