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Adequacy of Sum Insured

Property Insurances

Our experience suggests that the building, machinery, and assets are valued & insured at gross value or book value as appearing in the financial statement which does not reflect the reinstatement value at all. This is easier and has the basis in the financial statements. In another way, the building, machinery, and assets can be valued & insured on a market value basis. This is subjective and normally arrived after deducting the depreciation from the replacement values. In both situations, in the event of any claim, there will be gross under insurance i.e. the comparison between the insured value and reinstatement value (the value at which the building, machinery, and assets shall be insured on the reinstatement basis).

Apart from the under insurance, the repair cost & the replacement cost would require to be depreciated for the period of usage, in other words, the depreciation and wear and tear would have to be deducted from the repair cost & replacement cost.

Alternatively, if the insurance is taken on reinstatement value and the reinstatement value clause is attached, the depreciation (to a large extent) and under insurance (to a large extent) can be avoided and the client shall get near full claim.

Consequential Loss Insurances

Can the estimated gross profit / actual gross profit of the previous financial year be adequate? Shall there be allowances for seasonality, trends, etc? What happens to the sum insured if the indemnity period is more than 12 months?

Liability Insurances

How we do fix the aggregate limit of liability? Any sub-limits? Are they adequate? What are the industry benchmarks?