Alfred Explains The Principles of Insurance – Principle Three: Indemnity

Now this one is a relatively simpler concept to understand compared to the last two we had discussed earlier. Remember them? Uh, may be? Let me remind you – there are essentially 7 basic principles of insurance. The first one being ‘Utmost Good Faith’ and second one ‘Insurable Interest’. Today we discuss the third principle known as ‘Indemnity’. As the name suggests, it is an indemnification, protection or compensation given against a loss, damage or other financial burden. In insurance, this indemnification is enabled through an insurance contract, whereby the insurer provides assurance to put the insured in the same financial position in which he was immediately prior to the accident/injury/loss.

compensationYour car insurance policy is an example of this. As a car owner, you may have indemnity insurance to compensate for any damages to your car. These damages could be through any sources against which you are insured such as, accident, fire, theft, burglary, malicious act of any third party, etc. In such a scenario, the amount of compensation is limited to the amount insured or the actual loss whichever is lower. The claim amount will never exceed the amount of loss or else the claimant stands to make a profit from his insurance. Additionally, the ‘average’ concept plays an important role in making sure that the claimant who is under insured does not financially benefit from it by receiving a full compensation. In simpler words, this is done by ensuring that the settlement is proportional to the ratio of the sum insured to the total value of the risk covered. The point is to reinstate the insured’s financial position not to make it any better! Hence, it is important that you are not under or over insured in any way. You can ensure this by not only disclosing everything you know accurately but also choosing the right partner or broker who will make sure that you have an adequate cover with the right insurer.

This compensation does not necessarily have to be in the form of cash. The insurance companies may offer other means to restore the financial position of the insured such as through repair, replacement or even reinstatement. The insurer may have agreements with chosen agencies offering repair and replacement services for the insured or otherwise, have a list of authorized dealers where the insured can go for a similar arrangement.

However, it is important to note that this principle only allows for restoration of the financial position. Thus, this principle does not apply to those classes of insurance where financial loss cannot be measured. The two insurance contracts void of this principle are Life and Personal Accident. This is because no monetary value can be placed on human life and therefore the loss is impossible to quantify.

So the next time your broker or insurer speaks of indemnification, at least you know what exactly it means and what you need to keep in mind so that you are adequately ‘Indemnified’ and not under insured!

[Image source: hiscoxusa.com]

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Alfred Discovers His Clients’ Basic Insurance Requirements

insureToday I had a very thought provoking meeting with my client. A meeting that enlightened me. A meeting that made me understand what my clients really want, what do they look for in an insurance policy and how do they weigh the benefits against the costs of what they purchase from me.

You would wonder what was it all about! Trust me, I spare no opportunity to share the knowledge with you so here it is.

Whether it is mandatory car insurance, home insurance or even one-off travel insurance, most of the clients look for the following four elements when purchasing an insurance product. But just to let you know these are not necessarily in order of importance. However, not every customer is the same. Some clients may place more focus on one over another. After all, it’s all a matter of choice. Nevertheless, these factors are unquestionably important to be considered at all times when conversing with the clients regarding their insurance policies.

First off, the Price of the insurance product in question is considered as one of the most crucial factors by many customers in the market. No one is to blame of course; after all, it is human nature to save money wherever possible. There might be exceptions however; some may be spendthrift but most of them look for a product which is worth it, guarantees value for their money and is cost effective. With increasing number of companies selling insurance direct and via various online platforms, it is much easier for the clients to compare the products and pay the price they would like to pay but is it really just the price that they are after? Surely not!

The Level of Coverage is another key element. Some may not realise and fall for a‘lower price trap’, but one must realise the costs one could incur in a scenario whereby one may very well be paying a much lower price but for a cover that is only on paper. It is imperative to provide the right level of coverage which best suits the client’s requirements. The client needs to be constantly reminded that a lower price may not necessarily be an optimal choice as what it may simply lead to is a diluted or a poor quality product. What they do in fact require is an adequate cover and thorough policy allowing claims to be swiftly paid in case of unforeseen circumstances. The last thing your client would want is a big repair bill simply because a particular type of risk was not covered!

Thirdly, many are now more careful about the level of security with whom they place their insurance with. Post-recessionary times have made the clients more cautious and wary of whether the company will stay and survive, whether it has a good credit rating, whether it will pay the claims and not shy away during the hard times. Clients seek assurance that they are purchasing from the right company with a longstanding reputation and credibility.

Last but not the least, everyone wants Quality Customer Service. Clients want to see if you can go the extra mile for them and whether you are readily available to help and answer their queries.  In essence, customers are not just interested in the product being offered but also the level of service that they receive when they register a claim, when they want to cancel their policy, or even when they have a complaint.

So now you know what to keep in mind the next time you are about to sell an insurance policy to your client. Understand your client’s priorities and dedicate yourself to getting them the best.

Alfred is the wonderful brand mascot of insurancemarket.ae where you can find the best insurance deals in the UAE with a commitment to outstanding claims service. We work only with the leading insurance companies in the UAE like AXA, Chartis, Fujairah National and Salama Takaful.

[Image source: shedworking.co.uk/2013/01/over-3m-homeworkers-potentially.html]

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