INSURANCE
Under-insurance:
Lessons from the past and the impact on claims
The image of insurance is often impacted in a negative manner when it comes to
under-insurance. Insured persons are often disillusioned and frustrated with the
message that they are “under-insured”.
T
his message was conveyed to a
number of farmers over the past
year who suffered damage due to
stores or feed lost or equipment
damaged by fire.
Research done by a company called
CIB Insurance Solutions during 2010
indicated that up to 70% of
farmers in South African
may be under-insured.
The reasons for this
is that they often
underestimate
the replacement
value of in-
sured items
and they
neglect to
revise
insur-
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SENWES SCENARIO | AUTUMN 2018
ance policies with their brokers.
WHAT IS UNDER-INSURANCE?
It is when your insurance cover (the
amount to be paid out in the event of loss
or damage) is less than the replacement
cost of the damaged or lost goods.
Another description of under-insurance
is that you remain responsible for the
proportionate payment of your insurance
claim. This principle is referred to as un-
der-insurance. Technically the insured
becomes the insurer of that portion of the
loss.
This principle is applied to ensure that:
• Under-insurance can be prevented.
• The full premium for the risk borne by
the insurer, is paid.
• Each party carries a fair portion of the
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risk.