Insurance should be a planned corporate decision.

Ever noticed how any technocrat spends hours going over feature by feature, setting up committees and gathering expert opinions before committing his organisation to any purchase of high technology plant and machinery? Yet, when he has to protect the very same asset he has gone to such lengths to acquire through insurance, his approach is to get it over and done with, an approach that screams — Hey, I wouldn’t buy this if my banker/ financier did not want me to.

Even when purchase of insurance is voluntary, he is buying what is available without checking its need, advisability and suitability vis-à-vis his own requirements and often at the last minute. Little wonder then, that when the insurance response in a claim scenario is unsatisfactory, disappointment and resentment is often rife and vocal. This could be avoided if the due diligence that a corporate normally practises in other areas is applied to the purchase of insurance as well. The checklist given below provides ten pointers towards effective insurance buying. These have been culled from my experience as an insurance auditor — where I have come across various pitfalls that could have been avoided at the time of purchase of insurance itself, thus mitigating the incidence of low claim recovery, slow claim recovery or worst no claim recovery !

Arriving at the appropriate time for facilitating effective purchase of insurance: The time to purchase insurance is positively not when the asset is at your doorstep but when the decision for its acquisition is taken.

Once the subject matter is identified, its specifications determined and financial outlay sanctioned, it is time to communicate to the insurance department when the consideration is likely to pass hands and the insurable interest in the asset is transferred to you. Check out your own insurable interest in the matter: Are you insuring as an owner or as a bailee ?

Does your insurable interest extend to the whole of the property or to a limited extent? Is the insurable interest present or is it likely to arise in future? These questions need to be answered because for each response the ultimate decisions in insurance will differ.

Who should be insured? The answers to this will also determine whether the policy needs to be in a joint name or in a single name. Whilst as regards assets at times a joint policy may avoid duplication of insurance and save multiple premiums, in personnel policies such as Workmen’s Compensation Policy, taking a joint policy with the contractor may be naive and invite unforseen and unintended liability of his employees. The same is the case in liability policies as regards Cross Liability, which needs to be considered before a joint policy is demanded.

Determine the insured property and its value: Ever so often the asset purchased is considered to be the only insured property and other important interests end up being ignored. A common example would be insuring the imported cargo and inadvertently missing out the duty element. Contents of rented premises may be insured and yet the rent itself may not be. Examples like the above are common and arise because “What- if” queries in worst scenarios are not answered at the time of purchase of insurance. Similarly the assets needs to be insured for adequate value and not for the value upto which the financial institution has financed the asset.

Determine the perils against which you desire insurance: A Flood, Storm and Typhoon cover does not include a heavy downpour, nor does a Burglary policy cover theft.

If your needs are different from the standard policies issued, it would be wise to enter into a dialogue with your insurers as to what exactly you need so that if possible, a modification may be carried out at the time of insurance.

Those issues mentioned earlier pertained to the internal conceptualising of cover vis-à-vis the property insured, our needs and requirements, etc. Once the above are formalised, as a buyer of insurance you now need to check-up the seller’s market and the next few pointers pertain to this.

Check whether the particular class of insurance is tariffed or non-tariffed: Where the insurance is tariffed, scope for modification and customisation is limited. Where the class of insurance is non-tariffed, negotiation is the key word.

Check out the competition: Presently, we have four subsidiaries of the GIC competing in the insurance industry and depending upon the volume of premium generated by you they may vie keenly for your business. Even though essentially what is offered by each one of them may remain the same, willingness to customise the standard cover, claim responsiveness, documentation and minimum expected service are issues that you may determine at the time of purchase of insurance.

Satisfy all the pre-requisites of insurance: Having decided who is the ultimate vendor for your insurance it is necessary to satisfy all the pre-requisites of insurance such as payment of premium before the risk inception, filling up the necessary proposal forms, checking the cover notes (‘held-covered’ advices from the insurers pending policy documentation) these issues which may seem innocuous at the time of purchase of cover assume paramount importance at the time of loss.

Amongst the worst repercussions is the fact that the policy can be declared null and void if the premium has not been received and accounted before the commencement of cover by the insurance company, i.e. non-compliance of Sec. 64VB of the Insurance Act.

Check the policy once it arrives: It is best to know your insurance before the claim than after. This is possible by a thorough vetting of the policy once you have received it. Major issues could arise if insurance at a reinstatement value basis has been issued without the reinstatement clause, which could change the entire complexion of insurance. Examples abound of the issuing office altering the endorsements of insurance to ones readily available because the demanded endorsements were out of print! Try explaining this to a surveyor after a loss!

Satisfy the warranties and conditions precedent to loss: There are some terms and conditions fundamental to the policy which need to be ensured by the insured throughout the currency of the policy. Such examples abound in engineering insurances. Even with regard to property insurances where periodic declarations need to be made, a system must be set up so that such information is conveyed to the insurers and our rights and interests are protected.

My practice as an insurance auditor tempts me to add that these pointers are illustrative and not exhaustive. Yet, should you follow the above steps religiously, you will be pleasantly surprised about the comfort level insurance can give you at the time of loss and how a speedy claim settlement can restore the confidence level of bankers and financiers in the sound management of your enterprise.

The author is senior deputy general manager, Tata-AIG Risk Management Services