-->

Breaking

logo

Sunday, May 10, 2020

No Reduction in Sum Insured on the Munich-Re Property All Risks (PAR) Insurance Policy

No Reduction in Sum Insured on the Munich-Re Property All Risks (PAR) Insurance Policy

In property insurance policies that use the Munich-Re PAR (Property All Risks) wording, the sum insured will not decrease even if there is a claim on the policy.

The above condition is one of several "benefits" for the insured who has a property insurance policy with Munich-Re PAR wording. Generally, in insurance provisions, if there has been a claim on a policy then the sum insured will be proportionally reduced according to the claim value that has been paid. This can be seen in the wording of the Indonesian Motor Vehicle Insurance Standard Policy (Polis Standard Asuransi Kendaraan Bermotor Indonesia) Article 24 Reinstatement of the Sum Insured which states, "After the occurrence of loss of or damage to the vehicle and or interest insured, the Sum Insured will be reduced by the amount of such loss or damage." Likewise in the Indonesian Fire Insurance Standard Policy (Polis Standard Asuransi Kebakaran Indonesia) Article 19 Reinstatement of the Sum Insured which states the same thing, "After the occurrence of loss of or damage to property and or interest insured, the Sum Insured will be reduced by the amount of such loss or damage."

Why is the Coverage Price (Should) Reduce?

An insurance policy is an agreement that according to Indonesian Law No. 40 of 2014 concerning Insurance is stated as "an agreement between two parties, namely an insurance company and a policyholder that is the basis for receiving premiums by insurance companies in exchange for providing compensation to the insured or policyholder due to loss, damage, or legal liability to third parties that may be suffered by the insured or policyholder caused by an uncertain event."

With the "receipt of premiums", the insurer is obliged to provide compensation to the insured in the event of a claim. The premium is determined by the insurer with a calculation such that it can meet a full compensation if a claim occurs. The premium calculated must, therefore, be sufficient (formula: premium rate x sum insured). If the sum insured is equal to Value at Risk (VAR), then it can be called "fully insured" and the resulting premium is declared adequate.

No Reduction in Sum Insured on Munich-Re PAR Policy

In general, if there is a claim that befalls the insurance object, the sum insured will be reduced by the value of the damage paid by the insurer (for example in the Indonesian Motor Vehicle Insurance Standard Policy or the Indonesian Fire Insurance Standard Policy). If the insured does not make efforts to recover the sum insured then for the rest of the insurance period that has not run yet, there will be a condition of the policy called "under insurance." As a consequence, the insured will bear part of the value of the next claim himself through the calculation of pro-rata condition of average.

Different things apply to Munich-Re PAR (Property All Risks) policies that do not recognize general rules that apply as in the Indonesian Motor Vehicle Insurance Standard Policy or the Indonesian Fire Insurance Standard Policy where there is no reduction in the sum insured despite claims on insured objects. This refers to the Munich-Re PAR Wording, General Condition, Item 16 Sum(s) Insured, which states, "The sum insured shall not be reduced by any indemnity payments."

From the insurer's point of view, this rule is less profitable considering that the principle of insufficient insurance premiums is not applicable. However, this provision only applies if the initial sum insured stated in the policy schedule has been determined at full value. Pro-rata condition of average still applies based on Item 14 of Munich-Re PAR Wording which states "if the property insured under any item shall at the commencement of any loss damage or destruction hereby insured against being collective of greater value than the respective sum insured, then the insured shall be considered as being his own insurer for the difference and shall bear a rateable share of the loss accordingly."

Conclusion

By using Munich-Re PAR wording, whether the initial coverage price is fully insured or not, in the event of a claim, the price of coverage will not be reduced. However, the application of the pro-rata condition of average still applies if the sum insured at the beginning of the policy period is not fully. So to prevent claim settlement that is not paid in full, the insured must declare the entire value of the assets to be insured based on RCV (Replacement Cost Value).

Property All Risks

Disclaimer: Articles, images, or videos published on this web sometimes come from various sources of other media. Copyright is fully owned by the source.