Joseph Holness, Assistant General Manager, Reinsurance and Underwriting, JN General Insurance
“A common mistake that some homeowners make is not to insure their property for the full replacement value, thus creating the issue of underinsurance,” advised Joseph Holness, Assistant General Manager, Reinsurance and Underwriting, JN General Insurance (JNGI). “As a result, if an insured peril causes damage to the home or its contents are stolen, the claim may be subject to the application of the average clause.”
The average clause means that the insured is required to bear a proportion of any loss if the property was insured for less than the full replacement value.
“For example, if you insure your house for $10 million and the replacement cost of the house is $15 million, should the house be damaged by an insured peril to the extent of say $6 million, your claim will be settled in a similar proportion. This means the sum you insured the house for ($10 million) divided by the replacement cost ($15 million) multiplied by the loss ($6 million) will be $4 million, the amount the insurer will pay. You will, therefore, be required to absorb the difference of $2 million. Consequently, underinsurance is a bad idea, because it leaves you ‘out of pocket,’ if there is a claim,” he explained.
Mr Holness also underscored that similarly, it is a bad idea for homeowners not to have insurance.
“A house that is destroyed in a fire, may take millions of dollars to restore and sometimes that level of re-funding is not readily available. In some cases, it is the nest egg which is used, thereby putting one’s future into jeopardy,” Mr Holness explained.
The insurance expert pointed out that several homes in Jamaica are underinsured, with fewer than 50 per cent of homes insured. That is a major concern for the insurer, given that risks from climatic events become more adverse annually. The National Oceanic and Atmospheric Administration (NOAA) has predicted that this year’s hurricane activity is expected to follow the trajectory of last year’s record-shattering season, which had 30 named storms. He maintained that should Jamaica experience a direct hit from a major hurricane, the uninsured will experience substantial financial loss.
Mr Holness outlined three tips for homeowners to assist them to safeguard their property from underinsurance.
Three Ways to Avoid Underinsurance:
1. Insure your property for its replacement value rather than market value:
The terms ‘replacement value’ and ‘market value’ sometimes are confusing. Market value is the selling price of the property and the replacement value is the cost to completely restore your property, if it is totally destroyed or the contents are stolen or damaged.
Therefore, get a property valuator to provide the replacement value of your house including other structures such as walls, gates, swimming pools etc. And in lieu of a traditional property valuation, a report can be obtained from certain Loss Adjusters, which provide valuation services for insurance purposes.
2. Ensure that all of your contents are included in your policy: Your contents include, but are not limited to: paintings, furniture, appliances, equipment, and clothing. To ensure that none of these items are overlooked in your inventory, make a list of the items in each room. Photograph or videotape the contents and your home; and store the images and footage offsite, lest these become destroyed if your home is affected by a peril.
3. Review insurance policies annually: This is particularly important given that the replacement value of the property may change due to inflation associated with construction costs or home improvement projects implemented. This regular audit of your insurance, at the time of your renewal or at any point during the policy year, assists to ensure that your property is fully covered in the event of loss by an insured peril.
JNGI has embarked on a digitisation strategy which has distinguished the company as the only insurer in Jamaica to provide complete insurance transactions online. Persons can obtain a quote, renew, or purchase a homeowners insurance policy online by submitting the requisite documents electronically.