Valuation & Risk Inspection - Undervalued elements of Survey & Loss Assessment

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Valuation & Risk Inspection – Undervalued elements of Survey & Loss Assessment

Yash Gupta

C.Eng.(I), B.Tech. (ME), FIII, FCEV, Insurance Surveyor & Loss Assessor, Valuer – Plant & Machinery, Qualified Disaster Manager

Email: [email protected] | Mobile: 7678505473

Every insurance is taken with a hope of a smooth service at the time of claim. For commercial and property insurance, Survey & Loss Assessment is the most important part since as per section 64UM, Insurance Act, 1938, No claim in respect of a loss which has occurred in India and requiring to be paid or settled in India equal to or exceeding twenty thousand rupees in value on any policy of insurance, arising or intimated to an insurer, shall, unless otherwise directed by the Authority (IRDAI), be admitted for payment or settled by the insurer unless he has obtained a report, on the loss that has occurred, from a person who holds a license issued under this section to act as a surveyor or loss assessor.

(Note: Above amount is presently amended to Rs. Fifty thousand for Motor claim & Rs. One Lakh for Non-Motor claim)

Nowadays, as a common practice, it is observed that in the name of quick service, the surveyors overlook the two main aspects – Valuation and Risk Inspection. Valuation is a part of the assessment as it is used to derive the Value at Risk (VAR) and the basis of Sum Insured (SI). The only difference is that after a loss the valuation is done of the goods that are safely combined with those damaged. In case of fire, the best acceptable way to do the valuation of damaged goods that used to be ‘just before the loss’ is the cost approach using the Insured’s books of accounts or the market approach if the goods are identifiable even to a little extent. Accordingly, the average clause (Under the Insurance clause) is applied to adjust the loss assessed. Similarly, an Annual valuation of the Insured assets is required to ensure their Insurance policy should be having adequate SI, as less SI will invite deduction of Under Insurance at the time of claim and higher SI will be attracting higher Premium than required.

Another important fact ignored by almost all the surveyors today is the valuation of ‘Salvage/ Scrap’. A proper valuation of salvage items is very essential to ensure that the Insured already suffering from loss should not be penalized in name of salvage deduction on a notional or some other random basis.

Risk Inspection plays a very important role whose importance is felt only at the time of claim when a loss occurs and the Insured comes to know that the claim falls under some common exclusion of the policy just because their property was not inspected before issuing the Insurance as it was being renewed years on years without realizing that many policy warranties & conditions, exclusions are now applicable to their property that was not applicable at the time of their first insurance years back. So, it is always advised to all the stakeholders (Insured, Insurer, Surveyors) to ask for the Risk Inspection both at the time of issuing/ renewing the insurance policy and at the time of claim.