An insurance policy is issued as an annual contract between the insurer and the insured. Prior to each anniversary date, the insurer will present their intended renewal terms for the next annual period of insurance to the insured. This is usually done between 4 to 6 weeks prior to the commencement of the next period of insurance. The advance notice allows the insured to seek out alternatives before committing to another period of insurance.
In preparing their proposal for the next period, the insurer will consider a number of factors. In the building insurance sector, the first consideration is normally the current claims history and loss ratio of the existing policy. Where the current loss ratio is deemed to be too high the insurer will look to either increase premium rates or restrict cover by way of increased excesses or reduced cover. Most insurers will consider a loss ratio of 60% and above undesirable, however the reasons for the loss ratio such as claim type should have a significant bearing on any decision to amend the policy terms.
In terms of the policy wording, the insurer must give the insured thirty days’ notice should they wish to amend any of the existing policy terms and conditions during the period of insurance. There are very few exceptions to this rule which are only imposed where the insurer has been prejudiced in any way. An example of prejudice against the insurer is where an unexpected increase in claims and loss ratio or non-disclosure of certain risk criteria which may alter the nature of the insurance risks being underwritten. For example: An insurer is unaware that a portion of the roof is thatch which is considered a non-standard building material, or the building had significant pre-existing damage which had not been declared.
While changing of terms and conditions during a period of insurance is not very common, it has been occurring more often of late. When an insurer chooses to amend policy terms and conditions during a period of insurance, the insured should scrutinize these amendments carefully to ensure they are reasonable and accurate in accordance with the reasoning of the insurer. It is not uncommon for an insurer to impose restrictions that may not be entirely suitable for the relevant risk circumstances.
Where revised terms are to be imposed, the insured should be able to rely on the expertise of their broker to negotiate on their behalf to ensure that any changes to policy terms and conditions proposed by the insurer are fair and appropriate. The broker’s role as a representative is to ensure that the insurance cover received is the most appropriate, extensive and competitive cover for the needs of the insured at the time.
In our opinion, 2017 will be a year in which much will change in the sectional title property insurance market as insurers begin to push back against ever-increasing loss ratios and the resulting financial losses they are experiencing. In times like this, the insured will increasingly need to depend on the expertise and commitment of their brokers to ensure they have the best insurance cover and advice available.
Author: Bruce Gibson, Addsure
Contact Addsure – The Leaders in Sectional Title Insurance – for fit and proper advice from advisors who understand Sectional Title. Contact us in Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069