By Sharon Paterson, CEO at Infiniti Insurance Limited
Property claims are rising due to a variety of factors, including poor risk management, natural disasters, and catastrophic events. This has had a negative impact on the global insurance market, making it more difficult for property owners to obtain insurance coverage.
Due to climate change, the research by Swiss Re, the world’s largest reinsurer, projects that homeowners’ insurance premiums may increase by 5.3% per year through 2040. Climate change may cause wildfire seasons to become longer and more intense, while sea level rise will create flooding challenges along coastlines.
The effects of climate change are already being felt in South Africa, where frequent rainfall is causing flooding in some low-lying areas. Considering the impact of climate change on properties, insurers must rethink how they underwrite properties, particularly in areas that are vulnerable to these risks. Insurers must begin subjecting property owners to increased scrutiny of their risk management practices, including business operations and people risks. This can be a complex process for brokers, insurers, and underwriters, as many factors need to be considered when presenting the client’s risk profile.
The importance of conducting risk surveys
A risk survey can assist in various circumstances where the valuation or risk profile is not standardised or easily calculated. This may include commercial insurance and property coverage, particularly for complex structures, compounds, multi-site commercial properties, developments, and construction sites. In such cases, the survey can assist the underwriter or broker to understand all aspects of the business and the risks associated with it before they can proceed with a quote.
This process is necessary to identify risks that could adversely impact a property and business and to determine the effectiveness of the control measures in place to mitigate such risks. By undertaking the survey, both the insurer and client can avoid unpleasant surprises that may arise at the claim stage. And these can potentially damage the insurer’s reputation as well as its relationships with clients.
Property insurance is one typical example of a cover where a risk survey can come in handy. Property insurance usually covers unexpected damage but does not compensate clients for risks that the clients could have avoided by maintaining regular upkeep of their buildings. While there are variables, some common risk issues identified are basic and often simple to address. These include buildings that are not maintained, with evidence of damage and dilapidation, and a lack of a proper maintenance plan, or fire equipment that is not inspected and maintained regularly.
Failure to conduct routine building maintenance can lead to problems that the insurer will not cover. For example, the damage from a water pipe is covered in the policy. However, a claim for a roof leak that the client failed to repair could be declined because the client did not take precautionary action to mitigate the risk.
All properties are different and can vary significantly in size and complexity, particularly concerning the occupancy (business activities on and within the property). This may include office, retail stores, manufacturing, agribusiness, industrial, storage, processing plants, or a combination.
Survey report helps to mitigate the risks
Upon receiving the risk survey report, the insurer and clients will be aware of the risk exposures. The report will provide recommendations to address the risks and validate risk management systems, practices, and other proactive measures.
The report will further demonstrate to insurers that risks have been identified and the client has put measures in place to manage the risks. The findings will help clients determine whether they can make improvements to reduce the risk of future insurance claims. By addressing these issues, the client will also reduce their risk of loss and improve their chances of obtaining affordable insurance coverage. The clients will know exactly where they stand with the risks associated with their business and the property it operates from.
Clients must ensure they have adequate insurance coverage
Clients must ensure that they have adequate insurance coverage when taking out or renewing an insurance policy. This is especially important during times of rising costs, which increase the risk that clients may not have adequate insurance coverage. If clients do not have proper insurance coverage, they could find themselves in significant financial difficulties.