| PERSONAL FINANCE
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Household insurance - a neg lected Cinderella
Written by: Tomáš Skřivánek (www.penize.cz)
Photo by: Jan Vágner (2,3), Hana Hamplová (1)
Hindsight is always 20/20. However,
without a doubt the personal tragedies evoked by the loss of property
during the floods could have been alleviated by a suitable type
of insurance. Do you have it?
Household insurance that protects immoveable property against all
risks imaginable, such as burglary, floods or fire, has existed
for decades, and compared to the price of accident insurance for
passenger cars, it is quite reasonable. "For each million of
the potential insurance settlement, people pay about one thousand
crowns per year. Of course this depends on location and several
other parameters," explains Jiří Žid, an insurance broker at
Broker Trust. Unfortunately, standard insurance tools are used relatively
little in this country. Until recently, the number of those responsible
- or insured - was even declining. While ten years ago 2.26 million
households were insured, at the beginning of the 21st century this
number dropped by over a half million apartments and houses. Interest
in insurance didn't even increase after the Moravian floods of 1997.
"For example, in northern Moravia, not even a fifth of the
households with property insurance had arranged insurance for coverage
against flood risks at the time of the floods," says Jan Kábrt
of the Czech Association of Insurers. According to research conducted
by the association in 1998, only 3% of respondents had recently
arranged household insurance covering flood risks.
"Not only are the clients who take the risk making a mistake,
but so are the insurers, whose campaigns had clients feeling the
company only wanted to make money off them, and seldom convinced
clients that it is a serious business," argues Jiří Žid. Looking
at insurance as a bet, though common around the world, is still
the exception in this country. "It's as if the owner of a house
who paid insurance against floods bets with the insurer on whether
the water will wash away the house or not. If it doesn't wash away
- and this is very probable despite the recent floods - the owner
loses the premiums (the bet). But if the house collapses, the insurer
must pay the agreed upon part of the damage (paying off the winnings),"
says financial consultant Emil Dočkal, explaining the commonly held
view of insurance.
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Jiří Žid |
Costs will grow
All domestic insurers, for whom the flood damages will mean a total
of over CZK 30 billion in costs, according to preliminary estimates,
speak of an increase in insurance premiums. "It is possible
to assume that the frequency of floods will increase in central
Europe," says Ladislav Bartoníček, head of Česká pojišťovna,
the largest player in the insurance market. "According to meteorologists,
the weather in this country is getting close to monsoon types, so
we should start getting used to floods. Of course this will be reflected
in the policy of our reinsurers, who will increase the prices for
catastrophic reinsurance," he adds.
Reinsurers, or insurers of insurers, will have a decisive influence
on the appraisal of risks and the creation of prices, since most
damages resulting from natural causes are paid by them in the end.
"In the case of the Moravian floods, they paid 80% of the total
insured damages," estimates Ivan Špirakus, partner at Portfolio
Alfa insurance company. In October, the representatives of insurers
and reinsurers have their regular meeting to bid on next season's
prices. It is clear that the reinsurance companies will want to
retrieve some of this outlay, and this will be reflected in the
price of insurance premiums for households and companies. The increase
will probably not be across the board but be rather selective. In
the future, you will pay insurance premiums several times higher
in regions that are marked as risky on flood maps than in regions
that are not on these maps at all.
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Ivan Špirakus |
Watch out for falling planes
While flood risk is included in the basic package offered by insurers
to households, this is not the case for companies. The basic insurance
plan covers windstorms, fire and even falling planes, but firms
must arrange insurance against high water separately. If the risk
against floods is included in the basic package in the future, it
would make it possible for the insurers to better diversify the
risks and structure the prices. On the other hand, excluding insurance
against floods enables an attractive increase in premiums for the
insurers.
The floods showed that insurance is irreplaceable, especially to
entrepreneurs and company representatives. "It is too early
to give numbers, but according to the reports from agencies, we
have certainly registered higher interest in insurance and information,"
says Marek Vích of Kooperativa, number two in the Czech insurance
market according to size, confirming the increase in interest. "In
recent weeks, we have noticed a growth in interest for insurance.
Many clients who purchased an apartment half a year ago now realize
that they should arrange insurance for it. We expect that people
and companies will realistically evaluate the risks and adequately
insure their property," adds Špirakus. A healthy, prejudice-free
relationship of Czechs towards property insurance is only now beginning
to evolve.
| ABC's
of insurance
Insured risks
Each insurer determines through his
insurance conditions which risks are insured. The settlement
is paid only in the case that the item was damaged, destroyed
or stolen in a manner stated in the insurance contract, most
frequently by:
a. misappropriation of the item through theft, burglary or
robbery
b. intentional damage or destruction by a third party
c. water from a water main (e.g. broken pipe)
d. inundation or flood
e. a bolt of lightning, explosions, fire and plane crashes
f. windstorms, hail storms, landslides, avalanches, fallen
trees or poles, heavy snow or ice, earthquakes
What is insured
Insurance covers items which are physically
placed in the household or in other spaces specified in insurance
conditions. If the item leaves the household, its insurance
ceases to exist. In contrast, items newly located in an insured
household are automatically insured. The total amount of the
settlement depends on the agreed upon sum insured and is sometimes
limited for individual types of property. An aspect of household
insurance could also be liability insurance for its members
on damages caused. So if you forget to turn off the tap or
if the washing machine betrays you and you unintentionally
flood your neighbor, the damage can be compensated through
your insurance policy.
What is not insured
Most often, household insurance does
not relate to:
a. items that serve gainful purposes
b. motor vehicles and similar equipment, including trailers
and accessories
c. airplanes and other flying equipment
d. boats and other vessels
e. some less than usual exotic animals that are not commonly
bred
f. data on CDs, tapes, diskettes, and other recording media
g. property of tenants
h. items that are insured by other insurance policies
If you wish to insure an item to which household insurance
does not relate, you have the opportunity to arrange supplementary
insurance for the particular item with special limits on the
insurance settlement.
Settlement limitations
The maximum amount of the settlement
paid by the insurer is limited for some groups of items. The
maximum amount of the settlement is usually stipulated by
a specific sum - mostly in tens of thousands of crowns.
Items with a limitation on the amount of the settlement include:
a. audio-video equipment
b. computer technology
c. musical instruments
d. bicycles
e. jewelry, antiques and artistic works
f. money and valuables
Insurers usually make it possible for an individual increase
of limits on these selected items, or for additional insurance
with higher sums.
The level of household security
An ordinary lock on doors is sufficient
for the lowest insurance sums. Very often, insurers require
a safety lock at least. As the sum insured grows, the minimum
level of security required grows as well, from safety locks
through various additional locking systems, or alarms, to
bars, or a specially resistant door. For some selected items
- for example valuables and larger sums of money - you must
have a safe.
Sum insured
It is in fact the value of insured
items that the client himself stipulates. This sum then determines
the maximum amount of the settlement paid by the insurer.
This means that the higher the sum insured, the more money
you can get from the insurer in the case of an insured event.
However, on the other hand, the higher the sum insured, the
more the premiums to be paid.
Replacement or current value
With insurance to so-called "replacement
value", the insurance settlement is based on costs necessary
for the purchase of the new item, of the same parameters,
in the time closest to the insured event. In contrast, insurance
to "current value" takes into account wear and tear
on the item during its use. The amount of the settlement will
be based on the price of a new item reduced by tabulated wear
and tear.
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