Under Insurance Observation

Under Insurance Observation

On December 7, 2011, Chemmanur Jewellers Store at Dasarahalli in Bengaluru faced its worst fear when the staff found out about the robbery that had taken place, resulting in a loss of nearly 80 lakhs. The jewelers were glad they took an insurance policy from New India Assurance on March 10, 2011, for one year at a sum insured value of Rs.9 Crore. The coverage included all the Gold and Silver articles stored inside the premises with proper precautionary measures. Following the claim intimation, a surveyor was appointed to carry out the inspection and submitted an estimated loss of Rs.48.86 Lakh against the actual loss of Rs.80 Lakh, stating underinsurance of Rs.29.85 Lakhs. Underinsurance refers to insufficient coverage in an insurance policy. In simple words, partial insurance of the sum insured leads to under-insurance.

The Jeweler requested the re-inspection resulting in the surveyor submitting an addendum that declared no underinsurance on the insured’s side. However, the insurer declined to consider the addendum, forcing the insured customer to approach the State consumer disputes redressal commission, which had ordered the insurer to pay Rs. 80.2 Lakh as the claim amount. As the insurer had failed to settle the claim for nearly 12 years, the commission noted that it would consider the increased gold price in the last 12 years.

An interesting observation is that the gold has returned nearly 7% in the last 12 years, whereas the IRDA rate for the delay in claim payment is 2% over the prevailing bank rate when awarding or reviewing the claim. In this sense, if the bank rate is considered to be 6.75% (May 2023), then the insured could have got 8.75% (6.75%+2%), whereas if the gold returns are taken for calculation, it would be less than 8.75%. It is interesting to see how the bank rate or gold return rate would be applied when the State grievance redressal dispute commission passes the final order.