Co-insurance in office insurance policy is an important clause, which is defined as the ‘sharing of risk’ between multiple insurance companies. Usually, one insurance company leads the policy document. And the insurer would be responsible for different aspects of the policy document, including the claim. In such a case, the insurance company will levy a charge to do so. So, let’s know more about the Co-insurance Clause in Property Insurance.
It is essential for the office insurance company to give in writing what percentages of risks are to be carried out by the lead insurer and other co-insurance companies. Further, the risk allocation between different insurance companies can’t be altered during the policy term without the written consent of all the co-insurers. Moreover, the lead insurer would be responsible for negotiating the premium. Also, collecting the premium, and accounting for any tax, needed to pay concerning the premium. It is necessary to send the co-insurers a net share of the premium within 21 days of receipt. After deducting policy administration charges that the lead insurance company would entitle to deduct.
Once the claim arises, it is the responsibility of the policyholder to inform the lead insurer who would be responsible for handling claims, including their investigation settlement and payment. Any expenses related to the claim would be first paid by the lead insurance company which it can later recover from co-insurers, as per their share of risk. If the claim amount is low, the lead insurer can settle it on its own. There is no requirement for the lead insurance company to notify co-insurers about claims, except in the case of large claims. However, in those cases, where the claim is large, the lead insurer needs to inform co-insurers immediately and advise them of the progress.
If you took the policy from a corporate insurance advisor, you can inform them about the claim who would inform the lead insurer on your behalf.
In all cases, it’s essential the lead insurer handle the claims in accordance with the policy terms and conditions. The lead insurer can’t agree to pay any ex-gratia settlement without taking the consent of the other co-insurers.
Further, the lead insurer has to decide the subrogation as well. In the insurance field, subrogation gives rights to the insurance company to recover their claim amount from a third party who is at fault. It means, the insurer settles the claim and approaches the third party who is at fault to recover the money. However, it’s a must for co-insurers to contribute their shares to any shortfall, in cases where recovery is not possible.
In those cases, where the lead insurer rejects a claim, the policyholder can defend itself. In this case, the lead insurer would first have to bear the defending costs, if any. That would recover later from these co-insurance companies.
All the co-insurers have to abide by rules, and in case of any conflict or dispute between insurers, a three-member committee of the Indian General Insurance Council (GIC) would handle the matter.
Case in Co-insurance Clause in Property Insurance
Since, 2000, K.S Builder has carved a niche for itself in the real estate sector. In 2013, the company got a contract of constructing a residential project in Noida. For the complete safety of the project, the company went up to purchase a property insurance policy. The company approached Insurer X to get Rs 50 crore coverage. Considering the high coverage amount, Insurer X decided to involve Insurer Y and Insurer Z as well. Here, the total Rs 50 lakh coverage was divided among three insurers. Moreover, Insurer X was the leading insurer who would decide the premium and take care of paper and other documents. Here, Insurer X would charge costs for this.
At the time of loss, K.S Builder would only need to inform Insurer X who would inform other insurers accordingly.