Beware of underinsurance
Has your insurance company ever reduced your claim payout due to underinsurance? Calculating an insurance payout in cases of underinsurance should be a straightforward process, adhering to legal guidelines. However, in practice, it often depends on legal interpretations, which can vary significantly among different insurance companies.
Beware of Underinsurance
The Civil Code (89/2012 Coll., as amended) states in Section 2854 (the section on property insurance): "If, at the time of the insured event, the insured sum is lower than the insured value of the insured property, the insurer shall reduce the insurance payout in the same proportion as the insured sum bears to the actual insured value of the insured property; this shall not apply if the parties agree that the insurance payout will not be reduced."
A classic example would be a production hall with a replacement value of 5 million. However, the insurance is arranged for an insured sum of 3 million Czech crowns. This means the underinsurance is 40%.. One interpretation is that the insurance company will apply the underinsurance clause to the claim payout. If the damage to the hall is total, the maximum payout is up to the insured sum, which is 3 million. The insurance company then applies the underinsurance to this amount, resulting in a payout of 1.8 million. The law states that in cases of underinsurance, the insurance payout, which is the maximum insured sum, will be reduced. This interpretation of the law is unfavorable for the client because it first caps the damage at the insured sum and then applies the underinsurance rate, which is also derived from the insured sum.
The second interpretation is the more favorable one for the client. The insurance company will apply underinsurance to the incurred damage, i.e., to the amount 5 million and pay the client the maximum amount for which they are insured, i.e., 3 million Czech crowns.
We therefore recommend everyone to re-read their insurance terms and conditions. The difference in the amount paid out is quite significant. A positive aspect is that some insurance companies already address this ambiguity when concluding an insurance contract and incorporate the interpretation of the law into their insurance terms.
The solution is to schedule a meeting with us, and we will then review your insurance terms and let you know the situation. This way, you won't be unpleasantly surprised if an insured event occurs. If you're unsure about your insurance policy, contact us; we'll be happy to help you with everything. We are Eurovalley – the best insurance solution or nothing.
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