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Why property insurance is critical

Comment By

Anthony Galliano

MANY of us have misplaced or lost our expensive mobile phone at some time or another.  The replacement cost for a modern mobile phone could cost between US$300 to $1,000. 

So if you were unfortunate enough to lose your mobile phone and wished to replace the exact mobile phone you had before, you would need to repurchase it yourself, out of your pocket, essentially paying twice.  Should you lose it again, and again, the bill will continue to increase exponentially. 

What if a third party stepped in and agreed to replace your exact mobile phone should it be lost, stolen, or accidentally destroyed,  at no cost to you except a small annual payment known as a premium? 

If the premium was, let's say, 25 cents for every $100 of value, would you pay $2 per annum for the benefit of having that third party replace your $800 mobile phone should it be lost or destroyed.  I expect many of us would and this is, in fact, the benefit of insurance.

Owners of property should have insurance in the event of an unforeseen accident.

 Insurance is a form of risk management used to hedge the risk of contingent loss.  It is defined as the equitable transfer of the risk of loss, from one entity to another, in exchange for a premium. 

There are many types of insurance such as life, health, disability, casualty and property.  The products can range from simple to extremely complex depending on such variables as degrees of risk covered, the value involved, the payout conditions for the insurer, and the person or property insured.  

Gaining acceptance

With the increase in home ownership in Cambodia, homeowners insurance and property insurance are gaining acceptance among Cambodian property owners and becoming the anchor product for Cambodian insurance companies.

Property insurance provides protection against risks to property, such as fire, theft or weather damage.  Homeowners insurance is a type of property insurance that covers private homes.  It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents or the loss of other personal possessions of the homeowner. It can also include liability insurance for accidents that may happen at the home. 

Property insurance originated with fire insurance, but its meaning has expanded to cover more specific risks, or perils, such as floods, wind damage, storms and theft.  An insurance policy will set out in details which perils are covered by the policy and which are not.

In Cambodia, fire insurance is the foundation for homeowners insurance.  It is the basic starting point.  If the insured wishes to cover additional risks or perils, endorsements to the policy are added, and the premium increases.  The insurer agrees to cover and pay for any accidental loss or damage to the property, or contents if included, for the perils covered and up to the sum insured. 

The basis of settlement in Cambodia is replacement value.  This is the actual cash value without the deduction of depreciation so the insured would be able to repair or rebuild the home to the original value.  If the property is insured for less than its true value, then the insurer will only pay on a proportional basis. 

Under-insuring remains a problem in Cambodia.  Property insurance policies typically have general exclusions such as damage or liability caused by riot, civil commotion, war, invasion, or damage to property by order of the Government.

Banks will require insurance as a condition for a mortgage.  Rates in Cambodia are generally in line with international rates and are typically 0.25 percent on the value of the property insured and 0.35 percent on the value of contents.  The premium will be lower should the insured agree to pay a portion of the replacement cost; this is known as a deductible. 

There are five insurers in the market and the total value of premiums insured in 2008 is expected to be $20 million.  This compares with $400 million in neighbouring Vietnam.  Insurance providers have been in the market for more than 10 years, however, development is slow and there is an enormous opportunity for growth.   

 There is a very good reason to carry an umbrella if rain is anticipated.  An umbrella, which costs very little, will cover in the event it rains and shield from potential damage clothes, or belongings, that have a high replacement cost.  Owners of property should have insurance in the event of an unforeseen accident which may damage or destroy their property partially or completely.

The small cost of an annual premium is far less financially burdensome than the high cost of replacement of the property.

_________________________________________

Anthony Galliano is head of corporate and

institutional banking, ANZ Royal Cambodia.

Should you wish to contact Anthony, please

send an email to gallianoa@anz.com  

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