The Role of surveyors in Insurance
The smooth functioning of insurance as a risk management tool or risks transfer mechanism, the functional responsibilities of Surveyors and Loss Assessors are absolutely necessary and indispensable to an insurance market.
Surveying is a vital part of the insurance industry. Surveyors play an important role in assessing risk, determining coverage and estimating potential costs associated with a given situation. They help to formulate accurate and reliable insurance policies for customers all over the world. Surveyors also have the expertise to assess damage accurately which helps insurers develop fair and cost-effective strategies for their clients.
The work of surveyors is often overlooked yet it can have a significant impact on the reputation of an insurance company and its ability to provide adequate cover for its customers.
Surveyors are a vital part of the insurance process. They play an integral role in assessing risks and determining the premiums associated with various policies. Their expertise helps insurance companies determine how much coverage to offer and how much to charge for it. The following is a list of roles that surveyors play in the insurance industry:
1. Risk Assessment – Surveyors assess risks associated with different types of policies, such as property damage or liability claims. This includes evaluating potential hazards, analyzing data on past claims, and recommending ways to minimize risk exposure.
2. Insurance Premiums – Surveyors also help set premium rates by providing information on the likelihood of losses occurring due to certain events or conditions. They look at factors such as construction type, location, and other contributing elements when calculating premiums for customers.
In this article we will delve deep into the roles in details:
Section-1 : Fire Loss Survey
Marine Cargo Loss Survey, Importance of marine cargo loss survey and functions and responsibilities of surveyors’
Marine Insurance is perhaps one of the oldest form of insurance going back to nearly 3 centuries.
It was first introduced in a place called Lombard in Italy. Subsequently it was transferred to London. Once known as Edward Lloyd’s Coffee shop, it has now become world famous and reputed insurance center known as Lloyd’s, London.
International trade thrives on Export and Import of goods.
It is in this context that marine insurance has become essential.
Institute Cargo Clauses and Surveyors’ Role
Marine insurance is governed by 3 Institute Cargo Clauses. The author of these clauses are Institute of London Underwriters (ILU). These clauses are applied internationally.
Three Institute Cargo Clauses are:
- Institute Cargo Clauses (A) of 1/1/82
- Institute Cargo Clauses (B) of 1/1/82 and
- Institute Cargo Clauses © of 1/1/82
Institute Cargo Clauses (A) is on “All Risks” basis subject to certain exclusions specifically stated in the clause namely:
- Unseaworthiness of the vessel
- Insufficient/inadequate/poor packaging
- Deviation of journey
- Insolvency of ship owners/managers/charterers
Cover: Cover is from warehouse to warehouse i.e. from the suppliers/producers/manufacturers warehouse to consignees warehouse (including loading and unloading).
Period of cover
60 days from the date of arrival of sea going vessel at port of destination.
Mode of Shipment
- By Sea
- By Air
- By Road
- By Rail
Types of cargo
- Breakbulk
- Containerized (20 feet and 40 feet containers)
Types of contract
- FOB (Freight on board) – where 20% is added to the loss amount.
- C&F (Cost & Freight) – where 10% is added to the loss amount.
- CIF (Cost, Insurance & Freight)
These days most of the transactions are done through Letter of Credit (L/C) which makes marine cargo insurance compulsory.
Claims documentation include (all in original)
- Marine Policy/Cover Note
- Commercial Invoice
- Packaging List
- Bill of Lading (B/L)
- Bill of Entry (B/E)
- Short Landed Certificate (issued by the Sea Port & Customs/Airport Customs).
- Short Contents Certificate (issued by the Sea Port & Customs/Airport Customs).
Recovery Aspect
In marine cargo insurance it is very important to pursue recovery from the defaulting party responsible for loss and/or damage to cargo.
They may include:
- Shipping Agent
- Ship owners
- C& F agent
- Truckers/Transport Company
- Port Authority
Institute cargo Clauses (B) covers among others:
- Fire and explosion aboard the vessel
- Sinking/Capsizing
- Stranding
- Washing overboard
- Jettisoning
- Ingress of sea water
- General Average (GA)
Institute cargo Clauses © covers the same perils as in Institute cargo Clauses (B) above except for item no. 6 ingress of sea water.
Salvage Disposal
As like recovery, salvage disposal is another important aspect of marine cargo insurance.
Draft of Final Survey Report
Survey Report should contain the following information:
- Name of suppliers
- Name of consignee
- Name of sea going vessel
- Port of loading
- Port of destination
- ETD (Expected time of departure)
- Transit point (if any)
- Basis of valuation (FOB,C&F etc.)
- Cause of loss
- Extent of loss
- Photograph of loss
- Container number
- Bill of Lading number
- Recovery aspect
- Salvage disposal
Closing lines: The surveyor should follow the standard established market practices in carrying out survey work without delay.
They should do their job independently and impartially. They should write in their report the cause of the loss and whether the loss is covered under the policy terms and conditions or not. They should obtain the best price for the salvaged goods. Surveyor should carefully examine policy conditions, warranties (if any) and apply franchise, deductible (if any) before assessing the loss.
Section-2 : Marine Loss Survey
Fire loss survey, importance of fire loss survey and functions and responsibilities of surveyors
Fire loss survey or loss adjusting is a specialized area. It needs sound insurance /technical knowledge and experience.
In international market, fire loss surveyor’s are professionally qualified personnel with most of them having professional qualifications of ACII, ACILA, FCII, FCILA. It is a highly technical job requiring technical expertise and skill.
Functions and responsibilities of fire loss surveyor
A fire loss surveyor should immediately visit the site of fire upon being instructed by the insurance company. They should examine the site thoroughly and talk to the people at site and take photographs of the loss.
They surveyor should be professional in their work and be:
- Impartial
- Independent
- Follow business ethics.
They should be in contact with the claimant immediately after the preliminary inspection/visit of the site of the fire and ask them to submit the required claims documentation namely:
- Completed Claim Form
- Claim Bill
- Stock/Inventory list
- Stock Register
- Audit Report immediately before the loss
- Purchase Invoices
- Sales Invoices
- Fire Department’s Report
- Police Report (where applicable)
- Any other relevant documentation
Preliminary Survey Report
The fire loss surveyor should issue preliminary survey report attaching photographs of loss immediately after the preliminary inspection/visit of the site. They should mention in the Preliminary Report about their initial findings. They should also state in the report about the proximate cause of the loss and estimated loss amount for the reserve purpose of the insurer.
Examination of policy wordings etc.
Fire loss surveyor should carefully examine policy conditions, exclusions, warranties etc. before being able to comment on the policy liability.
Interim Survey Report
In case of delay in obtaining required claims documentation from the claimant/insured, they should issue an Interim Survey Report informing the insurer about the progress they are making and if there is any change regarding initial estimate of loss amount, cause of the loss and whether there are reasons to suspect a case of arson. They should state in the report if they are facing difficulties in obtaining claims documentation and whether they are experiencing non-cooperation from the claimant/insured.
Final Survey Report
Before issuing final survey report, the surveyor should carefully examine policy terms, conditions, exclusions etc., all relevant claims documentation before arriving at a final loss amount.
Surveyor should pay particular attention to the following important areas:
- Whether the goods insured is the same as the goods damaged/lost in the fire
- Whether the risk address shown in the policy is the same as the one damaged by the fire.
- Whether there is any breach of policy warranty.
- Whether “Average Condition” applies (in case of under insurance).
They should state in their final report about the possibility of recovery of loss (if any) from a third party.
They should clearly state in their final report in case the claim is not payable under the policy and why not.
They should follow the standard market practice while applying depreciation to machinery/equipment etc.
They should also mention in their final report whether there is any other party having financial interest in the property such as banks, other non-bank financial institutions etc. and if so to what extent.
Closing lines: It is important for the fire loss surveyor to act independently and impartially in carrying out their responsibilities. They should not be biased in favor of any party and make fair assessment of the loss. According to international market standard, the quality of surveyors in Bangladesh is very poor and leaves much to be desired. Lack of professional qualification, adequate training , competence etc. are believed to be mainly responsible for the poor performance of the fire loss surveyor. In order to improve the current situation prevalent in the market, which is pathetic to say the least in most cases, Insurance Development and Regulatory Authority (IDRA) should be strictly monitoring and reviewing the performance of each fire surveyor before renewing their license. They should be very strict and careful about issuing new licenses to surveyor’s unless they meet strict conditions as to professional qualification, experience etc.
Considering the present situation, Bangladesh Insurance Academy (BIA) should attach high importance and top priority in organizing regular training program for the fire loss surveyors and introduce a special paper on fire loss survey in their curriculum of ABIA diploma examination. The present standard falls far below the international standard and needs to be enhanced significantly. Unless enough efforts are being made by all stake holders to improve the current situation, insurance sector is going to suffer seriously from this ailment. The problem is too big to be ignored or taken lightly. It needs to be addressed on an urgent footing!
We need trained and skilled underwriter as well as trained and skilled Surveyors. In last 10/15 years we have seen many sophisticated industries been erected having combination of Electro-Mechanical-computerised machines. Risks of such industries are not simple but very much complex. A surveyor, whose basic discipline is not engineering may not ably manage a loss survey of such complex industry. So thus the underwriting.
Hence, trained skilled and experienced underwriters as well as surveyors in respective fields are very much essential. Regulator, Bangladesh Insurance Association, Bangladesh Insurance Academy may do the needful for the sake of insurance industry.
Dear Sir, Thanks for your thoughtful comments.