By John Grant
Our recent story on burglary claims highlighted several significant variations or different approaches taken by insurers on settling claims. This was particularly so where an item was subject to a 'depreciation' rate.
This can happen when cover under your policy is limited to 'present day value', or 'market value'.
As a rule-of-thumb an insurer will look at each item in your claim and try to ascertain what it would cost to replace with an item of similar age and condition. This is not a simple exercise and you can understand why it has the potential to cause so much confusion.
For example, if you have had items like sporting equipment and clothing stolen and they are subject to a depreciated settlement (market or present day value), then it is unlikely you will be able to find identical goods at a local second-hand store. To replace them, you will probably have to buy them new again and there will be a big difference between what your insurer is offering and what it costs you to repurchase the missing items.
So how does an insurer go about calculating the loss amount?
An example; a ski jacket is taken and it's two years old then the following may apply. The item may be judged as having a life span of five years, so depending on when it was purchased, a depreciation of between 40% and 50% may be used. If the jacket was three years old then it could be discounted by between 60% and 75%. If the item cost $1,000 then you may be looking at only getting back somewhere between $250 and $500. To replace it today will cost $1,000 and it's unlikely a secondhand item would be available, so you would may find yourself in the situation of having to fork out a considerable amount to replace your stolen items.
Very few policies cover replacement of clothing and most settle on a depreciated basis. However if the wording is 'Present Value' then the insurer should look at the claim on the basis as to what value the item would have second-hand today. This could be a lot more than it's depreciated value but is not at all easy to prove this.
Generally, insurers will use wording along the lines of paying you the value of an item "immediately prior to it's loss, taking into account wear and tear and depreciation". Therefore a ski jacket that is used only 3 or 4 times a winter must have a lower depreciation rate than an item used for everyday wear. A claim settlement offer should reflect this and you should have a lower depreciation rate applied due to the condition of the goods at the time of the burglary.
If you are not happy with the initial offer you receive then it is worth the effort of go through the insurer's claims dispute process. Advise the company of the reason you disagree with the settlement offered and support this with reasons such as the condition it was in prior to the loss. If you are still not happy then you have the ability to escalate this to the insurance ombudsman or take a claim against the insurer in the disputes tribunal.