Same Risk but “Basis of Indemnity” is different under two different policies namely Industrial All Risk (IAR) and an individual MBD/EEI policy
- Loss Settlement Basis:
- Under IAR Policy : The loss in settled on Reinstatement basis, as well as without charging any depreciation and no under insurance up to 15%, with excess of Rs 10 lakhs for each and every claim
- Under MBD/EEI Policy: In cases where damage to an insured item can be repaired, the Company will pay expense necessarily incurred to restore the damaged machine, though depreciation is not applicable but it will be applicable on wear and tear parts and parts, for which manufacturers have specified a fixed life. Therefore, every Surveyour is considering limited life of all moving components, who is considered as having limited life hence the depreciation is applicable while assessing the loss.
Further if the cost of repair is exceeding the actual value of the machine, the Insurer will pay the actual value (Replacement value less depreciation as per the age) of the item, immediately before the occurrence of the loss including other costs if covered.
Here the question arises the premium is charged on replacement value but the claim is settled on actual price under MBD/EEI policy while under IAR policy the claim is paid on reinstatement value subject to excess.
This is an anomaly, the risk is same but “Basis of indemnity” is different.
Your valuable suggestions are solicited.