Like any investment, real estate comes with inherent risks. Here’s where real estate insurance steps in—a crucial shield against unforeseen events that could wreak havoc on your finances. However, striking the right balance between affordability and getting the coverage you need can be tricky, especially in a cost-conscious market.
Understanding the Landscape:
India’s real estate sector is multifaceted, encompassing residential, commercial, industrial, and agricultural properties; diverse properties face a range of risks. Natural calamities like floods and earthquakes pose significant threats, while man-made hazards such as fire and theft can also cause major damage. Additionally, legal complexities and regulatory requirements further underscore the need for robust insurance protection.
The Low Insurance Penetration:
Despite the evident need for protection, a major challenge in India is the low penetration rate of real estate insurance. A survey by the Indian Insurance Companies’ Association (ICI) revealed that only 0.15% of Indian properties are insured. This is often stems from a focus solely on cost, potentially leading to substantial out-of-pocket expenses during a crisis.
Balancing Costs and Benefits:
The temptation to choose the cheapest policy is strong, especially for property owners looking to minimise expenses. However, focusing solely on cost can be shortsighted, potentially leaving you exposed to significant financial risks in the event of unforeseen disasters. On the other hand, overly comprehensive coverage can lead to inflated premiums, straining your financial resources unnecessarily. Therefore, the key lies in striking the right balance between costs and benefits.
Factors to Consider:
1. Property type and location: Different property types in varying locations face varying risks. Coastal properties might require additional coverage against cyclones and flooding (up to 20% higher premiums), while industrial properties may need protection against environmental liabilities.
2. Coverage options: Real estate insurance policies offer a range of coverage options, including property damage, liability protection, business interruption, and more. Assessing the specific needs of the property and opting for tailored coverage can help avoid overpaying for unnecessary features.
3. Industrial risk specific coverage: When insuring an industrial building, it’s crucial to assess the type of occupancy and analyse the various industrial risks involved. Tailoring coverage to address these specific risks is essential for comprehensive protection
4. Deductibles and exclusions: Paying close attention to deductibles and exclusions, it is indeed crucial to understand
the true cost of insurance. While higher deductibles can
lower premiums, they also entail greater out-of-pocket
expenses in the event of a claim. Similarly, being aware of
policy exclusions ensures that there are no surprises when filing a claim.
Conclusion:
In the real estate landscape, striking the right balance between costs and benefits when selecting insurance coverage is paramount. While affordability is undoubtedly a significant factor, it should not come at the expense of comprehensive protection. By carefully evaluating the specific risks associated with the property (considering location-based risks), understanding coverage options, and selecting a reliable insurer, property owners can effectively mitigate risks while optimising their insurance investment. Remember, in the realm of real estate insurance, the true value lies in finding the sweet spot where affordability meets adequate protection.
(The author Syed Meraj Naqvi, is the CEO & Principal Officer, at Riskbirbal Insurance Brokers.)
