Blaming the Covid-19 pandemic for the contraction in India's growth, finance minister Nirmala Sitharaman in August had said that the Indian economy was facing an extraordinary 'Act of God'. Moreover, the recent glacier burst in the northern state of Uttarakhand can also be termed as an 'Act of God'.
An Act of God is generally defined as any peril, which is outside of human control and is unpredictable and unpreventable.
What is the Act of God in insurance?
The definition of an Act of God varies depending on the insurer. According to Sanjay Datta, chief-underwriting, claims and reinsurance, ICICI Lombard General Insurance, an Act of God is a natural disaster, under which a bunch of perils such as cyclone or earthquake are put together. “This means that these disasters are not caused due to any human negligence. It is called an Act of God because it affects a lot of people at the same time. The scale and the intensity of the people getting affected define an Act of God,” he said.
Usually, all property, vehicle and life insurance policies provide cover for Acts of God, meaning insurers reimburse for your losses occurring due to natural disasters. For example, in property insurance, the insurer will cover damage caused by a fire due to lightening but will reject a claim if the fire gets started due the negligence of the insured of his or her family.
In the vehicle policies, such damages are covered due to floods or cyclones, while in life insurance, the insured will get an amount up to the sum assured due to the death caused by an ‘Act of God’.
Do all policies cover the Act of God?
The Act of God perils are mostly covered under all policies unless any plan deliberately excludes some perils. “However, Acts of God have to be clearly defined in the policy, as certain perils might not be covered. For example, damage due to volcano eruption is not covered under policies in India, but is covered in Indonesia, as it is a volcanic country,” said Datta.
Another example of disasters not covered under the Act of God could be a snowstorm or a forest fire.
Moreover, in property insurance, usually, the Act of God is covered, but the extent of coverage and how it is done may differ from insurer to insurer. Therefore, an individual must access the risks to the property based on its location before buying a cover. Also, he or she must keep in the mind the exclusions under the policy.
“Glacier burst resulting in a flood is an unanticipated event, meaning the floods happened at the time when they were not supposed to happen. Therefore, it can be an act of god. Some of these known perils are listed out in insurance contracts and insurance companies provide cover for that. Some policyholders also buy covers for specific perils such as earthquakes and cyclones,” said Vaidyanathan Ramani, head, products and innovation, Policybazaar.com.
For example, a policyholder may choose not to take cover for floods, if he or she is living in mountain regions where there are no glaciers or a history of severe rains.
“However, just like in the case Uttarakhand tragedy, as extreme climatic events may occur anywhere, it is advisable to take cover for all Act of God perils,” said Datta.
What policyholders need to keep in mind?
Repeated negligence leading to repeated losses can lead to the withdrawal of the cover under the policy.
“We expect policyholders to act as uninsured. So, if there is negligence, we pay for it or if there is gross negligence, insurers may put in some conditions for claims. However, if there is negligence to the extent that policyholders won’t take any step thinking that they are insured, we have the provision of not giving the cover or canceling the policy as well,” said Datta.
According to experts, the claims process under the Act of God situations is much easier than in health or life insurance policies as the document requirement is relaxed under such disasters. Policyholders only have to inform the insurer about the loss and the surveyor is deployed. Moreover, as the cause of the loss is generally known under the Acts of God, insurance companies generally deploy a large number of surveyors to access the loss and settle claims quickly.
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