When you want to get insurance for material objects – cars, houses, etc. – “binders” do not work in Costa Rica; your broker must run around to eyeball and take pictures of whatever is being insured. This inspection by the broker is to certify the item is in good shape; it is not to appraise. Insurance companies forbid brokers and agents to appraise anything. Nor do the insurance companies appraise anything – until there is a claim.
The applicant must establish the value of whatever is being insured, and keep the value updated. It is inefficient to have insured values too high or too low. So what are the ground rules?
There is no official “blue book” to establish the values of vehicles for insurance purposes. You should use the market value – in Costa Rica, of course. If you didn’t recently buy the car, there are several ways to go:
1. Check out the classified ads in a local newspaper to see the asking price for cars like yours, shave off a tad and use that value.
2. Call up a dealer and ask. I don’t trust this method, as I suspect that when dealers think you are going to trade in your car, they appraise low – but if you simply want to know the value, they “bid” high, to make it appear that their brand does not depreciate quickly.
3. There is a very active website, www.crautos.com, where used cars are advertised and traded. It incorporates an unofficial blue book with statistics of prices – lowest, highest and average – for vehicles traded over the previous 12 months. I think this is the best bet.
Insurance companies do not adjust the value on auto policies as vehicles get older; it is up to the client to recalculate. Your broker should help.
Base the insured value on the estimated rebuild value, less depreciation. Apply depreciation at 2 percent per year for combustible structures, and 1 percent for noncombustible homes, starting at their date of completion or the date they were last refitted. This is simple if the building is fairly new; you take the amount you paid the contractor, minus the cost of earth moving, landscaping, architectural and legal costs, and there you have it.
If the place is several years old, there are several options:
1. A formal appraisal. Don’t! They are biased to come up too high – and they also cost the Earth.
2. In your neighborhood, find an empty lot with a “for sale” sign, call up and ask the cost per square meter. Multiply this by the dimensions of your land, subtract from the price you paid, and you should come up with a pretty fair value.
3. Everyone knows a friendly builder. Invite him over for a glass of something, and, when he’s feeling rosy, ask him – in an aside, of course – how much construction “of this type” is going for nowadays, per square meter. Multiply the figure he gives you by the area under roof of your house, subtract depreciation, and there you are.
Try to get the value on your policy as exact as possible. Too high is not a good idea. The fine print in the policy contract says that if there is a claim, it is the insurer’s option to pay you or do the repairs themselves, so they would probably favor the second option, and you would have been paying a higher premium to no avail.
What about too low? When there is a claim, an adjustor visits the place to assess the damage, forms an opinion as to the rebuild value of the entire structure and compares it with the insured value, and a ratio is established.
Suppose, for example, that the adjustor estimates that the rebuild cost of the building is $100, but it was insured for only $70. This means that, implicitly, the owner has shown himself to be willing to self-insure for 30 percent of whatever happens to that building, so the insurance company would pay the claim based on 70 percent of the repair. This is called coinsurance (coaseguro in Spanish) because, in our example, both the insurer and the insured are “coinsuring” a certain percentage.
Setting the value a tad low is the lesser of the evils; if you have a claim, you will have to suffer some coinsurance, but at least you get what you paid for. Insuring too high, however, is simply pouring premium money down the drain.
The opinions expressed are those of the writer, whose purpose is to give the reader a better understanding of insurance in Costa Rica. For more information, contact David Garrett at 2233-9520 or [email protected].