Note this: All risks insurance doesn’t cover all risks

I love the inquisitive nature of our younger guys.

They’re smart.

They ask questions, and they want to be convinced.

One of them took me to task a couple of days ago. The argument was on the type of insurance coverage called, “All Risks Insurance.” To him, when we say “all risks insurance,” it means we are covering “all types of risks.” He reasoned that an insurance company that issues such a policy must be liable if “anything” should happen to the property that is insured under the “all risks insurance policy.”

The issue here, to him, is about the use of the word, “ALL”.

Maybe he’s right.

Maybe we’re also right as insurance practitioners in terms of the coverage under the “all risks” policy.

But I think we are wrong with the name.

Let me give a simple description of this policy.

Ordinarily, when you insure your asset, the insurance company will promise to pay if you suffer losses due to the happening of certain events such as fire, theft, accident etc. as listed in the insurance policy issued to you. In other words, the company gives you a list of perils that it is covering.

That’s fine and simple enough.

It is the other way for “all risks” insurance cover. Here, the insurance company says that you will be compensated in the event of any loss occurring EXCEPT those that are specifically excluded from coverage. This means that, yes, “all risks” are covered except those specifically excluded from the insurance contract/policy issued to you.

So, instead of having a list of insured perils (e.g. fire, burglary etc.), what you have under an all risks policy is a list of risks that are not covered.

A bit confusing?

Maybe.

Guess we can do better. As that young guy suggested, the fact that certain risks are still excluded means that the cover is not strictly an all risks cover, so the name is a misnomer.

Truly, this confusion happens in practice. That’s why some companies have adopted other names such as “special perils” or “open perils” for their all risks insurance policies.

An “all risks insurance” policy, in its basic form, does not cover every risk. It has exclusions such as losses due to war, violent uprisings and armed hostilities, willful destruction, enforcement of laws and regulations etc.

Take note of the words, “in its basic form” that has been inserted into the preceding paragraph. That’s the basic form of all risks cover. The policy can still be extended to cover some of the excluded risks in return for the payment of an additional premium by the insured.