What is an Act of God (AOG) in the Indian Insurance context?
There is no general definition of an act of god as defined by the Insurance regulatory and development authority of India but a general consensus exists among the Indian insurers regarding the coverage under the act of god. An act of god is generally defined as a peril that has occurred from nature and is beyond the control of humans. Act of god perils are also unpredictable and uncontrollable by humans. The definition of an act of god and coverage under it varies from one insurance company to another.
An act of god can be termed as any natural disaster that is beyond the control of a human and it includes perils such as cyclones, earthquakes, lightning, subsidence, landslides, rockslides, etc. It is important to understand that these perils would be considered an act of god only if they had occurred without the intervention or involvement of humans. For example, if there is a blasting that leads to a rockslide damaging property, then it cannot be considered a natural disaster as the rockslide is a result of human activity. One should be careful of what is a natural disaster and how anything is declared as an act of god.
Understanding the AOG concept:
Acts of god perils are those which are not caused due to human negligence but rather are a result of natural occurrences leading to damages. The other way to identify an act of god is that it causes damage to a lot of people at the same time, maybe with different magnitudes. But the number of people affected by an act of god period would be considerably higher. For instance, the above-mentioned example where the rockslide resulted from blasting cannot be considered an act of god since it has not impacted a large number of people and was a result of human interference. Such cases cannot be considered as an act of god unless it is really an act of god.
Consider a tree falling on your house and damaging it. Can this be considered an act of god? It depends on the insurance company to take the decision as the loss caused here was limited only to you even though there was no human intervention behind the falling of the tree. So to define an act of god, insurance companies would usually take into consideration the scale and intensity of the people getting affected by it.
All the insurance policies that cover property would have a mention of the act of god perils such as Fire insurance policy, Vehicle insurance policy, etc. For example, in property insurance policies, the insurance company will cover the damage to your house if it's due to lightning resulting in fire rather than fire due to your own negligence. The fire should happen accidentally and any planned event from the insured's side would be treated as negligence and malicious and therefore such claims would be rejected.
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In the case of motor insurance and property insurance, the act of god includes the damage to the property due to floods, cyclones, lightning, thunderstorms, etc., and the insurance company would reimburse the losses faced by the insured customer whereas in the case of life insurance, the entire sum assured will be given as the claim amount due to death caused by an “Act of God”.
Which policies cover AOG perils?
Act of God perils is usually covered under all the property insurance policies unless there is a special exclusion mentioning the same. Nevertheless, acts of god perils should be clearly mentioned in the policy terms and conditions, as certain kinds of perils might not be covered. For instance, a volcanic eruption is not considered as an act of god peril and is therefore not covered under the property insurance policies in India whereas the same is covered in some countries such as Indonesia where there is a higher chance of occurrence of volcanic eruptions.
Another example of an act of god that is not covered under property insurance policies is the forest fire. A forest fire may or may not be a human-made peril but the destruction and damage caused by it would be on a large scale. Despite this, the insurance companies in India would not cover the forest fire under the act of god perils. In fire insurance plans forest fire could be included as an add-on by paying an additional premium. Other examples such as floods resulting from glacier bursts or overflow of dams cannot be considered as acts of god perils. For example, an overflowing dam causing inundation nearby is covered under the property insurance policy but not treated as an act of god.
The insurance regulatory and development authority of India had given the freedom for customers to choose coverage based on their requirements. One can opt for certain types of coverage under the property insurance plans, meaning you could exclude STFI coverage which includes storm, typhoon, flood, and inundation if you think that there could be no loss arising out of these perils. For instance, if you are staying in a mountain area where there is no history of STFI perils, then you can opt out of such coverage. But it is important to think twice and decide carefully before opting out of any coverage as a peril could happen at any point in time even though it had not happened before in your place.
For example, the floods that occurred in Hyderabad in 2020-21. Hyderabadis had seen such devastating floods in the 1900s and experienced similar events after 100 years. So one cannot think that the event didn't happen 100 years and estimate it does not happen again. There are tragedies happening in Uttarakhand where many lives are lost and properties are damaged. A similar event happened in Delhi, where the Yamuna River overflowed submerging many parts of the city. Death arising from any act of god perils is covered under the life insurance plans whereas death due to natural causes is not considered under the act of god section. It is important to include the act of god cover in a property insurance policy as humans cannot predict the occurrence of such events beforehand and the prevention of the occurrence of damage is beyond the control of the policyholders in such events.
Things to consider by customers:
Policyholders have the final say while taking the property insurance policies consisting of acts of god cover. Insurance companies would cover the act of god perils up to the sum insured limit and the claim process is also easy. Policyholders need not prove the occurrence of an event leading to the loss as the insurance companies could understand that an act of god peril would cause damage on a large scale and if the insured customer comes under the area of damage, then there is no need for proving the occurrence of an event. Policyholders should decide the coverage required by them as policy once taken cannot be altered to include the acts of god perils. The claim process is much simpler in acts of god perils in the case of health and life insurance plans as the documents required are relaxed in such situations. Since the cause of loss is known under the Acts of God, insurance companies would deploy surveyors to assess the quantum of loss.
Simply put, acts of god peril cover should be taken by everyone as there is no place that could not be affected by acts of god perils. For example, a person staying in hilly areas might not experience floods but could experience rockslides and a person staying in plains may not experience landslides but would experience floods or cyclones. In India, almost all the Acts of God are covered in life, health, and property insurance plans but the situation is not the same in the USA or Canada. There are certain insurance companies in the USA that deny certain acts of god cover such as cyclones, typhoons, storms, tempests, etc. This is because of the occurrence of such events on a large scale in those locations on a regular basis. In such cases, the insurance companies would experience severe claims and the loss ratio would be very high.
Difference between Acts of God and Force Majeure:
Acts of God include only the acts of nature whereas force majeure includes the acts of nature as well as extraordinary circumstances arising out of human intervention. Example of force majeure includes an outbreak of a contagious disease, lockdowns or war, and natural perils resulting from human intervention. Also, arson, riots, and malicious damage are not considered acts of god as these are caused by humans. There are a few acts of God perils that are mentioned in a property insurance policy which are covered automatically but if there is any other act of god perils that results in damage to the property, then it would be examined by the insurance company before the claim settlement.