Loss minimisation

What is loss minimisation?

Loss minimisation, also called mitigation of loss, is the principle that an insured person must act reasonably to limit the damage when an insured event happens. Having insurance does not entitle anyone to stand by while a loss grows. The test is whether the insured behaved as a careful person would if they had no insurance at all: calling the fire brigade, moving undamaged stock away from water, getting an injured person to hospital, or securing a broken window to prevent theft.

The reasonable cost of these steps is usually recoverable under the policy, because the insurer gains from a smaller claim.

How loss minimisation works in India

• Statute. Section 78(4) of the Marine Insurance Act, 1963 states that it is "the duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss". Section 78(1) lets the assured recover expenses properly incurred under a "suing and labouring" clause, even if the insurer has also paid for a total loss. Expenses to avert a loss that the policy does not cover are not recoverable.
• Policy conditions. Fire, property, engineering and motor policies in India carry conditions requiring the insured to take all reasonable steps to prevent further loss, preserve damaged property for inspection and notify the insurer promptly.
• Claims rules protect the customer too. Under the IRDAI Master Circular on Protection of Policyholders' Interests, 2024, an insurer cannot reject a retail general insurance claim in full or in part because of a delay by the policyholder where the delay has not increased the assessed loss. Nor can it reject a claim for breach of a warranty or condition that is not relevant to the nature or circumstances of the loss.

What happens after a loss

The same master circular sets the timelines for retail general insurance claims, and early mitigation sits alongside them:

See surveyor and loss assessor and claim intimation.

Examples of reasonable mitigation

Spending far beyond what the situation needs is not reasonable mitigation. Throwing away damaged goods before the surveyor sees them, or starting repairs without the insurer's consent except where needed to prevent further loss, can create disputes.

What loss minimisation means for distribution

• Tell customers what to do on day one. A short, written "what to do after a loss" note at policy issuance, with the insurer's claim number and the steps above, reduces avoidable damage and avoidable disputes.
• Prompt intimation matters. Customers often delay telling the insurer while they arrange repairs. Early intimation gets a surveyor on site quickly and protects the claim.
• Keep evidence. Photographs, invoices and the damaged items themselves help the surveyor confirm the loss. Advisers who remind customers of this see faster settlements.
• Commercial clients need a plan. For SMEs and factories, brokers and agents can encourage basic risk measures such as fire extinguishers, sprinkler maintenance, stock kept off the floor and a contact list for emergencies. Better risk features also support better terms at renewal.
• Know the customer's rights. Because IRDAI does not allow rejection for delays that did not increase the loss, or for irrelevant breaches, an adviser can help a customer challenge a decision through the insurer's grievance process when a rejection relies on such grounds.