Property Insurance

1
Property Insurance Risk Management

• Ch. 1-3 (Continued)

2
Comm. Property Insurance

• Ins. Advisory Orgs
• Ins Services Office
• Am Assoc Ins Services
• NCCI
• Make
• Policy forms
• Standard, bureau
• Vs. independent forms or manuscript policies
• Manual rules
• Loss costs

3
ISOs Comm. Lines Program

• Monoline Policy
• Comm. Package Policy
• Common Policy Conditions
• Common Declarations
• Various Coverage Parts
• BPP, CGL, Crime, IM, Auto, etc.

4
BPP Form

• Combine the BPP with a Causes of Loss form
• Basic Form
• Named perils
• Broad Form
• Named perils
• Special
• Open perils

5
BPPCovered Property

• 1. Buildings
• 2. Your Business Personal Property
• 3. Personal Property of Others
• See Declarations Page

6
Important Concepts

• Principle of Indemnity
• Insured should not profit, but be restored
• Reduces moral hazard
• Reinforced by
• ACV
• Insurable Interest
• Subrogation
• Other Insurance Clause

7
Important Concepts--ACV

• ACV RC Depreciation
• Determined at time of loss
• EXAMPLE Insurable Accounting
• Built 5 yrs ago 500,000
• Cost to rebuild today (RC) 650,000
• Accounting Depreciation 100,000
• Book Value 400,000
• Physical Depreciation 75,000
• ACV 575,000
• RC ACV do not include ordinance and law costs
  (i.e., to code, RC 750,000)

8
Important ConceptsInsurable Interest

• To collect, must suffer financial loss
• Can collect no more than insurable interest
• Purposes
• To prevent gambling
• To reduce moral hazard

9
EX Insurable Interest

• Richard and Michelle 40/60 owners
• Building ACV 500,000
• BPP in Michelles name 500,000
• Total loss, policy pays ???

10
Sources of Insurable Interest

• Ownership of Property
• Potential Legal Liability (bailee)
• Secured Creditors

11
Important Concepts Subrogation

• ABC Insured has loss 75,000
• ABC Deductible 2,500
• IR Pays 72,500
• Case 1 Case 2
• IR Recovers 75,000 42,500
• ABC gets 2,500 2,500
• IR Keeps 72,500 40,000

12
Important Concepts Other Insurance

• Loss 60,000 Pay (Pro Rata)
• Policy 1 100,000 10,000
• Policy 2 200,000 20,000
• Policy 3 300,000 30,000
• Loss 400,000 Pay (Equal Sh.)
• Policy 1 100,000 100,000
• Policy 2 200,000 150,000
• Policy 3 300,000 150,000
• Other type is Primary / Excess

13
Principle of Utmost Good Faith

• Representations are statements made by the
  insured in app for insurance
• Material means that if IR knew the true facts,
  would not have issued or not on same basis
• Warranty is statement of fact or promise made by
  insured that must be true
• Mostly in marine, envl, DO, EPL

14
Parts of Property Ins. Contract

• Parts
• Decs, Defs, Ins. Agreement, Exclusions,
  Conditions, Endorsements
• Insuring Agreement
• Named perils
• Open perils
• Exclusions
• Perils, losses, property
• Conditions
• Qualify or limit the insurers promise to perform
  

15
Reasons for Exclusions

• 1. Uninsurable Perils
• Large numbers, fortuitous, measurable loss, not
  catastrophic, calculable premium, economically
  feasible premium
• 2. Extraordinary Physical Hazards
• E.g., using personal auto as a taxi
• 3. Presence of Moral Hazard
• 4. Coverage Not Needed Typically
• E.g., money, jewelry, outside detached signs

16
BPP Building Definition

• Building, including
• 1) Completed Additions
• 2) Fixtures
• 3) Permanently installed
• Machinery
• Equipment
• 4) Pers Prop used to maintain
• Fire extinguishing equipment
• Outdoor furniture
• Floor coverings
• Appliances (frig, vent, cook,)
• 5) Additions and materials used for repairs

17
BPP Personal Property

• 1) Furniture and Fixtures
• 2) Machinery and Equipment
• 3) Stock
• 4) Other personal property owned and used in your
  business
• 5) Labor, materials, services arranged by you on
  pers prop of others
• 6) Use Interest as tenant in Imp Better
• Vs. Trade Fixturetake with you?

18
BPP Pers Prop of Others

• Bailee
• Shouldnt assume that bailor has insurance that
  will cover the loss
• Further, even if bailor has insurance, theres
  the chance that ????

19
BPP Property Not Covered

• Buildings Other Real Property
• Plants Outdoor Equipment
• Other Personal Property

20
BPP Additional Coverages

• Debris Removal
• Following a covered loss
• lt25 of covered loss limit lt10,000
• Pollution Cleanup and Removal
• 10,000 per year
• Preservation of Property

21
BPP Conditions

• Concealment, Misrep, Fraud
• Control of Property
• Insured Under Two or More Coverages
• Legal Action Against Us
• Liberalization
• No Benefit to Bailee
• Other Insurance

22
BPP Coinsurance

• Requires insured to insure property for stated
  percentage, in return for lower rate
• (Did/Should) Loss Deductible
• EX Limit of Policy 60,000
• Value of Property 100,000
• Coins Percentage 80
• Loss 20,000
• Deductible 1,000
• Recover ?________

23
Specific vs Blanket Coverage

• Rather than the typical way, Blanket insurance
  covers
• Contents in more than one location, or
• Buildings in more than one location, or
• A combination
• EX Bldg 1 Bldg 2 Bldg 3
• Day 1 100,000 50,000 150,000
• Day 2 200,000 40,000 60,000
• Could buy 300,000 coverage on a blanket basis

24
Blanket Coverage

• Specific Insurance
• 3 buildings 100,000 each
• Could insure each for 80,000
• If total loss on one, only collect 80,000
• Thus, insure buildings on Blanket basis
• 270,000 Blanket coverage
• Usually a 90 coinsurance requirement
• Now, if total loss on one building, full coverage