CH3 - Evolution Part 2 Flashcards
Why does public fire protection have a substantial effect on premium charged?
Large cities have more sophisticated firefighting apparatus: public mains supply water to well-distributed and well-spaced hydrants accessible to full time fire departments. Fire is more likely to be extinguished before it completely destroys the property. A small community may rely on just a tank trunk and volunteer fire department.
What is private fire protection?
In the case if a large manufacturing plant, private fire protection could be automatic sprinklers, own firefighters, water mains, hydrants, pumps, other resources.
How does the construction of a building affect premium?
Buildings constructed of combustible material, such as wood frames, attract higher rate than buildings constructed mainly or entirely of non-combustible material, such as concrete. The number of storeys and the area can also affect premium.
Why is susceptibility also reflected in the rate?
Contents are often damaged by insured perils more than the building housing them, and can be more susceptible to damage by fire, smoke, water.
In what ways can a deductible be applied?
- to separate items; deductible may apply to more than one item in event of a loss
- on an occurrence basis; the deductible may be subtracted from the total amount of loss arising from a single event
- loss above threshold; no payout under deductible amount, but loss above deductible is paid in full
What is the Waiver of Coinsurance?
The waiver applies to losses below $5,000 and 2% of the amount of insurance. This applies as the coinsurance clause is not economical for the insurer or the insured.
What is the coinsurance formula?
Amount of insurance / amount required x the amount of loss = amount recoverable by insured (up to the policy limit).
What is Stated Amount Coinsurance?
Stated Amount Coinsurance encourages a minimum amount of insurance specified in dollars rather than as a percentage. This clause expires independently of the policy, usually three months later, so that values can be confirmed for the renewal of the clause.
Why does the Stated Amount Coinsurance clause expire independently of the policy?
This is so the insured might not be penalized for fluctuations in property values. This also provides more confidence in the adequacy of insurance for the insurer.
What is the Average Distribution Clause?
This clause apportions the total amount of insurance, when a loss occurs, by the ratio of the values in each building to the values in all buildings. It applies to the total amount of insurance, not the amount of loss.
Average Distribution formula
Add up values in each building to come up with total amount of insurance. Determine the percentage the value of each building bears to the total amount of insurance. Value in building / total amount of insurance = amount recoverable for that building, subject to limits.
What is a Deferred Payment Clause?
Under this clause, the insured is indemnified for a portion of the total loss to a building at the time of loss. The remainder of the loss payment is deferred until the insured repairs or replaces the building.
Why would a Deferred Payment Clause be used?
To address the moral hazard.. it discourages insureds from contriving to burn down their buildings for insurance proceeds.
What is the most common example of a Deferred Payment Clause?
The most common example is the Rebuilding Clause found in farm policies, which usually applies to vacant farm buildings or ones that are no longer used. If building suffers damage equal to two thirds or more of its value, 50% of loss is paid at time of loss. If building is repaired or rebuilt within 9 months then further payment will be made by the insurer, with interest, up to the amount spent by the insured or the amount payable, whichever is less.
What is a chattel mortgage?
One that has personal property as the security, not buildings or land.
