Chapter 1 Flashcards
Identify three classes of property insured by commercial property insurance policies
Building
Stock
Equipment
Identify two ways to insure commercial policy
Scheduled - only property specifically listed
POED - property of every description
Tenants improvements
Building improvements, alterations and betterment made at the expense of the insured
Actual cash value
The cost to repair or replace lost or damaged property, less the application of depreciation
Replacement value
The cost to repair, replace, or rebuild without deduction for depreciation
Three ways property can be valued
ACV
Replacement value
Book value
5 different approaches that can be taken to determine ACV of lost property
- Formula/cost approach - most common, straight line or plateau
- Market value - direct sales approach, realtor assesses property
- Income approach - net/capitalization/ACV
- True value to owner - when insured claims other methods unsuccessful
- Broad evidence rule - incorporates all above
Difference between reinsurance and subscription policies
Reinsurance - all insurers share in loss and premiums. Policy paid by primary insurer and all claims paid by it.
Subscription - acts as if each insurer has written their own policy. Seperate pay outs, contracts negotiated separately.
Reinsurance is preferred method
The difference between package and manuscript policies
Package policies combine a variety of coverages on one form, most common
Manuscript policies cover specialized exposures for which no standard form exists.
Locked vehicle warranty
Doors are locked and windows are securely closed. Fully enclosed metal compartment. Visible forced entry.
Verification of values
The insurer or representative has the right to enter the premesis at a reasonable time to inspect property and examine insureds records, books, and property relating to property insured.
Property protection systems
Insurer shall notify immediately of any interruption, flaw, defect, suspension of service to
- sprinkler or other extinguishing system
- fire detection system
- intrusion detection system
Submission
A submission is a proposal to underwriter which can include
- an application
- additional verbal information
- additional written information including previous premium, loss history or details of loss, financial statements, or photos
What is the purpose of a survey
- identifies loss exposures
- helps to eliminate coverages the business does not need
- develops additional information needed by insurer
Five classes of building construction
- fire resistive
- non combustive
- heavy timber
- ordinary
- frame
Fire resistive
Has met minimum standards of hours it will survive a carefully controlled test fire.
Generally steel frame, concrete, brick
Two or three hours
Non combustible
Falls just short of fire resistive. Most structural components of steel, iron, concrete
Heavy timber
Quite rare, generally older buildings.
Common hazards
- heating
- occupancy
- protection
- electrical
- detachment
Adverse selection
The applicants for insurance are those most likely to suffer a loss
Risk classification
Grouping of classifying of risks according to established criteria.
Soft market
Intense competition between insurers. Unusually low rates.
Hard market
Little competition, disciplined underwriting, selective business, little to no discounts.
Physical hazards
- Protection - private and public
- External exposures - location, proximity to other buildings
- Type of building construction
- housekeeping
- occupancy - bookstore vs welding shop
- geography - River bed, fire services
Moral hazard
Characteristics of applicant
- financial condition
- associates
- moral character
- indifference to loss
- poor management
External sources of underwriting information
- broker
- government records
- financial rating services
- consumer investigation reports
Internal sources of underwriting information
- loss experience data
- inspection reports
- field representatives
- claims information
- production records
- guides and manuals
- other underwriters
Accommodation business
Underwriter accepts risk as a favor (accommodation) to broker
Making an underwriting decision
- to accept submission on basis presented
- to reject the risk
- to accept risk with an increased rate
- to accept risk, maintain rate but increase deductible
