CSR Commercial Property Flashcards
Insurable Interest
those who have a financial stake or equity in a property. there are four types of people/parties that may have an insurable interest in commercial property:
1) owner- this party may lose their investment for the property and any income it may generate
2) Mortgage/Lien Holder- this party may still be collecting loan payments from the owner for the property
3) Lessees/Tenants- this party may have the rights to occupy the property for a set length of time
4) Signers of Contractual Agreements- this party may have a contractual arrangement with the user (often the lessee( of the property
The three primary types of overages for Property Coverage:
- Building
- Business Personal Property (BPP)
- Business Income
Building Coverage
a commercial property policy provides coverage for building property. Property included in the coverage:
buildings
structures
fixtures (man-made objects attached to land in some manner- but not including the buildings or structures)
Permanently installed Machinery and Equipment
Improvements and Betterments- any permanent alterations or repairs to buildings or structures including the addition, alteration, or repair of fixtures or permanently installed machinery or equipment.
Business Personal Property
a commercial property policy provides coverage for the insured’s personal property. covered while it is within 100 feet of the described location. Includes:
furniture and fixtures
machinery
office equipment/supplies
labor, materials, or services the insured provides for the property of others
the insured’s interest as a tenant in the improvements and betterments
any leased personal property the insured has a contractual responsibility to insure.
Additional Coverage
As an attachment to BOTH building and business personal property coverage, almost all commercial property policies will automatically include the following additional coverages: debris removal preservation of property fire dept service charge pollutant clean up and removal increased cost of construction electronic data (up to $2500)
Coverage Extensions
As an attachment TO BOTH building and personal property coverage, almost all commercial property policies will automatically include the following coverage extensions: newly acquired or constructed property personal effects and property of others valuable papers and records property off-premises outdoor property non-owned detached trailers
Business Income
this coverage applied when there is a suspension of operations to restore or replace lost or damaged property. under this coverage, the insurance carrier will pay the insured for the loss of business income incurred during this period.
Applies to two different types of business income:
Net Income that would have been earned
Continuing Operating Expenses (such as payroll)
Extra Expense
This is optional sub-coverage that can be included with the business income.all applies when there is a suspension of operations to restore or replace lost or damaged property. Under this coverage, the carrier will pay the insured for the increases expenses incurred during the restoration or replacement period.
applies to three different extra expenses incurred:
extra expenses to avoid the suspension of operations
extra expenses to minimize the suspension of operations
extra expenses to repair or replace property to reduce the business income loss
Rental Value
another optional sub-coverage that could be included with business income. also applies when there is a suspension of operations to restore or replace lost or damaged building property. if the property is rented out to others, the insurance carrier will pay the insured for the loss of rental income incurred during the restoration or replacement period. If the insured is the one renting the building property, the carrier will cover the fair rental value for their portion of the occupied property.
Coverage Limits: What is looked at when setting the coverage limits for a commercial property policy
- Calculate Property Values
- Choose a Coinsurance Provision Percentage
- Write the Coverage Limits
Additionally, if you take the coverage limits found here that are included in a blanket coverage form found above, add them together for each location, and then multiply the result by the coinsurance percentage, the answer should reflect the blanket limits found above.
Calculate Property Values
two primary valuation methods in commercial property:
- Actual Cash Value- the cost to replace the property minus depreciation
- Replacement Cost- the cost to replace the property with like kind and quality without taking depreciation into account
Note: For almost all insureds, the customer service rep should choose replacement cost as the valuation method for commercial property policies. It is only in rare situations that actual cost value should be chosen.
Calculate the Property’s Replacement Cost involves three main replacement costs that need to be calculated:
- Building Replacement Cost
- Business Personal Property Replacement Cost
- Business Income
The best approach is to first have the insured create a list of the property that falls under building coverage and another list for property that falls under business personal property coverage. then have the insured determine how much it would cost to replace each item of property. Afterwards add all items replacement costs together and separate them by coverage.
Example:
Building $500,000
Business Personal Property- 750,000
For Business Income- this one is more difficult to calculate as an insured has to make two different predictions:
1) the amount of income they expect to generate over the policy period and
2) the amount of time they will need to repair or replace property after a covered cause of loss.
Coinsurance Provision
this is one of the most confusing concepts involved in a commercial property policy. it is essentially an agreement that requires an insured to purchase adequate insurance coverage limits for their property. Ideally, the coverage limits should reflect the total replacement cost of the property. the closer the insured’s coverage limits are to 100% of the property’s replacement cost, the cost of insurance decreases via premium credits (rate reductions)
Most Common Coinsurance Percentages:
80% of the property’s total replacement cost
90% of the property’s total replace cost (5% premium credit)
100% of the property’s total replacement cost (10% premium credit)
Example: kelly has property under building coverage, determined replacement cost of $100,000. She has also opted for an 80% coinsurance percentage for her building prop. Kelly’s building coverage limit will then be set by the carrier for $80,000.
Schedule Coverage
this method of writing commercial property coverage limits involves limits that are scheduled (specific) to each type of property coverage.at the time of a loss, this method makes the limit for building coverage separate from the limit for business personal property coverage, as well as, separate from the limit for business income coverage.
Blanket Coverage
involves writing coverage limits that blanket (applies to) different types of property coverage. Limits can be written in such a way that they apply to:
more than one type of property coverage at the same location
the same type of property coverage at multiple locations
all types of property coverage at multiple locations
let’s say there was a business income loss where the coverage limit was not adequate to cover the loss. if the policy’s coverage limits were written as blanket coverage and in a certain way, the limit for building coverage AND the limit for business personal property coverage could be used to help cover the loss.
For the most part, it is better to write an insured’s limits with blanket coverage so that adequate coverage is provided at the time of a loss.
