Study 6 Property Insurance— Exposures - LO

Question 1

Outline how the COPE method is used when collecting and organizing information about the construction of buildings.

Answer 1

• Ask questions in addition to those on the property application when underwriting home insurance
(owner-occupied or rented)

• Provide the following information on building construction
o Size of the building
o Type of construction
o Building’s age
o Age and condition of the building’s services
o Whether the building is under construction or being renovated

Question 2

Outline how the COPE method is used when collecting and organizing information about the occupancy of buildings.

Answer 2

• Consider whether the dwelling is occupied or rented, and if rented, is it rented over long or short terms
• Use the occupancy component of the COPE method to organize acquired information

• Consider issues around
o Vacancy and unoccupancy
o Renovation
o General housekeeping and maintenance

• Consider the common and special hazards of home businesses or commercial risks and risks that can
arise from commercial operations located in the same building

Question 3

Outline how the COPE method is used when collecting and organizing information about the protection and exposure risks of buildings.

Answer 3

• Fire insurance protection is anything that can prevent or reduce the size or a loss
o Can be public or private

• Public fire protection is used most for private residential risks; sprinklers and monitored fire alarms
more prevalent in commercial properties

• Both public and private occupancies should have fire extinguishers installed

• Elements of concern regarding fire insurance protection:
o Exposure (proximity of client’s premises to other risks)
o Hazards (risks associated with geographical location)
o Flood risk (maps identify areas that are at higher risk of flooding)
o Sewer backup and overland water exposure (coverage typically not included in standard wordings)

Question 4

Briefly describe various additional forms of principal or seasonal residences and the exposures common to these.

Answer 4

• Kinds of property risks include
  o Condominiums (standard, freehold, or bare land)
  o Co-operatives
  o Life lease
  o Apartments
  o Seasonal dwellings
  o Mobile homes

• Condominiums are unique because the unit owner owns the unit and unit contents but not the building

• Co-operatives, life lease, and apartments are considered tenants in terms of coverages as they own
the contents contained in the unit but noting else

• Seasonal dwellings are defined by their use and occupancy rate
• Mobile homes can be either a primary or secondary type of home

Question 5

Briefly describe the common types of small commercial risks and their exposures.

Answer 5

• Residential rental properties are defined by their use by non-owner tenants
o Unique exposures
o May be viewed as greater risk because owner has less direct property control
o Tenants may be irresponsible because they do not own the property

• Home-based businesses are varied
o Can be relatively small
o Encompass similar exposures to larger commercial risks

• Determine the type of coverage required by asking the insured about their business from beginning to
end

• Farms are unique as they have a number of buildings, including the farmhouse, as well as commercial exposure, crops, animals, and buildings used for the purpose of the farming operation or business
o Use a detailed application to identify the features of the farm and its operations

Question 6

Briefly describe how the agent or broker can assist clients when arranging property coverage.

Answer 6

• Intermediary role in arranging coverage:
o Analyze and compare client needs
o Gather information to verify replacement cost
o Advise clients of coverage and deductible options
o Provide client with sufficient information to make an informed decision

• Intermediaries need understanding of the insurance marketplace to help guide client and get best
prices based on available discounts

• Insurers may prefer to evaluate replacement cost themselves after inspecting premises to be insured
o Replacement cost evaluations are the actual costs to repair or replace the structure with one of like
kind and quality on the current site