Study 9 - Commercial Property Insurance

Question 1

Named Perils Form

Answer 1

• Generally provides insurance for fire and additional perils named on the policy form
• The defining essence of a named-perils form is that the perils insured are expressly noted in the wording

Question 2

Broad Form (All Risks)

Answer 2

• Provide insurance on an all-risks basis, subject to policy conditions, limitations, and exclusions.

Question 3

Exclusions (Categories)

Answer 3

• Generally not insurable - risks where the magnitude could not be covered by individual insurers - war, nuclear contamination
• Losses not accidental or extraneous, such as losses due to the nature of the property itself or inherent vice - rusting of metal
• Losses wholly or partly under the control of the insured - marring and scratching often excluded because they usually result from carelessness
• Wear and tear losses
• Losses excluded because of the particular coverage - those that relate to unusual hazards that would only affect a small number of risks, would be too expensive to insure them, and those for which there may be other specific types of policies designed for them

Question 4

Inherent Vice

Answer 4

A quality within an object that makes it tend to destroy itself

Question 5

Replacement Cost Value (RCV)

Answer 5

The current market value of the cost to replace the lost or damaged insured property

Question 6

Coinsurance Clause

Answer 6

A distinct section or provision in an insurance policy that requires an insured (property owner) to carry separate insurance for a specified amount stated in the policy to be eligible for full coverage. If there is insufficient coverage, the insured must pay part of the loss

Question 7

Statement of Values

Answer 7

The information required when a single rate is to cover more than one item or building. To determine a correct average, the rating bureau requires the policyholder to give the value of each separate risk and its contents

Question 8

Fluctuating Values - 2 ways to address this challenge

Answer 8

1. Stock reporting basis - policy is issued for the highest anticipated value of stock on hand, and a reporting clause is used to adjust the premium
2. Peak season endorsement - increases the normal value at a specified time of the year. Best suited to insureds with predictable fluctuations in their values of stock on hand