Study 9 - Commercial Property Insurance

Question 1

Why is personal property insurance considered more of a commodity than commercial property insurance?

Answer 1

Personal property insurance does not lend itself to the kind of attention given to each Commercial risk. It is generally underwritten by broad rules of eligibility. The fact that all insured risks are dwellings fives the class it’s homogeneity. Coverage terms, rating and premium are based on the homogeneity. Variations from set standards are relatively few. Commercial policies require a more customized approach to assessment, rating, and policy issuance for each risk.

Question 2

What makes commercial property insurance more labour intensive for the insurer than personal property insurance?

Answer 2

The extent of differences between various commerical operations and building construction types.

Question 3

How does the style of their language distinguish personal and commercial property insurance?

Answer 3

Property policies are written in plain language, in order to be clearer to the insured.Commercial policies have traditionally been written in formal legal language, though it has become more common for commercial insurers to adopt plain language in recent years.

Question 4

What other differences are there between Commercial and Property policy wordings?

Answer 4

Commercial wordings are generally more modular, with separate forms for each different type of insurance, while habitational policies will include coverage for property, crime, and liability all on one form. The Agreements between insurer and insured in personal property forms are simpler than their counterparts in commercial forms. Commercial definitions are found at the end of the policy, property definitions are at the beginning.

Question 5

How do the property insurance requirements of a condominium corporation differ from those of its condominium unit owners?

Answer 5

The condominium corporation is required to obtain and maintain insurance for the building, which included the common building elements and the individual units themselves. The condominium corporation obtains such coverage by buying commercial property insurance.

Question 6

In the event of a loss, why would claims adjusters review policies for both the condominium corporation and a condominium unit owner?

Answer 6

The claims adjusters will review both policies and any condominium by-laws to establish which policy will respond to which property loss.

Question 7

How might commercial and personal property insurance complement one another in a claim scenario involving an apartment building?

Answer 7

The apartment building would be insured on a commercial form and any damage to the building will be covered there, while losses to any personal property belonging to the individual tenants will be covered under the tenant’s own personal policies.

Question 8

What peril or perils did commercial property insurance initially cover?

Answer 8

Historically, commercial property was insure for the peril of fire. Later, wordings were developed to broaden the scope of coverage, initially to include the additional perils and then to broaden coverage to the multi-peril and all-risks forms.

Question 9

What does the term contents mean in commercial property insurance?

Answer 9

Generally includes, but is not limited to stock, including packing and labeling, equipment, leasehold or tenants improvements, property of others, and generally all contents usual to the business of the names insured.

Question 10

What are three of the most common wordings insuring commercial property on a broad-form basis?

Answer 10

• The Commercial Building Form (CBF) insuring the building
• The Commercial Property Floater (CPF), insuring stock, equipment, and other contents
• The Commercial Building, Equipment and Stock Form (CBES)

In most respects, the insurance provided by the broad-form CBES can be viewed as a combination of the coverage provided in the CPF and CBF forms.

Question 11

What are the two section into which CBES wordings commonly separate their exclusions?

Answer 11

Property excluded & perils excluded.

Question 12

Why should an insured in need of flood and earthquake insurance insure all of its location and not just some of them?

Answer 12

Insurers prefer to avoid adverse selection, they would rather insure all locations for the same perils. Some insurers encourage insureds to do this by charging a premium as though all locations are insured for these perils.

Question 13

What is the relationship between the limits on extensions of coverage in a CBES wording and the limit on building or contents?

Answer 13

The limits for extensions are generally in addition to the limit of insurance selected for building or contents.

Question 14

What are some examples of property excluded under the Commercial Building, Equipment and Stock form?

Answer 14

money and other valuable property, automobiles, watercraft, furs or jewellery, and property vacant for more than 30 days. Computer hardware and software are not explicitly excluded but the effect of excluding loss by certain perils is to seriously limit insurance for this type of property. Work in progress property is also excluded.

Question 15

What perils are excluded under the Commercial Building, Equipment and Stock form?

Answer 15

Flood and Earthquake
Sewer Backup
By-laws
Inventory Shortage
Pollution
Environmental Perils
Terrorism
Boiler and Machinery

Question 16

Which extension are are generally included in the CBES form?

Answer 16

Unnamed or Temporary Locations - used to insure property that is occasionally off-premises or temporarily stored offsite.
Transit - property while in transit to or from the insured’s premises
Salesman’s Samples - property in the custody of sales representatives at unnamed locations and while in transit.

Question 17

What considerations should an insured take into account in choosing an amount of insurance?

Answer 17

The amount of insurance should reflect the valuation basis on which claims will be settled under the policy, as well as other features of the policy or the risk itself on the value of a claims settlement. Such features include the policy’s coinsurance clause, the choice between blanket and separate limits, and whether values at risk fluctuate over the course of the year.

Question 18

What alternative is available to a standard coinsurance clause?

Answer 18

The stated amount coinsurance clause. It too encourages insureds to maintain a minimum amount of insurance, specified in dollars rather than a percentage.

Question 19

Under what circumstances might a business consider adding a Peak Season endorsement to its commercial property policy.

Answer 19

Some businesses have wide swings in the value of stock. Examples include retailers, manufacturers, or distributors that sell seasonal goods. a Peak Season Endorsement allows the insured to temporarily increase policy limits and add locations without the expense of permanent increases. It is best suited to insureds with predictable fluctuations in their values of stock.

Question 20

Explain coinsurance.

Answer 20

Coinsurance requires an insured to carry insurance equivalent to at least a specified minimum percentage of the value of the property or else become a co-insurer for a given loss. That is, an insured that has under-insured would have to bear part of the loss along with the insurer.

Question 21

Explain blanket limits in Commercial policies.

Answer 21

A commercial insured may be allowed

Question 22

Explain blanket limits in Commercial policies.

Answer 22

A commercial insured may be allowed by its insurer to cover all of its property with a blanket limit instead of specifying individual limits for each type of property. A blanket limit can be set by combining the coverage at a single location, or at multiple locations, into a single limit for property of every description (POED) or contents of every description (COED).