STUDY 6 - Property Insurance / Page 1
Risk Characteristics – Personal Lines Physical factors U/W use to analyze, classify, determine coverage and premium.1) Location a) Fire Protection > distance to firehall / hydrant.
b) Address > municipal – street, legal description / rural – directions to.
2) Construction More fire-resistive materials = lower premium charged:
- Structure > frame / brick veneer / masonry / fire resistive.
- Roof > shingles / shakes / tar and gravel / deck / fire-resistive.
3(a) Age - Building a) Newer: i) Conform to more stringent fire codes.
ii) Reduced chance of loss.
iii) Greater chance of containment = minimizing damage.
iv) Qualify > lower premiums and broader coverage.
b) Historic: i) Unaltered facade / changes - same materials / methods.
ii) Specialized risk > coverages / market / wordings.
iii) Options > buy full cover / pay added cost themselves.
iv) Valuation > independent appraisal – value / changes.
3(b) Age - Services i) Condition of essential equipment = risk acceptability / premium.
ii) Consider > condition? last updated? what was done? who did it?
iii) Electrical > wiring copper v. aluminum / updated panel.
iv) Heat > system - forced air v. gravity / fuel - gas v. oil (tank condition).
v) Water system > piping used could effect likelihood of pipes breaking – sewer back-ups
vi) Roof > visual = type / age / condition / existing damage.
4) Occupancy
a) Principal: i) Less risk > owner - finds / fixes problems quicker.
ii) Qualify > lower rates / broader cover - comprehensive.iii) Apartment > high-rise / house / over strip mall (restaurant below).
b) Cottage: i) Limited or no fire protection.
ii) Less fire-resistive construction.
iii) Vacant / unoccupied for long periods.
iv) Qualify > higher rates / restricted cover – named perils.
v) Added to principal residence policy as seasonal dwelling.
vi)
Factors > Accessibility / Age / Condition / Construction / Fire
Protection Heating / Frequency of Use / Neighbours Watch /
Outbuildings
vii) Limits = values of building + personal property + outbuildings + fences.
viii) Second Home > newer / better built, protected = lower rates/broad covers.
c) Rented: i) Restricted Market > personal (4 or less units) v. commercial (> 4 units).
ii) Lease Periods > longer term / annual / short-term – month to month.
iii) Review Contract > tenant has to – reimburse damages / buy liability cover.
iv) Number of Tenants > multiple single-family (triplex) v. rooming house.
v) Landlord > maintains and visits premises / screens tenants – references.
d) Vacancy / Unoccupancy
Unoccupied Premises have contents / no one lives or works in – vacation.
Vacant Premises have no contents / no one lives or works in – no return plans.
i) Risk of Loss > reduced supervision = more likely to happen / less quickly reported.
ii) Policy Condition > notice to insurer if vacant > 30 consecutive days = less cover.
Loss Prevention Tips * Have friends or family stay in the premises.
* Inform neighbours of departure and return dates.
* Winter > check daily / shut water off, drain pipes.* Don’t broadcast the fact they will be away.
* Cancel deliveries – newspapers.
* Arrange Pickup > flyers / garbage.
* Arrange Maintenance > mow lawn / shovel snow.
* Store valuables in a safety deposit box.
* Use Clock Timers > lights / radio / television.
e) Under Construction Less supervision = loss more likely to happen / slower reporting.
i) Extent of work > separate building at new location v. adding room to main house.
ii) Policy Form > Builder’s Risk / Course of Construction v. adding permission clause.
iii) Abeyance File > construction complete – change policy / extension if delays.
f) Interests, Hobbies, Home Business Recommend cover / offer loss prevention advice:
i) Hobbies > risk of loss based on nature of activity – knitting socks v. making pottery.
ii) Home Business > inventory / operations - nature, scope / revenue generated.
iii) Insurer > extends existing policy if incidental business or commercial policy (CGL).
5) Maintenance and Housekeeping Affects policy rating.
- General > condition and maintenance of premises.
- Loss-Control Advice > inspection = recommendation – storing flammables / chemicals.
6) Protection Physical features that reduce chance or severity of loss:
- Fire > municipal / rural - hydrant, firehall (full-time or volunteer), water supply.
- Systems > alarm – burglary, fire, smoke (make, model, monitoring) / sprinklers.
7) Exposures Adjoining or adjacent premises affect insured’s risk / premium:
- Construction > spread of fire less with detached v. semi-attached / attached.
- Proximity > distance to premises that have higher risk occupancy – manufacturing.
- Occupancy > auto-body shop v. retail clothing business.
Risk Characteristics – Commercial Lines Physical factors and considerations slightly different than personal lines.
1) Occupancy a) Processes > nature, scope and size of operations – office v. manufacturer.
b) Research > inspection + occupancy class + client’s knowledge.
c) Farms > personal (dwelling) + commercial (equipment / outbuildings).
Changes i) Renovations > extent of – cosmetic (cabinets) v. major (gutting).
ii) Alterations > create concealed spaces = fire unnoticed or spreads quicker.
iii) Details > electrical / heating / plumbing / roof – when, contractor, extent.
iv) Appraisal > contains details / value of renovations and alterations.
v) In Progress > confirm coverage – builder’s risk / contractor liability.
vi) Premium Reductions > upgrades may improve risk – ask insurer.
2) Protection a) Fire > alarms / firehall / hydrants / water supply.
b) Sprinkler Systems > lower rates if central station sprinkler alarms.
c) Crime > burglary alarms / security guards / watchmen = lower rates.
3) Exposures a) Adjoining or adjacent premises affect insured’s risk / premium.
b) Location > stand alone / tenant – industrial mall / older downtown strip.
c) Area > downtown core (older – poor quality) v. industrial area (remote).
d) Nature > manufacturing / processing hazardous materials.
e) Inspection > determine acceptance / premium / quality of risk.
f) Deficiencies > advise client of time frame / abeyance for follow-up.
g) Non-compliance > increased premium / restricted cover / cancellation.
Arranging Coverage
- Compare > U/W guidelines / market / products – insurer, competitors v. expiring coverage.
- Recommend > appropriate insurer and products based on client needs.
- Goal > provide insured with better or no less comprehensive coverage than expiring policy.
- Know Markets > marketing strategy – target / policy wordings / UW criteria.
- Discounts > alarms / claim free / mature / mortgage-free / multi-policy / non-smoker / tenure.
- Options > quote different levels of protection, deductibles / explain differences and limitations.
- Coverage Unavailable > explain why – unable to access = option to get coverage elsewhere.
Policy Wordings
FIRE POLICY
Basic Fire Policy Foundation perils for personal and commercial coverages.
- Fire.
- Lightning.
- Explosion of natural, coal or manufactured gas.
Additional Perils Many perils subject to limitations and exclusions:
- Explosion > broader coverage.
- Falling Object.
- Impact > aircraft, spacecraft, land vehicle unless owned by insured.
- Lightning > broader coverage.
- Riot.
- Water Escape.
- Rupture > plumbing, heating, A/C systems, water heater.
- Freezing > plumbing, heating, A/C systems, household appliances.
- Smoke > excluding smoke from a fireplace.
- Vandalism or Malicious Acts.
- Windstorm or Hail > damage to certain property is excluded.
PERSONAL LINES PACKAGE POLICY Extensions based on ownership / occupancy:
- Package Approach > combine property / crime / liability insurance.
- Standard Wordings > IBC – Homeowners / Tenants (Renters) / Condominium.
Comprehensive Broad Basic (Standard)
Buildings All Risks (exclusions list) All Risks (exclusions list) Named Perils
Contents All Risks (exclusions list) Named Perils (+ Theft) Named Perils
- Aggregate Limit = Dwelling + Detached Private Structures + Contents + A.L.E.
- Exclusions: 1) Covered Elsewhere > property – automobile / aircraft / perils.
2) Uninsurable Perils > criminal acts / faulty work / war / wear and tear.
3) Extraordinary Exposure > earth movement / flood.
- Extensions > by-laws / earthquake / flood / sewer back-up – higher deductibles.
- Hobbies / Interests > small business / snowmobiles / watercraft.
- Freezing > heating season - absent > 4 days = daily inspection / water shut off, drained.
SPECIAL LIMITS Insurer imposes $ limits on losses to property inherently attractive to crime:
a) All Types of Loss: Bicycles Money, Securities, Bullion
Business Property Sports Cards
Computer Hardware / Software Watercraft
Garden Type Tractors
b) Theft Only: Jewellery, watches, gems, fur / fur-trimmed garments $2,000 Numismatic property – coin collections $ 200
Manuscripts, philatelic property – stamps, collections $1,000
REPLACEMENT COST No deduction for depreciation subject to certain conditions:
- Dwelling > same - site, occupancy, quality of materials / reasonable time after loss.
- Guaranteed Full cost to replace or rebuild even above the limit of insurance.
1) Amount Insured > 100% of replacement cost at last valuation.
2) Insurer Notified > within 90 days of starting improvement / extension / renovation.
3) Increased Costs > not due to operation of a by-law.
- Personal Property > repaired or replaced within a reasonable time (1 year).
- Ineligible > electronic media / improperly used or cared for / irreplaceable / records.
ACTUAL CASH VALUE (ACV) Cost of repair / replacement minus depreciation.
- Factors > age / condition / obsolescence / type of property / wear and tear.
- Calculation > replacement cost less % per year based on above factors.
- Cash Settlement > basis of settlement automatically reverts to ACV.
- Insured > must understand rights and obligations in event of a loss.
VALUATION - BUILDING Dwelling only, not mortgage outstanding or resale value.
- Actual Cost > repair or replace with like kind and quality on current site.
- Policy Limit > determined by valuation process / subject to client approval.
- Valuation Guides > materials / structure / heating / features / quality of construction.
- Uncertainty > recommend client arrange independent professional appraisal.
VALUATION - CONTENTS Standard limits (% of dwelling) may be inadequate due to:
- Inventory > client surprised by replacement value of personal belongings.
- Special Limits > reminder of items that need added cover – bicycles / jewellery.
TENANTS’ a) Covers > personal property (contents) / A.L.E. / improvements.
b) Forms > name perils and comprehensive (all-risks).
c) Limits > inventory – add replacement cost per item = total required.
CONDOMINIUMS Shared Ownership > individual purchaser owns % of building (strata).
- Types > apartment / multi-family / single family / townhouse.
- Corporation > owns, insures - building / common elements (foyer, hallway).
- Unit Owner > cube of space inside - floor / walls / ceiling / improvements.
- Common Elements > elevator / entrance / hall / recreation facilities.
- Owner Insures > own unit / personal property / improvements / betterments.
- Special Coverages:
1) Contingent Covers owner’s unit against deficiency (limits / perils) in corporation’s policy.
2) Loss Assessment Covers unit owner’s share of assessment for damage to
common elements of condominium.
CO-OPERATIVES Collective Ownership > member owns shares / leases their own unit.
- Non-Profit > members pay only monthly “housing charge”.
- Co-operative > owns, insures - building.
- Member > owns, insures - personal property (tenants’ / special wordings).
- Review Property Documents > determine type of entity as building owner.
MOBILE HOMES Unique Category > used as principal residence / cottage / RV.
- Definition > factory built on own chassis / towed to site where used or kept.
- Placement > up on blocks / permanently attached to foundation / wheels, hitch attached.
- Tie Downs > heavy straps over unit fasten to foundations = better windstorm resistance.
- Building > dwelling / built-in equipment, furnishings / fixtures / outbuildings / tie-downs.
- Challenges > appliances part of building / high depreciation rate – over 16 years.
- Extension > emergency removal expense – moving cost to protect from insured peril.
- Moving > includes period of time levellers removed / utilities disconnected.
- Quebec > no separate policy form = amendments to basic homeowners wording.
Exclusions: 1) Conversion, embezzlement or secretion by any possessor.
2) Moving home unless emergency - protect from insured peril (fire).
Additional Personal Lines Coverages Clients need additional insurance for items limited in coverage.
PERSONAL ARTICLES FLOATER Offers more complete protection for special limits items:
- All Risks > direct, full or partial loss or damage / subject to exclusions.
- Restricted Items > coins / fine arts / furs / jewellery / stamps.
- Complete Description > ID subject matter - details / year / make / model / serial number.
- Appraisal > within prior two years / certified appraiser / photographs.
- Valued Basis > insured and insurer agree on value of item before it is insured.
- Collections > blanket basis – single limit, maximum per item / per item – individual limits.
- Blanket Basis > confirm maximum per item is adequate to cover most valuable item.
- Regular Updates > new appraisals every three to five years.
- Newly Acquired > same class covered for % of limit if insurer notified within 30 days.
- Territory > worldwide.
- Exclusions > birds / intentional acts of insured / nuclear / vermin / war / wear and tear.
- Property Excluded > illegally acquired / lawfully seized / instruments played for fee.
WATERCRAFT Regular policies cover named perils, liability - low limits / under specified sizes.
Outboard Motor and Boat Coverage
- Physical Damage > collision while afloat ($500).
- Liability > extended from property policy / based on maximum horsepower.
- Wordings > vary with insurer.
- Forms > named perils / all-risks.
- Valued Basis > agreed to before items insured.
- Schedule > limit per item - boat / motor / trailer / equipment (blanket basis).
- Exclusions: 1) Business Use > renting or chartering to others.
2) While being refinished, renovated or repaired.
3) Racing.
Yacht Policy Larger Boats > inboard motorboats or sailboats:
- Covers > physical damage / liability arising from ownership, maintenance, use.
- Forms > named perils / all-risks.
- Excluded Perils > capture / freezing / nuclear / strikes / war.
- Excluded Property > machinery / rigging / rudders / sails / shafts / spars.
- Replacement Cost > total loss – valued basis / partial loss – cost of repairs.
- Collision Damage Liability > includes damage to other vessels.
- Legal Liability > BI/PD to others unless property in CCC / waterskiing / towing.
- Extensions > remove vessel wrecked in navigation channel / medical payments.
- Warranties > navigation – use within specified area / lay-up – not using in winter.
SECONDARY LOCATIONS Home away from home or revenue property:
1) Cottage / Seasonal a) Extension > added to property policy.
b) IBC Form > named perils includes burglary.
c) Exclusions > glass breakage / snow or ice load / theft / VMA.
d) Endorsements > excluded perils added for extra premium.
e) Vacancy > if longer than usual request wording amendment.
f) Outbuildings / Fences > included in limit of insurance.
g) Distribution Clause > proportionate based on ratio of values.
BURGLARY The unlawful removal of property from premises involving visible signs of forcible entry.
THEFT The wrongful taking of property of another. It is a broad term including holdup, larceny, pick-pocketing and robbery.
2) Residence a) Features Match Primary > newer / year round / protected.
b) Broader Coverage > than seasonal dwelling form.
3) Rental Property Restricted Coverage > not owner occupied.
- Forms > fire and additional perils / all-risks may be offered.
- Minimum Deductibles > higher than principal residence.
- Commercial Risk > more than four to six units depending on insurer.
- Tenants Insurance Required > legal liability for damage to premises in CCC.
- Business Interruption (BI) 1) Indirect Loss > rental income from insured peril.
2) Limit > anticipated annual rental income.
FARMS Dwelling + business exposures = specified series of wordings:
- Dwelling / Contents > section similar to homeowner forms.
- Business > section similar to commercial risks.
- Floaters > equipment / grain / livestock / machinery / produce / outbuildings.
Deferred Payment Clause 1) Building Damage > 2/3 of value from insured peril.
2) Insurer Pays > 50% of assessed damages.
3) Rebuild > > 9 months / 200’ of site = balance + interest.
4) Don’t Rebuild > insured accepts 50% as settlement.
- Equipment / Machinery > all-risks - subject to exclusions / anywhere in Canada and U.S.
- Livestock > named perils - + theft / all-risks - subject to exclusions / limit per animal.
- Crops > written by government or private insurers.
COMMERCIAL POLICIES Broadly similar insurance requirements:
- Property > building / fixtures / fittings / tenants’ improvements.
- Peripheral > automobile / business interruption / crime / liability.
- Wordings > minimum perils – FLE + variations on IBC standard = insurer versions.
- Named Perils > excludes crime and water damage.
- All Risks > adds burglary (crime) and water damage.
- Co-insurance > insured penalized by amount insured lower than specified % of value.
- Basis of Settlement > insured’s option - ACV or replacement cost.
- Package Policies Combine > business interruption + crime + liability + property:
- Retail > business interruption / contents / crime / glass / liability + building / B&M.
- Office > A-R / contents / EDP – soft, hard ware / extra expense / liability / money.
- Contractors > A-R / builders / contents / equipment / liability / valuable papers.
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