C12 Study 9: Commercial Property Insurance PDF

C12 Insurance on Property Study 9 Commercial Property Insurance 1 C12 Study 9: Commercial Property Insurance 2 C12 Study 9: Commercial Property Insurance Learning Objectives The purpose of this summ...

C12 Insurance on Property Study 9 Commercial Property Insurance 1 C12 Study 9: Commercial Property Insurance 2 C12 Study 9: Commercial Property Insurance Learning Objectives The purpose of this summary is to provide you with a high-level review of the key points presented in the book. At the end of this summary, you should be able to do the following: LO1 Outline the two basic peril formats used in commercial property policy wordings. LO2 Describe the exclusions of the commercial property broad form. Outline the factors influencing the amount of insurance carried on the commercial property LO3 broad form. 3 C12 Study 9: Commercial Property Insurance Outline the two basic peril formats used in commercial property policy LO1 wordings. Commercial property wordings include fire, named perils, multi-peril, all risks, inland marine, and floaters The most comprehensive coverage includes building, equipment, stock, contents, or all property Insureds choose limits of insurance for each category selected Available in named-perils and all-risks versions Named-Perils Form Provides insurance for fire and additional perils named on form Extent further clarified by the exclusions Buildings only, contents only, or both buildings and contents together Contents generally includes stock, packaging and labeling, equipment, improvements, property of others, and all contents usual to the business In some cases risks are best suited to named risks, like vacant buildings 4 C12 Study 9: Commercial Property Insurance Outline the two basic peril formats used in commercial property policy LO1 wordings…continued. Broad Form (All Risks) Provides insurance on all risks, subject to conditions, limitations, and exclusions Can be building, contents, or both combined “All risks” is not the same as “all losses”; many exclusions 5 C12 Study 9: Commercial Property Insurance LO2 Describe the exclusions of the commercial property broad form. Exclusions specify property not insured or certain perils not covered. Types of Exclusions o Generally not insurable (i.e., war risks or nuclear contamination) o Losses not accidental or extraneous o Losses wholly or partly under the control of the insured o Wear and tear losses o Losses excluded because of the particular coverage 6 C12 Study 9: Commercial Property Insurance Describe the exclusions of the commercial property broad LO2 form…continued. Examples of Property Exclusions o Cash and other valuable property o Automobiles o Aircraft (including drones and other types of flying devices) o Watercraft o Furs or jewellery o Property vacant for specified number of days (e.g., 30 days) o Property undergoing work Computer hardware and software coverage is seriously limited by other exclusions Most are insurable under other policy wordings 7 C12 Study 9: Commercial Property Insurance Describe the exclusions of the commercial property broad LO2 form…continued. Perils Excluded o Flood and earthquake—coverage available by extension, specifically defined o Sewer backup and overland water—coverage available, high deductible o Bylaws—covers extra costs related to legal requirements o Inventory shortage—coverage rarely available o Pollution—spills or contamination on property excluded, but small limits available o Environmental hazards—mould, fungus, and other hazards considered uninsurable o Terrorism—wordings rewritten after 9/11 to exclude peril o Equipment breakdown—separate insurance is generally available o Cyber risks—excluded under data and data problem exclusion 8 C12 Study 9: Commercial Property Insurance Outline the factors influencing the amount of insurance carried on the LO3 commercial property broad form. Amount of insurance depends on o Actual cash value (ACV) vs replacement cost value (RCV) o Coinsurance clause Limits of Insurance o The insured determines the limit of insurance to be carried o Insurers expect the values insured to be commensurate with risk o Rates and premiums are calculated on this assumption o Agents and brokers help with valuations o Insurance possible on building, equipment, stock, contents, and all property 9 C12 Study 9: Commercial Property Insurance Outline the factors influencing the amount of insurance carried on the LO3 commercial property broad form…continued. Extensions o Wording generally extends to include small, specified limits on common business risks o Contents at temporary locations o Newly acquired buildings o Contents at newly acquired locations o Property in transit o Property in the custody of sales representatives The limits in addition to, and not part of, the limit for building or contents 1 0 C12 Study 9: Commercial Property Insurance Outline the factors influencing the amount of insurance carried on the LO3 commercial property broad form…continued. Valuation o Option of actual cash value (ACV) or replacement cost value (RCV) o ACV = replacement cost – depreciation o Sometimes ACV is better choice; sometimes RCV not offered o RCV cost for repair or replace with like kind and quality, no depreciation o Limit based on value of new item, comes with higher premium o RCV includes “same site clause,” but can be removed o Historic or heritage requires special wording Coinsurance o Requires insureds to bear a portion of loss if underinsured o Encourage insureds to carry adequate insurance on their property o Percentage of the property value or as a specific amount 11 C12 Study 9: Commercial Property Insurance Outline the factors influencing the amount of insurance carried on the LO3 commercial property broad form…continued. Blanket Limits o Option of insuring all property on a blanket limit instead of having individual limits for each type of property o Use single property of every description (POED) limit o Use a contents of every description (COED) limit o Advantageous for multiple locations Fluctuating Values o Some businesses have wide swings in the value of stock. o Retailers, manufacturers, and distributors of seasonal goods o Stock reporting basis—policy on highest anticipated value of stock on hand o Peak season endorsement—increases the limit for a specific period 12 C12 Study 9: Commercial Property Insurance In this summary, you learned how to do the following: LO1 Outline the two basic peril formats used in commercial property policy wordings. LO2 Describe the exclusions of the commercial property broad form. Outline the factors influencing the amount of insurance carried on the commercial property LO3 broad form. 13