C12 Insurance on Property - Ch3 - Evolution of Policies P2

Card Set Information

Author:
charisse
ID:
311396
Filename:
C12 Insurance on Property - Ch3 - Evolution of Policies P2
Updated:
2015-11-14 16:41:34
Tags:
CIP property C12
Folders:

Description:
CIP C12 Insurance on Property
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user charisse on FreezingBlue Flashcards. What would you like to do?


  1. How is the rate of premium calculated for fire insurance policies?
    • Premium for fire insurance policies is a specified proportion of the amount of insurance.
    • - rate per $100 (per cent), or less frequently
    • - rate per $1000 (per mille) 
    • of the amount of insurance; it is known as the rate of premium or rate
  2. How has public fire protection changed premiums charged to insureds?
    Public fire protection has a substantial effect on premium charged. Large cities have more sophisticated firefighting tools, public mains, well-distributed, well-spaced hydrants accessible to full-time fire dept's. Here a fire is more likely to be extinguished before it destroys a property completely than it would be in a small town with no water mains and a volunteer fire brigade.
  3. How does the construction of a building affect the premium charged to insureds?
    • - Construction is reflected in the rating. 
    • - if constructed w combustible material (frame) it will attract higher rates than buildings constructed w non combustible material (concrete block)
    • - the # of stories in the building may also affect premium
  4. What is the purpose of a deductible?
    • - Small, frequent claims are expensive for insurers. To avoid this expense and to reduce premiums for their insureds, insurers often introduce a deductible
    • - A deductible is an amount by which the payment received by an insured for a loss will be reduced; it is the insured's portion of the loss
  5. Describe the 4 ways a deductible may be applied.
    1. Separate items: if the total amt of insurance is subdivided into more than one item, the deductible may apply separately to the amount recoverable under each item

    2. Occurence basis: the deductible may apply to an occurrence, that is the deductible may be subtracted from the total amount of loss/damage arising from a single event (such as a fire or explosion)

    3. Loss above threshold: the policy may say that no loss be paid below a specified amount (the deductible), but that a loss greater than this amount be paid in full

    4. Variation on threshold: ie. $500 deductible might apply to all losses less than $5000, so would not respond to a loss of $500 or less. It would pay $350 of an $850 loss; it would pay in full a loss of $5001 or more
  6. What is the purpose of coinsurance?
    A coinsurance clause in a fire insurance policy obliges the insured to maintain a specified minimum amount of insurance in relation to the value of the property insured, or else share with the insurer any partial loss (becoming, in effect, a coinsurer of the loss).

    • Formula:
    • Amt of ins carried / min amt of ins required x Amt of loss = amt recoverable by insd

    But the amount recoverable can never be more than the amount of insurance carried

    Minimum amount of insurance generally requires insd to maintain insurance for at least 80% of the ACV of the property insd
  7. Why is it important for insureds to consider the effect of inflation on property values when deciding how much insurance to buy?
    • - at the time of loss insd's may discover they are underinsured at the time of a partial loss and incur a coinsurance penalty
    • - if values increase more rapidly than expected, insd's may want to increase the amt of insurance rather than wait for renewal
  8. Why do property policies often include a Waiver of Coinsurance for small losses?
    • - included for small losses where the calculation of ACV to determine if a coinsurance penalty applies is not economical for either the insr or the insd
    • - common clause is the 2% Coinsurance Waiver, nullifying the coinsurance clause for losses exceeding neither 2% of the amount of insurance nor $5000
    • - if the loss exceeds either amount, the coinsurance clause applies
  9. What is the difference between the Stated Amount Coinsurance clause and the standard Coinsurance clause?
    • - the Stated Amount Coinsurance clause is an alternative to the Standard Coinsurance clause
    • - it encourages insd's to maintain a min amt of insurance, specified in $ rather than as a % of ACV
    • - the insr establishes this minimum (usually 100% of the value reported by insd)

    - the stated amt clause, like the standard clause, penalizes insds for underinsuring
  10. When does the Stated Amount clause usually expire, relative to the policy. Why?
    • - the Stated Amount clause expires independently of the policy, usually 3 months later
    • - thus, the insd has 3 months after renewing the policy to confirm values for the renewal term
  11. Describe the circumstances in which an Average Distribution clause might replace a Coinsurance clause.
    • - often in operations such as manufacturing or processing, goods move from one building to another, so it can be difficult to arrange separate amt's of insurance for the contents of each building
    • - if the total value remains fairly constant, the insr may agree to a policy covering all goods in a building under a single item (blanket), with an Average Distribution clause replacing the Coinsurance clause
  12. How does a Deferred Payment clause affect an insured in the case of loss of a building?
    • - the insd is indemnified for only a portion of the total loss to a building at the time of loss
    • - the remainder of the payment is deferred until the insd repairs or replaces the building
    • - this clause addresses the moral hazard of insd's destroying their property for the payout
    • - most common type of Deferred Payment clause is the Rebuilding clause often found in farm policies - 50% is paid at time of loss and if within 9 months the insd repairs/replaces the building, the insr will pay the balance w interest
    • - the insd's premium is reduced where the policy includes a Deferred Payment clause
    • - the Rebuilding clause is attractive to farmers who intend to continue farming
  13. What is the difference between a mortgage and a chattel mortgage?
    • Property, especially real estate, is often used as security for a loan.
    • - where the security is real property (land or buildings), the loan arrangement is called a mortgage
    • - where the security is personal property (property other than land or buildings), the loan arrangement may be a chattel mortgage
  14. Define loss payee
    • - mortgagees or others included in policies by such an arrangement are called loss payees
    • - any cheque issued by the insr to settle a claim will be drawn jointly in the names of the insd (the borrower) and the loss payee
    • - cheques drawn jointly must be endorsed by all parties named on the cheque
  15. How does provincial legislation protect the interests of loss payees?
    • - the insurer may not cancel or alter a policy to the detriment of a loss payee w/out prior written consent of the payee
    • - the length and manner of giving notice to a loss payee are the same as for the insured
    • - if the insurer fails to give notice as required, the insr obligations remain in effect until policy expiry
    • - often an insd's request for cancellation is accompanied by a release of interest signed by the loss payee
  16. What is the main benefit of a Mortgage clause for the mortgagee?
    • The main benefit of a Mortgage clause for the mortgagee is that the policy covers the mortgagee even if the named insured is unable to recover b/c a condition of the policy has been breached.
    • - it creates a separate contract between insurer and the mortgagee governed by the perils, exclusions, amounts and limitations of the policy
    • - the mortgagee's ability to recover is no longer restricted to losses the named insd may recover
  17. How does the Mortgage clause amend Statutory Condition 8 in common law provinces?
    - allows the mortgagee to give notice of loss immediately on becoming aware of it and proof of loss as soon as practicable
  18. Describe the evolution of the wording of Mortgage clauses.
    • - some lenders devised their own wordings and requested they be used on policies covering property in which they had an interest - this was unacceptable to insurerss
    • - eventually a Mortgage clause was devised by IBC and was accepted by almost all lenders
    • - today, this clause is standard in most cases
  19. The Coinsurance clause in a fire insurance policy:
    ...penalizes the insured who chooses an inadequate amount of insurance.

    A Coinsurance clause in a fire insurance policy obliges the insured to maintain a specified minimum amt of insurance in relation to the value of the property insured or else share with the insurer any partial loss, becoming, in effect, a co-insurer of the loss
  20. The Waiver of Coinsurance waives...
    ...the Coinsurance clause for losses of loss than specified amounts

    - Typically, property policies include a Waiver of Coinsurance for small losses, where the calculation of ACV to determine if a coinsurance penalty applies is not economical for either the insurer or the insured
  21. The total amount of insurance applicable on several buildings may, when a loss occurs, be apportioned by the ratio of values in each building to the values in all buildings.  This provision is known as a(n):
    ....Average Distribution clause

    - Such a clause apportions the total amount of insurance, when a loss occurs, by the ratio of the values in each building to the values in all buildings
  22. The main benefit of a Mortgage clause is that...
    ...it protects the mortgagee in the event of loss even if the insured breaches a policy condition

    - The main benefit of a Mortgage clause for the mortgagee is that the policy covers the mortgagee even if the named insured is unable to recover b/c a condition of the policy has been breached.
  23. Property is often used as security for a loan. Where the security is personal property, the loan arrangement may be a...
    ...chattel mortgage.

    - Where the security is personal property (property other than land or buildings), the loan arrangement may be a chattel mortgage
  24. SA (1): Define the term deductible
    a deductible is an amount by which the payment received by an insured for a loss will be reduced; it is the insured's portion of the loss
  25. SA (2): Explain why a deductible is used.
    • - small, frequent claims are expensive for insurers, and to avoid this expense
    • -- and so reduce premiums for their insureds, insurers often introduce a deductible to the policy
  26. SA(7): Outline the different ways that a deductible can be applied.
    • Separate items
    • - if the total amount of insurance is subdivided into more than 1 item, 
    • -- the deductible may apply separately to the amount recoverable under each item

    • Occurrence Basis
    • - the deductible may apply to an occurrence
    • -- that is, the deductible may be subtracted from the total amount of loss
    • -- or damage arising from a single event (such as fire or explosion) insured under all items of the policy

    • Loss Above Threshold
    • - the policy may provide that no loss be paid below a specified amount (the deductible), 
    • -- but that a loss greater than this amount be paid in full
  27. SA(2): What is a deferred payment clause?
    • - under a Deferred Payment clause, the insured is indemnified for only a portion of the total loss to a building at the time of loss
    • -- the remainder of the loss payment is deferred until the insured repairs or replaces the building (i.e farm)
  28. SA(5): Explain why a Deferred Payment clause would be used:
    • - such a clause addresses the moral hazard arising from the possibility of a total constructive loss to an insured building - that is, where the building, though not destroyed, is damaged so severely that the cost of repair would equal
    • -- or exceed its value before the loss
    • -- or the amount of insurance

    • - by deferring a portion of the loss payment
    • -- and attaching conditions to this unpaid portion, the clause discourages insureds from contriving to burn down their buildings for the insurance proceeds
  29. SA (2): Describe the most common example of a Deferred Payment Clause:
    • - the most common example of a Deferred Payment clause is the Rebuilding clause often found in farm policies
    • -- it is usually applied to farm buildings that are vacant
    • -- an no longer used
  30. LA(30): You are an underwriter for Customer First Insurance, and you have received applications for property policies that include the following information. 

    Explain how the information in each of the following applications will affect premium calculation based on common rating criteria.
  31. LA(10): A working professional owns a condo unit in a building located in the city. The condo was built using concrete block and is located by the lakefront in a newly developed part of the city. It is located on the 16th floor of a 20-storey building and is also fully furnished.
    • Condo:
    • - Public fire protection has a big effect on premium charged
    • -- the condo is located in a large city, which can typically be expected to have sophisticated firefighting apparatus, including
    • -- excellent public mains that supply water to well-distributed
    • -- well-spaced hydrants
    • -- accessible to a full-time fire dept
    • - As a result, a fire is more likely to be extinguished before it destroys property

    • - Occupancy 
    • - the condo is a residence, owned and maintained by a working professional
    • -- therefore, the occupancy is less likely to give rise to loss than another, more hazardous occupancy

    • - Construction of the the building 
    • -- buildings constructed w combustible material attract higher rates than buildings constructed mainly w non-combustible material
    • -- the condo is built of concrete block, which is a non-combustible material
    • - the # of storeys in a building and its area may also affect the premium
    • -- the condo is 20 storeys high and located in new developed area by the lake

    • - Susceptibility
    • - reflected in the rate is the susceptibility of the property insd to loss or damage by fire, smoke or water; its combustibility and its perishability
    • -- contents are often damaged by insd perils more than is the building housing them, especially when the building is of non-combustible construction
    • -- this condo is fully furnished
  32. LA(10): A large factory manufactures foam insulation. The factory is located in an industrial part of the city. To reduce the risk of fire, the factory has installed automatic sprinklers. The factory is constructed out of aluminum and steel and is only one storey in height.
    • - Private fire protection may also affect premium
    • - the manufacturing plant has private fire protection with automatic sprinklers,
    • -- water mains,
    • -- hydrants, 
    • -- pumps, 
    • -- and other resources

    • - Occupancy affects premium
    • -- the manufacturing plant's product is foam insulation, which is made from highly combustible materials and
    • -- which may be made using a hazardous process
    • -- this will attract a higher rate

    • - Construction affects premium
    • -- the plant is constructed from aluminum and steel, which are both less combustible materials
    • -- the # of storeys in a building and its area may also affect premium
    • -- the plant is only 1 storey high

    • - Susceptibility
    • - susceptibility to loss or damage by fire, smoke or water, combustibility or perishability
    • -- the foam stocked in the plant may be highly flammable
  33. LA(10): A log cabin cottage is located 2 hours outside of the city at some distance from the nearest small, rural community. To heat the log cabin, the owners rely on a wood stove. The log cabin is 2 storeys and is also fully furnished.
    • - Public fire protection
    • -- the log cabin is at some distance from the nearest small, rural community
    • -- which is likely to have no water mains
    • -- and rely on a tank truck and volunteer fire brigade

    • - Occupancy
    • - using a woodstove to heat the home
    • -- considered a hazardous process

    • - Construction
    • - buildings constructed of combustible material (ie. frame) attract higher rates than if contructed with non-combustible material such as concrete block
    • -- this log cabin is constructed of wood, which is combustible
    • -- this will attract a higher rate than a building constructed of non-combustible material

    • - Susceptibility
    • - susceptible to insd peril, espec since constructed out of combustible material
    • -- this log cabin is fully furnished

What would you like to do?

Home > Flashcards > Print Preview