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ropa1712
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Cession
transfer of risk from a primary insurer to a reinsurer (example: AIG to SwissRE)
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Retrocesssion
transfer of risk from a reinsurer to another reinsurer (example: SwissRE to GenRE)
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Reserves
specific % of premiums that must be kept readily available to pay out claims/ liabilities
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What are the three typical coinsurance clauses for property insurance?
80%, 90%, 100%
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Premium Formula
=Rate*Limit
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What happens to premiums as CI increases?
rate decreases, but this is offset by the increase in the amount of required insurance, which results in higher premiums
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What happens to premiums if the limit of insurance stays constant?
All else equal, premiums will decrease as CI requirement increases; however, there is less 'wiggle room' if the building increases in value, and there is most likely a guranteed penalty with 100% CI clauses
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What do coinsurance provisions try to avoid?
underinsurance; a business only buying insurance for its maximum probable loss
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Actual Cash Value (ACV) Formula
=Replacement Cost- Actual Depreciation
Note: NOT Accounting Depreciation
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What effect do high deductibles have on premiums?
lower premiums bc a business is buying less insurance
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What effect do low deductibles have on premiums?
higher premiums bc business is buying more insurance/ have higher risks/ are more likely to have a loss
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Valuation- Small Building Losses
less than $2500, only covers actual building itself
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Valuation- Stock Sold But Not Delivered
insurer will pay selling price of the property (which may or may not be >ACV); this provides some BIC (bc covering a lost sale)
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Valuation- Safety Glass
insurer will pay for term installation (to replace broken glass) if required by ordinance/ law
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Valuation- Tenants' Improvements and Betterments
- 1. If tenant replaces the property, he or she gets ACV
- 2. If tenant doesn't replace/ rebuild, pro-rata rate is enforced:
- I=(yrs remaining on lease/ total years of lease)*original cost
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Valuation- Valuable Papers and Records (electronic and otherwise)
insurer will pay cost to recreate the lost data (but still subject to the $2500 limit depending on data type)
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Insured's Duties in the Event of a Loss
- Notice of Loss
- Police Report
- Preservation of Property
- Inventory and Inspection
- Proof of Loss
- Examination Under Oath
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Insurer's Options for Loss Payment
usually a check is written (for ACV) to the insured, which doesn't necessarily have to be used to replace the loss; however there are 3 other options
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3 Other Insurer Options for Loss Payement
- 1. Pay Replacement Cost (higher than ACV)
- 2. Insurer pays to restore property; buys it from insured, repairs it, sells it at a later date (usually occurs when 2 sides cannot agree)
- 3. Insurer goes in and rebuilds building/ replaces property itself (to prevent fraud)
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What is the rule for recovered property?
insured must notify the insurer of any recovered/ slavaged property (to prevent over indemnification)
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When is a building considered vacant?
- Tenant: only applies to rented space; 60+ days of not enough property for general customer operations
- Owner:60+ days of <31% occupation; if building is 31%+ occupied, it is NOT
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What are the 6 perils that are not covered for vacant buildings?
- 1. Vandalism
- 2. Building Glass Breakage
- 3. Sprinkler Leakage
- 4. Water Damage
- 5. Theft
- 6. Attempted Theft
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What is the indemnity reduction for the non excluded perils resulting in losses to vacant buildings?
15%
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Mortgage Holders (MH) Protection
insurer pays MH to the extent of its financial interest in the property
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Perils Covered by Basic and Broad Form(12)
- 1)Fire
- 2)Lightning
- 3)Explosion
- 4)Windstorm or hail
- 5)Smoke
- 6)Aircraft or vehicles
- 7)Riot or civil commotion
- 8)Vandalism
- 9)Sprinkler leakage
- 10)Sinkhole collapse
- 11)Volcanic action
- 12)Fungus (at additional charge for limited coverage)
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Additional Perils Covered by Broad Form (4)
- 1)Falling objects
- 2)Weight of snow, ice, sleet
- 3)Water damage
- 4)Collapse (at additional charge)
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Hostile Fire
fire that does not stay contained/ where it is supposed to be which causes a loss; usually accidental
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Friendly Fire
fire that is intentionally started and stays in a particular area (e.g. a fireplace)
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What must happen for windstorm/ hail damage to be a covered peril?
exterior damage must occure before interior damage
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What is the exclusion to the sinkhole collapse peril?
man made subsidence (i.e. from mining, etc) is excluded
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What is the exlcusion to the explosion peril?
steam boiler losses are excluded
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What is the exclusion to the vandalism peril?
Theft
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What is the exclusion to the volcanic action peril?
volcanic eruption damages (earth movements) are excluded
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Basic and Broad Form Exclusions (10)
- 1. Lead in Paragraph
- 2. Ordinance or Law
- 3. Earth Movement
- 4. Governmental Action
- 5. Nuclear Hazard
- 6. Utility Services (off premises)
- 7. War and Military Action
- 8. Water-damage from naturally occuring water sources
- 9. Fungus, Wet Rot, Dry Rot, Bacteria (Mold)
- 10. Terrorism
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Additional Exlusions to Basic and Broad Form (5)
- 1. Artificially Generated Electric Current
- 2. Explosion of Steam Boilers
- 3. Mechanical Breakdown
- 4. Neglect
- 5. Limitation on Loss of Animals (only paid if animal dies)
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Special Form Coverage
typically provided broader coverage; only lists exclusions to the policy, not named perils like the other types (covers "everything but...")
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Advantages of Special Form Coverage (4)
- 1. Agreement simply provides coverage for risks of direct physical loss to covered property.
- 2. A cause of loss not specifically excluded is covered.
- 3. Shifts burden of proof from insured to the insurer for disagreements about covered perils.
- 4. Provides broader coverage.
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Exclusions to Special, Basic and Broad (12)
- 1. Ordinance or Law
- 2. Earth Movement
- 3. Governmental Action
- 4. Nuclear Hazard
- 5. Utility Services
- 6. War and Military Action
- 7. Water
- 8. Fungus, Wet Rot, Dry Rot, Bacteria
- 9. Artificially Generated Electrical Current
- 10. Steam Boiler Explosion
- 11. Mechanical Breakdown
- 12. Neglect
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