Principles of risk management and insurance 10th by george rejda chapter 24

ISO Dwelling Program• Some dwellings that are ineligible for coverage under the HO policy can be insured under an ISO dwelling policy – The forms are narrower in coverage and there is n

Chapter 24

Other Property

and Liability

Insurance

Coverages

• ISO Dwelling Program

• Mobile Home Insurance

• Inland Marine Floaters

• Watercraft Insurance

• Government Property Insurance Programs

• Title Insurance

• Personal Umbrella Policy

ISO Dwelling Program

• Some dwellings that are ineligible for coverage under the

HO policy can be insured under an ISO dwelling policy

– The forms are narrower in coverage and there is no coverage for theft or personal liability, unless the policy is endorsed

– Dwelling Property 1 (basic form) provides coverage similar to

Coverages A-D of the Homeowners Policy

the personal property

– Additional perils can be added for an additional premium

Coverage E can be added to provide coverage for additional living expenses

some exceptions

ISO Dwelling Program

– Dwelling Property 2 (broad form) covers losses to the dwelling and other structures on a replacement cost basis

(Coverage E)

– Dwelling Property 3 (special form) covers the dwelling and other

structures on an “all-risks” basis

covered except those losses specifically excluded

broad form

– Endorsements to the dwelling form include:

Mobile Home Insurance

• Under the ISO program, mobilehome insurance is written

by adding an endorsement to an HO-2 or HO-3 policy

– The mobilehome must be at least 10 feet wide and 40 feet long,

and capable of being towed on its own chassis

– The coverage is similar to the HO policy

– An optional actual cash value endorsement can be added to reduce the cost

transporting the mobilehome to a safe place to avoid damage when it is endangered by a covered peril, such as a fire

Inland Marine Floaters

• An inland marine floater is a policy that provides broad and comprehensive protection on property frequently moved

from one location to another

– Coverage can be tailored to the specific type of personal property

to be insured, e.g., jewelry, coins, or stamps

– Desired amounts of insurance can be selected

– Broader and more comprehensive coverage can be obtained

– Most floaters cover insured property anywhere in the world

– Inland marine floaters typically do not impose a deductible

Inland Marine Floaters

• The personal articles floater (PAF) is an inland marine

floater that provides comprehensive protection on valuable personal property

– It can be written as a stand-alone contract

fine arts, etc.

– It can also be added as a scheduled personal property

endorsement to an HO policy

Watercraft Insurance

• The homeowners policy provides limited coverage for boats

• A boatowners package policy combines physical damage

insurance on the boat, medical expense insurance, liability insurance, and other coverages into one policy

– Physical damage is covered on an “all-risks” basis

– The insured is covered for property damage and bodily injury liability arising out of negligent use of the boat

– The policy also includes medical expense coverage and an

uninsured boaters coverage (may be optional)

Watercraft Insurance

• Yacht insurance is designed for larger boats

– Policies are not standard, but have many common features

– Physical damage to the yacht and its equipment is covered

on an “all-risks” basis

– The policy includes liability coverage, medical expense

coverage, and uninsured boaters coverage

Government Property Insurance

Programs

• Some government insurance programs are necessary

because certain perils are difficult to insure privately

– Coverage may not be available or may not be affordable

• The National Flood Insurance Program provides insurance coverage to property owners in flood-prone areas

– Flood insurance is purchased from agents or brokers who represent private insurers

collect the premiums, and receive an expense allowance

Hurricane Katrina and other hurricanes in 2005

Government Property Insurance

Programs

– Buildings and their contents can be covered by flood insurance if

the community agrees to adopt and enforce sound flood control

and land use measures

rates under the emergency portion of the program

– A flood is defined in the Standard Flood Insurance Policy as:

two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from overflow of inland or tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow

Exhibit 24.1 Amount of Federal Flood

Insurance under the Emergency and

Regular Programs

Government Property Insurance

Programs

– There is a 30-day waiting period for new applications and endorsements for flood coverage

• This prevents property owners from waiting to purchase coverage until an imminent flood threatens their property

– The cost of protection is relatively low

• The average flood insurance policy costs about $400 annually, and is less expensive than interest on federal disaster loans

– Criticisms of the federal program include:

• Policies are heavily subsidized, and many buildings in flood zones incur repeated losses

• Less than half of the eligible properties participate in the program

Government Property Insurance

Programs

• The Urban Property and Reinsurance Act of 1968 created FAIR plans (Fair Access to Insurance Requirements)

– Plans provide coverage to urban property owners who are unable

to obtain coverage in the standard market

malicious mischief

vulnerable to damage from severe windstorms and hurricanes

– A state with a FAIR plan creates a pool or syndicate of private

insurers to provide basic property insurance

and expenses based on the proportion of property insurance premiums written in the state

Title Insurance

• Title insurance protects the owner of property or the lender

of money for the purchase of property against any unknown defects in the title to the property under consideration

– If there is a defect in a title, the owner could lose the property to

someone with a superior claim

– Examples of defects to the title include an invalid will, incorrect

description of the property, and undisclosed liens

– The policy provides protection against title defects that have

occurred in the past, prior to the effective date of the policy

– The insurer assumes no losses will occur

– The premium is paid only once when the policy is issued

– The policy term runs indefinitely into the future

Personal Umbrella Policy

• The personal umbrella policy provides protection against a catastrophic lawsuit or judgment

– Excess liability insurance is provided in amounts from

$1–$10 million

– Certain minimum amounts of liability insurance must be carried on the underlying contracts

– Coverage is broad and includes protection against certain losses not covered by the underlying contracts

arrest, slander)

– A self-insured retention must be satisfied for losses covered by the umbrella policy but not by any underlying contract

– The umbrella policy is reasonable in cost

Exhibit 24.2 Typical Underlying Coverage

Amounts Required to Qualify for a

Personal Umbrella Policy

Personal Umbrella Policy

– Insurers can use a standard Personal Umbrella Policy developed by the ISO

– The policy pays for damages in excess of the retained limit for bodily injury, property damage, or personal injury for which the insured is legally liable

– The total limits of the underlying insurance or any other insurance available

to an insured, or

– The deductible stated in the declarations if the loss is covered by the umbrella policy but not by any underlying insurance or other insurance

– Exclusions include liability for expected or intentional injury, business liability, and professional services