Principles of risk management and insuarance 12th by rejde mcnamara chapter 24

ISO Dwelling Program• Dwelling Property 1 Basic Form provides coverages similar to the Homeowners Policy– Coverages A and B insure the dwelling and other structures – Coverage C covers

Chapter 24

Other Property and Liability Insurance Coverages

• ISO Dwelling Program

• Mobile Home Insurance

• Inland Marine Floaters

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

– The forms do not include coverage for theft or

personal liability without appropriate

endorsements

ISO Dwelling Program

• Dwelling Property 1 (Basic Form) provides

coverages similar to the Homeowners Policy– Coverages A and B insure the dwelling and other structures

– Coverage C covers personal property

– Coverage D covers the fair rental value if part of the dwelling is rented

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

– Only a limited number of named perils apply to both the dwelling and the personal property

– All covered property losses are paid on an actual cash value basis, with some exceptions

ISO Dwelling Program

• Dwelling Property 2 (Broad Form) covers

losses to the dwelling and other structures

on a replacement cost basis

– The list of named perils is expanded

• Dwelling Property 3 (Special Form) covers

the dwelling and other structures on an

“open perils” basis

• Endorsements to the dwelling form include:

– Theft coverage

– Personal liability supplement

Mobile Home Insurance

• Under the ISO program, mobile home

insurance is written by adding an

endorsement to an HO-2 or HO-3 policy

– The mobile home must be at least 10 feet wide and 40 feet long, and capable of being towed on its own chassis

• The coverages are similar to those found in

a homeowners policy

Mobile Home Insurance

– Coverage A covers the mobile home on a

replacement cost basis

– Coverage B insures other structures

– Coverage C insures unscheduled personal

property

– Coverage D insures for loss-of-use

– An additional coverage pays up to $500 for the

cost incurred in transporting the mobile home to a safe place to avoid damage when it is endangered

by a covered peril, such as a fire

– Coverages E and F provide for comprehensive

personal liability insurance and medical payments

to others

Inland Marine Floaters

• An inland marine floater provides broad

coverage on property frequently moved from one location to another and on property

used in transportation and communications

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

– Desired amounts of insurance can be selected

– Broader coverage can be obtained

– Most floaters cover insured property anywhere in the world

– Inland marine floaters are often written without a deductible

Inland Marine Floaters

• The personal articles floater (PAF) is an

inland marine floater that provides

comprehensive protection on valuable

personal property

– This coverage can be written as a stand-alone

contract

– The PAF insures certain classes of personal

property on an “open perils” basis

– The coverage can also be added as a scheduled personal property endorsement to an HO policy

Watercraft Insurance

• 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 “open perils”

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 may include uninsured boaters coverage

Watercraft Insurance

• Yacht insurance is designed for larger boats

– Policies are not standard, but have many

common features

– Hull coverage insures the yacht and its

equipment for property damage on an “all risks”

or “open perils” 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

National Flood Insurance Program

• 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

– Private insurers sell federal flood insurance under their own names, collect the premiums, and

receive an expense allowance

– The federal government is responsible for all

underwriting losses

– The program is self-supporting for the average

historical loss year

– In 2012, Congress acted to reform and extend the program for five years

National Flood Insurance Program

– Federal law requires individuals to purchase

flood insurance if they have federal guaranteed financing to guild, buy, refinance, or repair

structures located in special hazard flood areas– 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

– A flood hazard boundary map shows the general areas of flood losses

– Residents can purchase limited amounts of

insurance at subsidized rates under the

emergency portion of the program

National Flood Insurance Program

• A flood is defined in the Standard Flood

Insurance Policy as:

– A general and temporary condition of partial

or complete inundation of 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

• There is a 30-day waiting period for new

applications and endorsements for flood

coverage

Exhibit 24.1 Amount of Federal Flood Insurance

under the Emergency and Regular Programs

National Flood Insurance Program

• Flood insurance coverage is available in

three Standard Policy Forms:

– The Dwelling Form is used to insure one- to family residential buildings and single family

four-dwelling units in a condominium building

– The General Property Policy Form is used to insure five or more family residential buildings and non- residential buildings

– The Residential Condominium Building

Association Policy Form is issued to residential

condominium associations on behalf of

association and unit owners

Exhibit 24.2 Summary of Property Covered under

National Flood Insurance Program (NFIP)

National Flood Insurance Program

• The federal flood insurance program faces several critical problems, for example:

– The NFIP has a substantial deficit, largely due to Hurricane Katrina in 2005

– Many property owners do not pay premiums that adequately reflect the risk of flooding

– NFIP is required to insure multiple loss properties– Operational and management issues plague the program

National Flood Insurance Program

• The Biggert-Waters Act of 2012 extends the NFIP program through September of 2017

• Some key provisions of the Act include:

– Rate subsidies on certain properties are phased out over four years

– Annual premium rate increases of up to 20

percent are allowed

– A reserve fund is created to help fund claims in years when catastrophic losses occur

FAIR Plans

• 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

– Plans cover property for fire and

extended-coverage perils, vandalism, and malicious

mischief

– A building insured under a FAIR plan must meet certain underwriting standards

– A state with a FAIR plan creates a pool or

syndicate of private insurers to provide basic

property insurance

FAIR Plans

• FAIR plans have been established in 32

states and the District of Columbia

• Several states have beach and windstorm

plans, where property is vulnerable to

damage from severe windstorms and

hurricanes

• Two states established insurance companies

to write coverage

– In 2012, Florida Citizens Property Insurance

Company insured 1.4 million policyholders

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 insurer assumes no losses will occur

• The premium is paid only once when the

Title Insurance

• Consumer advocates argue that the title

insurance market has several major defects, including:

– Homeowners do not shop around for title

insurance

– Home buyers are over-charged for title insurance– The title insurance market is flawed by reverse competition

– Kickbacks to real estate agents, lenders, and

builders are widespread

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

– A self-insured retention must be satisfied for

losses covered by the umbrella policy but not by any underlying contract

Exhibit 24.3 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 policy covers some additional expenses

including legal defense costs

– Exclusions include liability for expected or

intentional injury, certain personal injury losses, business liability, and professional services