Finance 431:Property-Liability Insurance

Lecture 10:Commercial Property Insurance

Commercial Property Insurance

Chapter 10

Business Property Insurance

Appendix C

Building and Personal Property Coverage Form

Property Risk Management

Property loss - any loss that a person or organization sustains as a result of the damaging, destruction, taking or loss of use of property in which that person or organization has a financial interest

Risk Management Process1 - Identify and analyze loss exposures2 - Examine the feasibility of alternative risk management techniques3 - Select the best risk management technique4 - Implement the technique5 - Monitor the program

Identify and Analyze Loss Exposures

Property Loss Exposures1 - The item exposed to loss

2 - The cause of loss

3 - The effects of a loss

The Item Exposed to Loss• Real property

– Permanent structures• Buildings• Built-in appliances• Fences

• Personal property– Physical property that is mobile

• Vehicles• Furniture• Inventory

• Valuable information

What type of loss exposure is an office building?

A) Real property

B) Personal property

C) Valuable information

D) None of the above

What type of loss exposure is a company’s computer?

A) Real property

B) Personal property

C) Valuable information

D) None of the above

What type of loss exposure is a light pole in the back yard of a business?

A) Real property

B) Personal property

C) Valuable information

D) None of the above

What type of loss exposure is a customer database stored on the company’s computer?

A) Real property

B) Personal property

C) Valuable information

D) None of the above

Cause of Loss

Anything that could cause a loss to propertyExamples:

FireTheftLightningEarthquakeInsect damageMold

Which of the following would not be considered a cause of loss for property?

A) Animals

B) Burglary

C) Civil commotion

D) Drought

E) None of the above

Which of the following would not be considered a cause of loss for property?

A) Falling objects

B) Hurricane

C) Liability

D) Power outage

E) None of the above

The Effects of Loss• Reduction in value

– Property is worth less than before loss• Cost to repair or replace• Loss of revenue

– Income loss due to loss to property• Extra expense

– Additional expenses incurred to continue operations• Newspaper publishing• Banking services

Direct and Indirect Losses

• Direct loss – Values physically destroyed or damaged

• Indirect (or consequential) loss– Losses caused by inability to use property

Loss of rent for an apartment owner after a fire is which type of loss?

A) Direct loss

B) Indirect loss

C) Cost to repair

D) Extra expense

E) None of the above

Overview of Commercial Property Insurance

Insurance Advisory Organizations

Insurance Services Office (ISO)

American Association of Insurance Services (AAIS)

Develop and file with state insurance departments:

Policy forms

Manual rules

Loss costs

ISO Commercial Lines Program (1986)

“Commercial property”

Building and contents (on or within 100’ of insured location)

Boiler and machinery

Commercial crime

Employee dishonesty, forgery, theft, burglary, robbery, extortion

Commercial inland marine

Elements of transportation or communication

Property in transit, mobile equipment, property being installed by a contractor, bridges, radio towers

Farm

Commercial auto and liability

Building and Personal Property Coverage Covered Property

Building - Table 10-1Building or structure described in the declarations including• Completed additions• Permanently installed fixtures, machinery and equipment• Outdoor fixtures• Personal property used to maintain or service the building,

structure or premises• Additions under construction, alterations, and repairs to the

building or structure; and related materials, equipments, supplies, and temporary structures on or within 100 feet of described premises

Which of the following would not be considered part of the building under the BPP definition?

A) WindowsB) Permanently installed countersC) Snowblower used to clear

sidewalk in front of businessD) Lumber stored on the premises

being used for an additionE) All of the above are included

Building and Personal Property Coverage Covered Property – (2)

Your Business Personal Property – Table 10-2Property owned by the insured

Furniture and fixturesMachinery and equipment“Stock”All other personal property owned by you and used in your business

Property owned by othersLabor, materials or services furnished on property of othersImprovements and bettermentsLeased personal property

Personal property of others$2500 for property in the care, custody or control of insured

Which of the following would not be considered business personal property for a bookstore under the BPP definition?

A) BooksB) Cash registerC) Storeowner’s cell phone used for

business purposesD) Chairs placed around bookstore for

customers to useE) All of the above are included

Property Not Covered under BPPTable 10-3Buildings and other real property

Land Roadways

Water Retaining walls

Bridges Piers

Plants and outdoor propertyGrowing crops and lawns

Outdoor crops

Outdoor trees, shrubs and plants

Outdoor fences

Outdoor signs, unless attached to buildings

Property Not Covered - continuedOther personal property

DeedsEvidence of debtMoneyCurrencyAccounts BillsSecurities and notesAlso, food stamps

Vehicles, Watercraft, AircraftAnimalsValuable papers and recordsProperty otherwise covered (BPP is excess)Contraband

Building and Personal Property Coverage

Covered locations

Described locations and off premises

Additional coverages – Table 10-4

Debris removal

Pollutant cleanup and removal

Preservation of property

Fire department service charge

Building and Personal Property Coverage

Coverage Extensions – Table 10-4These extensions are not automatic. They mustbe added when the policy is purchased.

Newly acquired or constructed propertyPersonal effects and property of othersValuable papers and recordsProperty off premisesOutdoor property

Covered only for fire, lightning,explosion, riot or civil commotion or aircraft

Covered Causes of Loss

Evolution

Fire

Fire and lightning (Standard Fire Policy)

Extended coverage (EC)

Vandalism and malicious mischief (VMM)

Extended Coverage(W.C.SHAVER)

Wind

Civil commotion

Smoke

Hail

Aircraft

Vehicles

Explosion

Riot

BPP Cause of Loss OptionsBasic Form – Table 10-5

Fire, lightning and extended coveragesSprinkler leakageSinkhole collapseVolcanic action

Broad Form – Table 10-5Basic form perils plusWeight of snow, ice or sleetWater damageFalling objectsBreakage of glass

Special Form – All RiskIncludes limited coverage for theft