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 Process 1 - Identify and analyze loss exposures 2 - Examine the feasibility of alternative risk management techniques 3 - Select the best risk management technique 4 - Implement the technique 5 - Monitor the program

Identify and Analyze Loss Exposures Property Loss Exposures 1 - 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 property Examples: Fire Theft Lightning Earthquake Insect damage Mold

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 10-1 Building 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)Windows B)Permanently installed counters C)Snowblower used to clear sidewalk in front of business D)Lumber stored on the premises being used for an addition E)All of the above are included

Building and Personal Property Coverage Covered Property – (2) Your Business Personal Property – Table 10-2 Property owned by the insured Furniture and fixtures Machinery and equipment “Stock” All other personal property owned by you and used in your business Property owned by others Labor, materials or services furnished on property of others Improvements and betterments Leased 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)Books B)Cash register C)Storeowner’s cell phone used for business purposes D)Chairs placed around bookstore for customers to use E)All of the above are included

Property Not Covered under BPP Table 10-3 Buildings and other real property LandRoadways WaterRetaining walls BridgesPiers Plants and outdoor property Growing crops and lawns Outdoor crops Outdoor trees, shrubs and plants Outdoor fences Outdoor signs, unless attached to buildings

Property Not Covered - continued Other personal property Deeds Evidence of debt Money Currency Accounts Bills Securities and notes Also, food stamps Vehicles, Watercraft, Aircraft Animals Valuable papers and records Property 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 10-4 These extensions are not automatic. They must be added when the policy is purchased. Newly acquired or constructed property Personal effects and property of others Valuable papers and records Property off premises Outdoor 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 Options Basic Form – Table 10-5 Fire, lightning and extended coverages Sprinkler leakage Sinkhole collapse Volcanic action Broad Form – Table 10-5 Basic form perils plus Weight of snow, ice or sleet Water damage Falling objects Breakage of glass Special Form – All Risk Includes limited coverage for theft