1. A Look at Loss Settlement & Coverage Alternatives
Just Say “No”?
A Look at Loss Settlement & Coverage Alternatives
Evelyn Schronce, CPCU, CIC, AU, API, AFIS, AIC

2. Who Guards the Company Checkbook?
Underwriting / Company Leadership
Develop underwriting appetite and policy.
Monitor performance
Underwriter
Analyze exposures
Ensure compliance with underwriting standards
Decide what coverage will be offered
Determine appropriate rates
Claims
Ensure that coverage is applied properly
Evaluate scope of the loss
Pay what is owed

3. What is the single most predictive indicator of future losses?

4. Not every risk is insurable, at any price.
Failure to maintain their property, structures or vehicles.
Prior history of difficulty dealings with their insurance company.
Multiple “zero paid” or “report only” losses.
Indications of financial distress such as non-payment of premium, foreclosure or bankruptcy.
Multiple incidents involving drunk driving.
History of multiple accidents involving unlisted operators.

5. Exclusions - Automobile
Named Driver Exclusions
Considerations…
Does the exclusion limit first party coverage?
Does this individual have other coverage?
Does this individual know they are excluded from coverage?
What is insurer’s obligation of defense?
Refusal to offer a particular coverage option such towing, comprehensive or collision coverage
Is there automatic coverage granted within the policy?

6. Exclusions - Dogs
Exclusion must apply to the specific dog, not by breed or general ownership.
All dangerous dogs, according to PA law, the dog must be registered with The Bureau of Dog Law Enforcement.

7. Structure Exclusions
Underwriter must understand what coverage is granted under the specific policy for unlisted structures
Exclusion must specific whether it applies to property, liability or both.
Exclusion should be signed by the insured and appear on each recurring renewal declaration page
Considerations:
What is your company policy?
Risk of defense costs until exclusion is validated through courts.
Is the rest of the property being well maintained?
Are there other coverages that are being impacted by the exposure such as personal property, liability or commercial exposures?

8. Warranty: a statement of fact given to an insurer by the insured concerning the insured risk which, if untrue, will void the policy.
Types of Warranties to Consider
Agreement to perform a certain act such as removal of a trampoline.
Agreement not to perform a certain act
Personal Lines – example, insured agrees not to use a woodstove installed in a garage
Commercial Lines – example, contractor agrees to no longer offer roofing services
Agreement to complete a repair, upgrade, or loss control recommendation within a certain timeframe.
Examples: install new electrical system, update restaurant ansul system, replace roof

9. What should a warranty include?
Signature of the insured and the agent.
Requirement of advance notification by the insured to the company should this condition change.
Warranty is a condition of the policy, coverage may not apply should the warranty be breached by the insured.
If the warranty is an agreement to perform improvements by a certain date, the warranty should be specific as to the work that is being done, and the deadline for having them completed.
ACT 205 adjudication supporting policy termination:
Tighe/Donegal, P (2014), rehearing denied July 23, Affirmed. Tighe v. Consedine, 121 A.3d 569 (Pa. Cmwlth. 2015). The court, in affirming the Commissioner’s adjudication, held that initially misleading the agent and company and then refusing to remedy the known hazardous condition constituted willful acts increasing the hazard and justifying cancellation of the policy.

10. Basic, Broad or Special Perils?
Basic Perils
Fire Or Lightning
Vehicles
Smoke
Glass Breakage
Windstorm Or Hail
Vandalism & Malicious Mischief (optional)
Explosion
Theft Riot Or Civil Commotion
Volcanic Eruption
Aircraft
Broad Perils (in addition to those included in basic form)
Falling objects
Weight of ice, snow or sleet
Accidental discharge or overflow of water or stream from within plumbing or related systems; does not include discharge or overflow of water from a sump.
Sudden and accidental rupture of a heating, air conditioning, fire protective sprinkler, or hot water heating system
Freezing of plumbing or related systems
Sudden and accidental damage from artificially generated electrical current
Special Form – We insure against risks of direct loss to property...if that loss is a physical loss to the property; however we do not insure loss..."

11. Loss Settlement Options
How does your unendorsed policy form respond to a covered loss?
Actual Cash Value (ACV)
Market Value
Agreed Value
Functional Replacement Cost
Replacement Cost
Does your policy have a coinsurance requirement, and if so, how does it impact loss settlement?
Are losses settled at ACV until repairs are made?
Understanding Recoverable Depreciation
Holdback for depreciation can only be collected up to the actual cost of repairs.
If the insured chooses to repair with less expensive materials, the carrier is only obligated to the scope of the work completed.

12. Functional Replacement Cost / Repair Cost
It is important to note that should the insured choose not to repair or replace, some forms will revert to Actual Cash Value loss settlement, while others change to Market Value loss settlement.

13. Functional Replacement Cost / Repair Cost

14. Functional Replacement Cost / Repair Cost
Typically removes the coinsurance provision in the policy.
Some replacement cost estimating software, including E2Value allows user to calculate a functional replacement cost for 1-4 family residential properties.
Check with your claims department to see how a functional replacement cost loss is adjusted (the standard for common materials may vary).
Some carriers may not offer this loss settlement option, or may only offer it on a modified perils basis such as the ISO – HO8 form.

15. Functional Replacement Cost / Repair Cost
Benefits to the insurer:
Reduced claim settlements for partial losses.
Reduces moral hazard tied to differences in market value versus replacement cost.
Benefits to Insured:
Increases flexibility in selecting a limit of coverage for the building.
Allows the customer to avoid paying for coverage he/she would not intend to use in the event of a loss (many customers may opt to replace with common materials used today versus the original, more expensive materials.)

16. Questions?