Property Insurance

Business liability, automobile, and workers’ compensation insurance policies all typically start from standard forms. Although most policies contain modifications, at least the core coverage parts usually are the same from insurer to insurer.

However, business property insurance forms are much less standardized. It seems every insurer has its own, sometimes more than one. Because of this, policy form analysis to ensure the coverage purchased is the coverage desired is important.

Start with the Named Insured. In property insurance, any entity not named will not be protected for its insurable interest in its real or personal property. To collect, you must meet at least two conditions: 1) be named; 2) possess a legal insurable interest at the time of loss. Use of an omnibus clause (e.g., “XYZ Corporation and its owned, affiliated, or subsidiary companies as now exist or hereafter be constituted”), when permitted by the insurer, may help, but there really is no substitute for ensuring every proper insurable interest is named, and named precisely and correctly.

Values to be insured are not as easily quantified as may appear. Replacement Cost may not recognize functionality. Actual Cash Value may mean one thing in California and something entirely different in New York. If time and effort is not devoted up front to ascertaining the correct values to insure before the policy is issued, how does anyone expect to have a smooth time after a loss?

Blanket limits may help, if available, but still one needs to ensure the correct Valuation Clause (method of valuation) is specified and requirements are met. Even Blanket Limits have their limitations. Avoid coinsurance clauses whenever possible.

Property insurance polices should not be regarded as static documents. Insureds acquire and dispose of property. Occupancy may change; this may affect coverage and pricing drastically. Procedures must be in place to ensure the property insurance program is continually updated to afford appropriate coverage at all times.

Often overlooked or seriously underinsured extensions of the basic policy include debris removal and code upgrade, sometimes called law and ordinance. If included in the basic form, coverage for these exposures generally is within the limits, meaning that while coverage is applicable, any insurance money used to pay for debris removal or code upgrade upon replacement will not be available to pay for the basic loss. Oftentimes, these exposures represent significant percentages of the total; care is required to ensure the policy terms and limits properly provide the appropriate protection.

While studying property insurance forms may seem like dry work, doing so up front will pay dividends if there is a claim. Everybody reads the forms after a major loss; smart buyers read them beforehand.

Don Way
CEO

Privacy Risks

In addition to specialty stand-alone policies, some upscale homeowners insurance policies provide personal expense coverage for dealing with the aftermath of a privacy invasion and some commercial general, professional, and excess liability policies offer varying degrees of indemnity to responsible organizations.

Also available to businesses is a “group policy” covering their employees.

Fireman’s Fund, National Union (AIG), and Chubb are just three of the companies offering varying forms of protection.

Uninsured Motorists

Despite its Low Cost Auto Program, which makes “bare bones” liability insurance available to low-income car owners in certain areas of the state, California continues to rank among the worst for uninsured drivers.

A recent Insurance Research Council (IRC) study found 25% of California motorists drive without insurance. Other states with percentages approximating California’s were Alabama, Mississippi, and New Mexico.  Overall, about 15% of U.S. drivers operate their vehicles without insurance, an increase from 13% in 1999.

Insured Catastrophes

According to American Reinsurance Company, last year’s hurricanes were primarily responsible for the highest total of insured losses from natural disasters in the United States for the second consecutive year and a whopping $50 billion dollar increase over 2004.

Responding to Hurricanes Dennis, Katrina, Rita, and Wilma, as well as other catastrophes, resulted in insured losses exceeding $80 billion.

Health Care Costs

Americans will continue to pay more for health care. Although the double-digit increases of the past decade have subsided a bit, recent reports by consulting firms Milliman, Inc. and Watson Wyatt Worldwide demonstrate that cost pressures still far exceed inflation.

The average annual medical cost for the typical family of four in a preferred provider organization (PPO) is up almost 10% from 2005, to $13,382 in 2006, according to Milliman. This figure includes out-of-pocket costs as well as insurance premiums.

In New York City, the figure is expected to be $15,255; in Dallas, the least expensive of the big cities, $12,980.

Separately, Fidelity Investments has estimated that a 65-year-old couple retiring today without employer-provided health care benefits will on average spend $200,000 for their post-retirement health care.