Property Coverage Parts for Catastrophe Modeling

Key Definitions:

Property Insurance – Insurance that covers the financial consequences of losses to property (risk transfer)

Property Loss Exposure – any condition or situation that presents the possibility of a financial property loss, whether or not loss occurs

Hazards – conditions that create or increase the probability (frequency) or likely size (Severity, once the loss has occurred) of loss (i.e. outdated electrical wiring and storage of gasoline in open places are fire hazards)

Loss Control – risk management technique to reduce the frequency or severity of losses (buying insurance is an example of risk transfer loss control method)

Line of Business – type of insurance policy; HO, DWF, Businessowners, Auto

Deductibles – require an insured to share covered losses with the insurer, they are used to reduce small claims, hold down premiums, and encourage the insured to be careful. Types of deductibles include:

• Coverage – Applies to each coverage (i.e. building, other structures, contents, (no ded for loss of use)


• Blanket Deductible - applies one deductible for all the coverage combined for one policy, which could have multiple locations


• Dollar – Not a percentage (i.e $250, $500 usually for wind or fire) and may be applied as a coverage, site or blanket


• Percentage - 10%, 15% (often for EQ, with CA tending to be in the 10-20% range). Wind or Hurricane Percentage deds are becoming more common in Florida.

Policy Content

Declarations – information unique to a particular policy such as policy number, expiration date, name and address of insured(s), policy limit, deductibles, premium

Definitions – Usually boldface type, in “quotation marks” or italicized, to distinguish words and phrases that are defined elsewhere in the policy.

Insuring Agreements – Any policy statement to the effect that, under some circumstances, the insurer will make a payment or provide a service.

Exclusions – applies to any policy provision whose function is to eliminate coverage for specified loss exposures (i.e eliminate coverage for uninsurable hazards)

Conditions – any provision that has the effect of qualifying an otherwise enforceable promise of the insurer (i.e. insured’s obligations to pay premium)

Miscellaneous Provisions – don’t qualify as declarations, definitions, etc.

Perils

Overview

Every line of business Form (HO, BOP, DWF, CP, CIM, PAF, Auto) covers Fire.

Since EQ is a generally excluded peril, an endorsement is required for EQ coverage.

Therefore, most Wind/Fire policies do not cover EQ so when we model FIRE Following EQ, we use the wind data since it generally covers all Fire losses and a Fire loss ensuing an EQ is covered without an endorsement. Earth Movement (EQ) is excluded, however damage from a fire following an EQ is covered.

Wind is not always covered, there may be a wind (Hurricane, wind, hail) exclusion in coastal areas, for example. There may also be a Hurricane deductible.

Causes of Loss Forms
Three types according to degree of coverage

Basic Form – covers Fire, Lightning, Vandalism, Malicious Mischief, Sprinkler Leakage , sinkhole collapse, volcanic action., and Extended Coverages, which are windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosion, riot and riot attending a strike) (W.C. SHAVER)

Broad Form –Covers the Basic perils plus falling objects, weight of snow, ice and sleet, water damage and collapse

Special Form – “All-Risks” covers causes of loss that are not specifically excluded,

Earthquake and Volcanic Eruption Endorsement covers

1. Earthquake, including land shock waves or tremors before, during or after a volcanic eruption;

2. Landslide, Mudslide or mudflow;

3. Subsidence or sinkhole; or

4. Any other earth movement including earth sinking, rising or shifting; caused by or resulting from human or animal forces or any act of nature unless direct loss by fire or explosion ensues and then we will pay for only the ensuing loss

Difference In-Conditions (DIC) Policies – basic purpose is to fill in gaps left by other property insurance.

Cover flood and EQ exposures not covered by basic policies

Provide excess limits over flood insurance written by the National Flood Program

Cover loss exposures not covered in Basic polices such as property in transit or loss of business income resulting from theft or transit losses

Cover property worldwide

Windstorm and Hail – For personal property, – this peril includes loss to watercraft of all types and their trailers, furnishings, equipment, and outboard engines or motors, only while inside a fully enclosed building. This peril does not include loss to the property contained in a building caused by rain, snow, sleet, sand or dust unless the direct force of wind and hail damages the building causing an opening in a roof or wall and the rain, snow, sleet, sand or dust enters through this opening.

Water Damage – caused by or resulting from human or animal forces or any act of nature is generally excluded from the Basic Form;

Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind

However, Direct loss by fire, explosion, or theft resulting from water damage is covered.

Workers Compensation – with the exception of maritime employers, almost all employers must obtain WC insurance or qualify as a self-insurer under the applicable WC statute.

In most states, WC insurance is provided in connection with Employer’s Liability insurance in a single policy.

WC limits are unlimited

Employers liability limits are i) Bodily Injury by Accident; ii) BI by Disease (policy limit); iii) BI by disease (each employee)

• Data to collect for Cat Modeling WC EQ - Payroll, headcount, ZIP code, Occupancy (will change to DLM in RiskLink v4.5). Output include return period loss estimates, AAL, and loss by type of injury (death, permanent disability, temporary disability and permanent partial)

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