Principles of risk management and insuarance 12th by rejde mcnamara chapter 24

 

Chapter 24
Other Property
and Liability
Insurance
Coverages


Agenda
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ISO Dwelling Program
Mobile Home Insurance
Inland Marine Floaters
Watercraft Insurance
Government Property Insurance Programs
Title Insurance
Personal Umbrella Policy

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ISO Dwelling Program
• Some dwellings that are ineligible for
coverage under the HO policy can be
insured under an ISO dwelling policy
– The forms are narrower in coverage
– The forms do not include coverage for theft or
personal liability without appropriate
endorsements

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ISO Dwelling Program
• Dwelling Property 1 (Basic Form) provides
coverages similar to the Homeowners Policy

– Coverages A and B insure the dwelling and other
structures
– Coverage C covers personal property
– Coverage D covers the fair rental value if part of
the dwelling is rented
– Coverage E can be added to provide coverage for
additional living expenses
– Only a limited number of named perils apply to
both the dwelling and the personal property
– All covered property losses are paid on an actual
cash value basis, with some exceptions

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ISO Dwelling Program
• Dwelling Property 2 (Broad Form) covers
losses to the dwelling and other structures
on a replacement cost basis
– The list of named perils is expanded

• Dwelling Property 3 (Special Form) covers
the dwelling and other structures on an
“open perils” basis
• Endorsements to the dwelling form include:
– Theft coverage
– Personal liability supplement

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Mobile Home Insurance
• Under the ISO program, mobile home
insurance is written by adding an
endorsement to an HO-2 or HO-3 policy
– The mobile home must be at least 10 feet wide
and 40 feet long, and capable of being towed on
its own chassis

• The coverages are similar to those found in
a homeowners policy

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Mobile Home Insurance
– Coverage A covers the mobile home on a
replacement cost basis
– Coverage B insures other structures
– Coverage C insures unscheduled personal
property
– Coverage D insures for loss-of-use
– An additional coverage pays up to $500 for the
cost incurred in transporting the mobile home to a
safe place to avoid damage when it is endangered
by a covered peril, such as a fire
– Coverages E and F provide for comprehensive
personal liability insurance and medical payments
to others
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Inland Marine Floaters
• An inland marine floater provides broad

coverage on property frequently moved from
one location to another and on property
used in transportation and communications
– Coverage can be tailored to the specific type of
personal property to be insured
– Desired amounts of insurance can be selected
– Broader coverage can be obtained
– Most floaters cover insured property anywhere in
the world
– Inland marine floaters are often written without a
deductible
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Inland Marine Floaters
• The personal articles floater (PAF) is an
inland marine floater that provides
comprehensive protection on valuable
personal property
– This coverage can be written as a stand-alone
contract
– The PAF insures certain classes of personal
property on an “open perils” basis
– The coverage can also be added as a scheduled
personal property endorsement to an HO policy

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Watercraft Insurance
• A boatowners package policy combines
physical damage insurance on the boat,
medical expense insurance, liability
insurance, and other coverages into one
policy
– Physical damage is covered on an “open perils”
basis
– The insured is covered for property damage and
bodily injury liability arising out of negligent use of
the boat
– The policy also includes medical expense coverage
and may include uninsured boaters coverage

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Watercraft Insurance
• Yacht insurance is designed for larger boats
– Policies are not standard, but have many
common features
– Hull coverage insures the yacht and its
equipment for property damage on an “all risks”
or “open perils” basis
– The policy includes liability coverage, medical

expense coverage, and uninsured boaters
coverage

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Government Property Insurance
Programs
• Some government insurance programs are
necessary because certain perils are
difficult to insure privately
– Coverage may not be available or may not be
affordable

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National Flood Insurance Program
• The National Flood Insurance Program
provides insurance coverage to property
owners in flood-prone areas

– Flood insurance is purchased from agents or
brokers who represent private insurers
– Private insurers sell federal flood insurance under
their own names, collect the premiums, and

receive an expense allowance
– The federal government is responsible for all
underwriting losses
– The program is self-supporting for the average
historical loss year
– In 2012, Congress acted to reform and extend the
program for five years

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National Flood Insurance Program
– Federal law requires individuals to purchase
flood insurance if they have federal guaranteed
financing to guild, buy, refinance, or repair
structures located in special hazard flood areas
– Buildings and their contents can be covered by
flood insurance if the community agrees to
adopt and enforce sound flood control and land
use measures
– A flood hazard boundary map shows the general
areas of flood losses
– Residents can purchase limited amounts of
insurance at subsidized rates under the
emergency portion of the program

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National Flood Insurance Program
• A flood is defined in the Standard Flood
Insurance Policy as:

– A general and temporary condition of partial
or complete inundation of two or more acres
of normally dry land area or of two or more
properties (at least one of which is your
property) from overflow of inland or tidal
waters, from unusual and rapid accumulation
or runoff of surface waters from any source, or
from mudflow

• There is a 30-day waiting period for new
applications and endorsements for flood
coverage
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Exhibit 24.1 Amount of Federal Flood Insurance
under the Emergency and Regular Programs

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National Flood Insurance Program
• Flood insurance coverage is available in
three Standard Policy Forms:
– The Dwelling Form is used to insure one- to fourfamily residential buildings and single family
dwelling units in a condominium building
– The General Property Policy Form is used to insure
five or more family residential buildings and nonresidential buildings
– The Residential Condominium Building
Association Policy Form is issued to residential
condominium associations on behalf of
association and unit owners
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Exhibit 24.2 Summary of Property Covered under
National Flood Insurance Program (NFIP)

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National Flood Insurance Program
• The federal flood insurance program faces
several critical problems, for example:

– The NFIP has a substantial deficit, largely due to
Hurricane Katrina in 2005
– Many property owners do not pay premiums that
adequately reflect the risk of flooding
– NFIP is required to insure multiple loss properties
– Operational and management issues plague the
program

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National Flood Insurance Program
• The Biggert-Waters Act of 2012 extends the
NFIP program through September of 2017
• Some key provisions of the Act include:
– Rate subsidies on certain properties are phased
out over four years
– Annual premium rate increases of up to 20
percent are allowed
– A reserve fund is created to help fund claims in
years when catastrophic losses occur

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FAIR Plans

• The Urban Property and Reinsurance Act of
1968 created FAIR plans (Fair Access to
Insurance Requirements)

– Plans provide coverage to urban property
owners who are unable to obtain coverage in the
standard market
– Plans cover property for fire and extendedcoverage perils, vandalism, and malicious
mischief
– A building insured under a FAIR plan must meet
certain underwriting standards
– A state with a FAIR plan creates a pool or
syndicate of private insurers to provide basic
property insurance

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FAIR Plans
• FAIR plans have been established in 32
states and the District of Columbia
• Several states have beach and windstorm
plans, where property is vulnerable to
damage from severe windstorms and
hurricanes
• Two states established insurance companies
to write coverage
– In 2012, Florida Citizens Property Insurance

Company insured 1.4 million policyholders
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Title Insurance
• Title insurance protects the owner of
property or the lender of money for the
purchase of property against any unknown
defects in the title to the property under
consideration

– If there is a defect in a title, the owner could lose
the property to someone with a superior claim
– Examples of defects to the title include an
invalid will, incorrect description of the property,
and undisclosed liens

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Title Insurance
• A title insurance policy provides protection
against title defects that have occurred in
the past, prior to the effective date of the
policy
• The insurer assumes no losses will occur

• The premium is paid only once when the
policy is issued
• The policy term runs indefinitely into the
future
• If a loss occurs, the insured is indemnified in
dollar amounts up to the policy limits
(usually the purchase price of the property)
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Title Insurance
• Consumer advocates argue that the title
insurance market has several major defects,
including:
– Homeowners do not shop around for title
insurance
– Home buyers are over-charged for title insurance
– The title insurance market is flawed by reverse
competition
– Kickbacks to real estate agents, lenders, and
builders are widespread

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