Special topic

Deductibles

-$500 is standard -Other options available to $5,000 -Applies separately to building contents - essentially a double deductible -$1,000 deductible (refer to notes)

2002

-9/11 and the new terrorism exclusion on policies now creates a demand for terrorism coverage -Insurance companies do not want to sell it -Reinsurers also start to exclude -TRIA (terrorism risk insurance act) was created to serve as a backdrop for insurers to offer coverage ~~Allows the economy to recover and business to feel secure that coverage can be acquired

Breakaway wall

-A wall that is not part of the structural support of the building -Included through its design and construction to collapse under specific lateral loading forces

Boston Example

-All boston losses= $300 million (trigger ...) -AIG sold $50 million in premium in 2012 ($10 million premium) -AIG $75 million in losses from Boston ~~AIG deductible fo (.2)($50 million)=$10 million -Government looks at $65 million ~~AIG pay (.15)($65 million) = $9.25 million ~~Government pay (.85)($65 million)= $55.25 million

Performing risk analysis and improvement

-Analyze customer's loss history and give recommendations to management for reducing hazards that have led to previous losses -Provide training and info ~~Safety programs ~~Fire protection systems testing and evaluation ~~Pre-construction counseling

Elevated building

-Building with no basement -Has its lowest elevated floor raised above ground level -By foundation walls, sheer walls, posts, piers, pilings or columns

Conducting physical surveys

-Collect underwriting information on customer's loss exposures ~~Building construction types, worker occupations, fire protection systems ~~Risk control inspects premises and interviews management -Evaluate management's ability to control exposures ~~Management experience, enforcement of rules and regulations ~~Gain insight into the extent of moral and morale hazards -Benefits of physical surveys to underwriter ~~Better understanding of loss exposures ~~Can quote assuming recommendations will be implemented -Benefits of physical surveys to insured ~~Better understanding of their loss exposures and steps that could be taken to reduce losses ~~Able to properly comply with regulations ~~Provide better working environment for employees

3 types of risk control services

-Conducting physical surveys -Performing risk analysis and improvement -Developing safety management programs

Future of flood insurance

-Debate on it continuing -Reform needed ~~Outdated maps ~~New predictive modeling needed ~~Charge appropriate rates for high risk areas -Force those that live in high risk to bear more of the true cost for choosing to live in those areas

Goals

-Earn a profit -Meet customer needs -Comply with legal requirements -Fulfill duty to society

Developing safety management programs

-Establish risk control goals -Select appropriate risk control measures ~~Establish monitoring procedures ~~Insurer's risk control representation assists clients in all steps of the process except daily implementation (E&O) liability

Mitigation and floodplain management

-Establish special flood hazard areas (SFHA) -Distribute flood insurance rate maps (FIRM)

Federal participation trigger

-Fed does not get involved until industry verified costs exceed $100 million in a calendar year (slowly rising to $200 million by 2020) ~~Industry absorbs cost -Deductible 20% of the previous year earned premiums -Then insurer pays 15% of all losses that exceed the deductible ~~Fed pays 85% ~~Program cap of $100 billion ~~For losses above $100 billion, treasury secretary determines a pro-rate share formula for how losses will be paid

Mandatory purchase requirement

-Flood insurance purchase requirements for certain homes in SFMA -Coverage must be provided for the term of the loan -Coverage limit must equal the outstanding principal balance of the loan or the maximum limit available under the program, whichever is lower ($250,000)

Fulfill duty to society

-For an insurer, preventing losses from occurring is preferable to paying for losses ~~Occupational injuries cause pain and suffering ~~A fire may cause employee layoffs and contingent business income losses for suppliers

Scope of basement coverage

-Foundation elements -Required utility connections -Furnaces -Water heaters -HVAC -Electrical junction and circuit breaker boxes -Electrical outlets and wiring -Other utilities

Waiting period

-Insurance can be purchased any time -30 day wait for coverage to become effective after policy application -Exceptions ~~When in conjunction with making, increasing, extending, or renewing a loan ~~When a map revision has placed a building into a SFHA -Policies are written on a one year renewable term basis

Make available provision

-Insurer must offer coverage for certified acts of terror -Same terms as the non-terrorism coverage -Must be offered at initial offer, purchase and renewal -Can't decline to write it

Risk Control services

-Insurers typically provide 3 types of risk control services

Insurer risk control goals

-Main purpose is to evaluate loss exposures to assist underwriting -Insurers conduct risk control activities for 4 key goals

Meet customer needs

-Meet customer needs (usually commercial and industrial customers) ~~Needs arising from legislation (OSHA) and great of large liability judgments -Sound risk control make accounts more attractive to underwriters

What is terrorism

-Must be certified act of terrorism by government (not president declaration) ~~Violent act that is dangerous to human life, property or infrastructure ~~result in damage within the USA ~~Must be committed by individuals in an effort to coerce the civilian population, influence US policy, or affect US government conduct by coercion ~~~Make a statement/prove a point ~~~Call attention to something ~~~Violence with an agenda -In 2007, the extension expanded the definition to include domestic terrorism (Boston, OKC) -TRIA also does not include coverage for nuclear, biological, or chemical -Department of treasury, DOJ, and secretary of state certify event as an act of terrorism

FEMA

-National flood insurance program (NFIP_

Non-participating communities

-No flood Insurance available -No disaster assistance -No federal mortgages in special flood hazard area

Flood vent

-Permanent opening in a wall that allows for the free passage of water -Automatically in both directions without human intervention -Minimum of two openings -No higher than one foot above grade

Loss control

-Proper grading -Sump pump -Trench drain -Waterproof paint -Properly maintained gutters -Commercial structures - Generators and electrical equipment on roof as opposed to basement

Cooperation between risk control and other insurer functions

-Risk control efforts are most effective when they compliment the activities of other insurance functions

Underwriting

-Risk control enables underwriters to make better underwriting decisions -Helps underwriter modify a new applicant's loss exposure to meet eligibility requirements

Earn a profit

-Risk control help insurers reach profit goals ~~Improving underwriting decisions ~~Encouraging insureds to improve risk control ~~Reducing insured's loss

Replacement cost coverage

-Single family dwelling -Principal reinsurance -Building only -Insured up to 80% of replacement cost of maximum NFIP coverage available (at time of loss) -Otherwise, ACV applies

Comply with legal requirements

-Some states require insurers to provide a minimum level of risk control service to commercial insureds ~~Usually workers compensation and boiler and machinery

Purpose of TRIA

-Terrorism too unpredictable for insurers to properly price the exposure ~~Emerging risks difficult to price -Government theory was over time, private insurance market forces could eventually handle -It has not occurred, necessitate the ongoing extensions -Essentially the government backs up or reinsures the terrorism risk for insurance carriers -Won't allow insurers to get wiped out from 1 catastrophe loss

TRIA 2002

-Was originally designed for 3 years and expired at the end of 2005 -Was modified at the end of 2005 and extended by 2 years -Extended again in 2007 for seven years and expired at the end of 2014 -Extended again in 2015 to last until 2020 ~~Insurers like TRIA

Coverages

A. The building B. Detached structure C. Contents