Chapter 23

Why do insurers use insurance scores in underwriting and rating?

Many insurers use insurance scores in underwriting and rating of homeowner's policy because of the following: · Insurance score determines the credit record of the applicant · Highly predicts the future claim costs · Helps the insurer to get the information of average claim behavior of insured · Insurance score and underwriting has a strong and statistical relationship · When the lower the insurance score, more likely the insureds file homeowner's policy than insureds with high insurance score.

Explain whether each of the following losses would be covered under Section II in the homeowners policy. If the loss is not covered, explain how coverage can be obtained. The named insured is sued by his ex-wife, who alleges her reputation has been ruined because the insured lied about her relationship with another man

Section II of the homeowners policy would not cover the insured in this particular occurrence because the insured lied about her relationship with another man.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. The named insured falls asleep while smoking a cigarette in a rented hotel room, and the room is badly damaged by the fire.

The damages to the property were accidental and covered under Section II of the homeowners policy.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. A ward of the court, age 10, in the care of an insured, deliberately breaks a neighbor's window.

The damages to the window will not be covered under the insured's homeowners policy because the damages were intentional.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. A guest slips on a waxed kitchen floor and breaks an arm.

The insured is liable for the guest's injury, due to the insured negligence. This occurrence would be covered under Coverage E of the insured homeowners policy.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. a.The named insured's dog bites a neighbor's child and also chews up the neighbor's coat

The insured is liable for the losses to the neighbor's child as it is covered under Coverage E

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. A son living at home accidentally injures another player while playing softball.

The insured is liable to the acts done by the member residing at his home, and the medical payments are covered under Coverage F.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. While driving to the supermarket, the named insured injures another motorist with the automobile.

The insured is responsible for the motorist medical expenses because the insured caused the injury. These expenses are coverage under Coverage F.

Explain whether each of the following losses would be covered under Section II in the homeowners policy. If the loss is not covered, explain how coverage can be obtained. While operating a 30-foot sailboat, the insured injures a swimmer.

The insured would be covered by Section II of the homeowners policy because sailboats are not listed in the liability exclusion list.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. The named insured paints houses for a living. A can of paint accidentally spills onto a customer's roof and discolors it.

The insured would be covered under Coverage E, because the actions were not intentional.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. The named insured borrows a camera, and it is stolen from a motel room while the insured is on vacation.

The insured would only be protected if they added an endorsement to their homeowner's policy.

Joseph is the named insured under a Homeowners 3 policy (special form) with a liability limit of $100,000 per occurrence and a $1,000 limit for medical payments to others. For each of the following situations, explain whether the loss is covered under Section II of Joseph's homeowners policy. a. Joseph is a self-employed accountant who works out of his home. One of Joseph's clients sues him for negligence in the preparation of a tax return and is awarded a $3,000 judgment against him.

The loss was due to professional negligence of Joseph and is not covered under section II of his homeowners policy.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. The named insured accidentally falls on an icy side-walk and breaks a leg.

The occurrence is not covered under the insured homeowners policy section II.

Briefly explain the suggestions that consumers should follow when shopping for a homeowners policy.

The suggestions that consumers should follow when shopping for a homeowners policy are: · Carry adequate insurance · Add necessary endorsements · Shop around for a homeowners policy · A higher property insurance deductible should be considered · Take advantage of discounts · Don't ignore the perils of flood and earthquake · Improve your credit record · Purchasing a personal umbrella policy to be considered

Explain whether each of the following losses would be covered under Section II in the homeowners policy. If the loss is not covered, explain how coverage can be obtained. a. The insured owns a restaurant in a large city. The insured is sued by several customers who allege they became seriously ill from a contaminated banana cream pie served at the restaurant.

This occurrence would not be covered under Section II of the homeowners policy. However, the business owner could add a Home Business Insurance coverage endorsement to cover a limited portion of these types of occurrences.

Briefly describe the following endorsements that can be added to a homeowners policy: Inflation Guard Endorsement

· Dur to inflation many homeowners are underinsured, the replacement cost of the home is increased · Insured will be penalized if a loss occurs and the insurance do not carry at least by 80% of the replacement cost as the full replacement cost is not paid. · The inflation guard endorsement is designed with the ISO homeowners policy · It provides annual pro rata increase in the limits of insurance under coverage a, b,c and d. · The percentage increase can be selected by the insured such as 3% or 5%

Briefly describe the following endorsements that can be added to a homeowners policy: . Earthquake endorsement

· Earthquake is a natural disaster; this coverage also includes short waves, tremors which are related to volcanic eruption · Deductible must be satisfied · The base deductible is a percentage of the limit, dwelling or personal property, whichever is greater · Minimum deductible is $500. The deductible may be increased with a reduction in premiums · In the locations where earthquakes are frequent, the deductibles of 10 to 20 precent are used

Briefly describe the following endorsements that can be added to a homeowners policy: Identity theft endorsement

· Identify theft means the thief uses the name, ATM Account number, credit card number, driver's license or other identification for fraudulent purposes. · The endorsement reimburses the victims for the cost of restoring their identity and cleaning up the credit record. · This endorsement covers the following expenses: o Lost wages up to certain limit because of identity theft o Loan reapplication expenses because of error in credit information due to identity theft. o Attorney fees o Phone charges for calling financial institutions, law enforcement agencies to discuss about identity theft o Identity theft insurance covers the insured only from the expenses that are incurred to restore the identity and not to the stolen item amount.

Briefly describe the following endorsements that can be added to a homeowners policy: Scheduled personal property endorsement (with agreed value loss settlement)

· The homeowners policy limits certain personal property losses such as theft of jewelry. · Insureds desire for broader coverage. If the insured own valuable jewelry, musical instruments, he/she can insure the list of the property for a specific agreed amount by the insurer. · Additional coverages for nine classes of property are provided by scheduled personal property endorsement. The nine classes of property are as follows: o Jewelry o Furs o Cameras o Musical instruments o Silverware o Golfer's equipment o Fine arts o Postage stamps o Rare and current coins

Briefly describe the following endorsements that can be added to a homeowners policy: Personal property replacement cost loss settlement endorsement.

· Under this endorsement claims are paid on the basis of replacement basis without depreciation deduction · The endorsement applies to personal property, domestic appliance, carpets and outdoor equipment · The replacement amount is limited to the lower of the following o Full repair cost o Replacement cost at the time of loss o The limit of liability that applies to the item for any loss to the item o Any special dollar limits in the policy · The actual full cost of repair or replacement cost is paid if the cost of repair or replace exceeds $500, otherwise only actual cash value is paid.

. Many insurers now use insurance scores in the under-writing and rating of a homeowners policy. a. What is an insurance score?

An insurance score is a credit-based score that is highly predictive of future claim costs.

Martha rents an apartment and is the named insured under a Homeowners 4 policy (contents broad form) with a liability limit of $100,000 per occurrence and $1,000 medical payments. For each of the following situations, indicate to what extent, if any, the loss is covered under Section II of Martha's homeowners pol-icy. Assume there are no special endorsements, and each situation is an independent event. Martha rents a snowmobile at a ski resort and accidentally collides with a skier. Martha is sued for $200,000 by the injured skier.

Because Martha's actions caused the skier's injuries, Martha is liable for the medical expenses. Martha's policy will cover up to $1,000 of the Medical expense and Martha will be responsible for the rest. So, Martha is not fully covered for this occurrence.

Martha rents an apartment and is the named insured under a Homeowners 4 policy (contents broad form) with a liability limit of $100,000 per occurrence and $1,000 medical payments. For each of the following situations, indicate to what extent, if any, the loss is covered under Section II of Martha's homeowners pol-icy. Assume there are no special endorsements, and each situation is an independent event. a. Martha attends a party at a friend's house. She accidentally burns a hole in a couch with her cigarette. It will cost $500 to repair the damaged couch.

Because the damage to the couch was done by Martha, the damages will be covered by Section II of her Homeowner's policy. Since Martha's policy will cover up to $1,000 per occurrence, the full cost of damages ($500) will be covered.

Joseph is the named insured under a Homeowners 3 policy (special form) with a liability limit of $100,000 per occurrence and a $1,000 limit for medical payments to others. For each of the following situations, explain whether the loss is covered under Section II of Joseph's homeowners policy. Joseph's 25-year-old son, who recently married and now lives in his own apartment, negligently kills another hunter in a hunting accident. The son is sued for $1 million in a wrongful-death lawsuit.

Because the son is not located in the insured's residence with the act occurs, Joseph is not held liable and the $1 million would not be covered under Joseph's homeowners policy.

Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers. A neighbor's child falls off a swing in the named insured's yard and breaks an arm.

Due to the child being injured on the insured property, the insured is legally liable. The insured is protected under Coverage F of their homeowners policy.

Homeowners insurance premiums are based on a number of factors. Identify the major factors that determine the cost of a homeowners policy.

Factors that determine the cost of homeowner's policy are as below: · Construction · Location · Fire-protection class · Construction class · Age of the home · Type of policy · Deductible amount · Insurance score · Loss history report