Rmin 5100s atkinson exam 1

Personal risk

If YOUR life, health, or income are at risk

Property risk

if it's YOUR stuff

Liability Risk

If you could be responsible for damage to someone else's stuff or for bodily injury or financial loss to someone else

The Battle of Bosworth

Because of a nail they lost the kingdom. Reminds us a simple event can kick off a catastrophic sequence

Risk Manager

Not just an insurance buyer!! Must evaluate risks and determine the best approach to manage risks. Including loss control, Retention and Transfer

Large Vs small companies Risk Manager

Larger companies have a risk manager. While small to midsized will have someone who serves in this role.

Risk management Process 6 steps

1.Identify loss exposures

2.Analyze loss exposures

3.Examine feasibility of rm techniques

4.Select appropriate mix of RM Techniques

5.Implement selected techniques

6.Monitor results and revise RM program

Step 1: Identify Loss exposures

CRITICAL STEP!!! If you haven't identified risk you are likely not to address it properly.

Ways to do this:

-Document analysis(insurance application,financial of company,customer or supplier list)

-Compliance Reviews

-Inspections(walking a property)

-Expertise (workers in the company and outside expertise)

Step 2: Evaluating exposures

Consider expected value of loss

-Exp (loss)=Frequency x severity l

High Freq/Low Severity(losing pens)

-Loss 5k a yr/cost of $1 loss=$5k

Low Freq/high severity (volcano)

-once 1k yrs; cost is $5m=$5k

While Exp(loss) is the same the risk are NOT equivalent and not to be treated the same

Law of Large Numbers

theory that the bigger your sample is, the closer to average the result will be

Ex: Flipping a coin

The Risk management Matrix

Low frequency low severity:Dont Worry

High frequency low severity: prevent and retain

Low frequency High severity: Transfer and prevent/reduce

High frequency High Severity:AVOID if not possible try all loss control techniques

What are your Risk techniques options?

5 Main in 2 categories

1.Risk Control(Loss Control)(how to stop)

-Avoidance

-Loss Prevention

-Loss Reduction

2.Risk financing(loss financing)(how to pay)

-retention

-transfer (insurance and non insurance)

Risk Control:Avoidance

Reduce our chance of drowning to zero

Risk control:Prevention

Certain caps make it difficult for children to open

Risk Control:Reduction

Sprinkler system extinguishes a fire, resulting in reduced damages

Risk Control: Duplication

Make copys of your documents

Risk Control:seperation

Store explosives and ignition away from one another

Risk Control:Diversification

Spreading the risk across multiple people or buisness

Risk financing:retention

Pay for it yourself. By income, line of credit, set up a insurance captive or other self insurance plans

Active Retention

We identify a risk exposure and debate whether to transfer to someone else or keep it as our own as a form of retention. GOOD!

Passive Retention

May never be identified or never dealt with the risk. BAD!

Risk financing: Transfer

Insurance, we pay a set amt of insurance premiums and from that they promise to pay in an event of loss, others include contracts or corporations.

Selecting Rm Techniques

1.Avoid risks if possible

2.Implement appropriate loss control measured

3.Select the optimal mix of risk retention and risk transfer

TCOR (Total Cost of Risk)

-Expenses for loss control(to reduce risk)

Ex:shoplifting:caneras,tags on merchandise,alarms, train employees

-Expenses for loss financing(to finance potential losses)

Ex:cost of insurance,cost of contracts, cost of incorporation, cost of setting up a captive insurer

-Opportunity Costs

Ex:opportunities lost to avoid a risk

Cost of losses not reimbursed

-value of stolen property, damaged property THAT IS NOT REIMBURSED. Cant receive an insurance payment

Step 3: Selecting RM Techniques:

Cost of the technique should be justified by expected reduction from the loss

-subjective factors and legal/societal hazards should be considered(could be quantified as opportunity costs)

Ford Pinto

in the 1960s and early 1970s, the poor engineering and placing of the gas tank on Ford Pintos resulted in the death and injury of hundreds of victims

Expected losses:50M

Cost to redesign:137.5m

Market conditions

risk managers may have to modify their choice of techniques depending on market conditions in the insurance markets

Underwriting Cycle

A cyclical pattern of insurance pricing in which a soft market (low rates, relaxed underwriting, and underwriting losses) is eventually followed by a hard market (high rates, restrictive underwriting, and underwriting gains) before the pattern again repeats itself.

Risk control & Commercial exposures

Common property exposures

-fire

-burglary, robbery and employee theft

-explosion

-windstorm

-flood

-earthquake

Fire

-heat,oxygen , fuel and an unbroken chain

-prevent or control fire, must pull some out of equation

-construction materials

-fire stops, fire divisions, fire walls

-fire departments

Burglary,robbery and employee theft

-burglary: theft by forcible entry

-robbery:violence or threat of violence

-employee theft:aka employee dishonesty/ embezzlement

Burglary/robbery prevention:

-security, locks, alarms ,cameras

Employee thefts:

-accounting controls,access, background checks, separation of duties

Explosion

-extremely rapid combustion

-explosion risk control

Low oxygen atmospheres, venting, maintenance

Windstorm

unusual storm force, including named storms

Risk control

-cannot prevent

Pre loss actions

-structure design

-storm shutters

-maintain rooves and walls

-secure outside materials and equipment

-locate trees and utility poles away from structures

Flood

-low elevation and rising water

Risk control

-avoid locating flood zones

-dams, channels,sandbags, water removal equipment

-lowest floor above 100 year flood mark

-plan to move property to higher ground

Earthquake

Risk control

-location and design

-some modern building sway

Common Policy Formats:Standard

Standard:Issued by insurance services office Inc (iso) or American Association of insurance services (AAIS) (will be the same no mater what comapany)

Buyer and seller know what they are buying. Policy wording has been tested in claims or court cases

ISO IS WHAT WE STUDY

Common Policy formats:Non standard

Non standard: Proprietary forms: insurance companies may create their own policy forms that differ from ISO forms

Broker Forms: Brokers may create their own policy forms that differ from iso forms

Insurance company offer coverage tailored to clients specific needs

Offers

-competitive advantage

-reduces need for endorsements

MonoLine(stand alone policy)

Line means product coverage or business

Monoline means 1 product line/ coverage is included

Buying every thing independently

Large or complex risk usually need a more specialized policy need monoline

(Watch 5100s Ch 1 policy part B time 2:00)

Multiline policy (package policy)

One policy has 2+ coverages included

Tying them together by common declaration forms:who's insured, insurance company and dats

Common policy condition combine them all together.

Advantages

-fewer gaps in coverage

-convenience

-lower costs

Best for small to mid sized business with non complicated risks

(Watch vid 5mins in)

Commercial Package Policy (CPP)=multiline policy

Policy that covers two or more lines of business by combining ISO's commercial lines coverage parts.

Buisness Owners Policy (BOP)

A commercial package policy designed for certain types of small businesses, combining Property and Liability coverages. Very similar to a Commercial Package Policy (CPP).

Output policy

Like a Package Policy but you only include Property Forms. No Liability.

Broader vs Restrictive

Broader is better to the insured

Restrictive better to insurer

ISO FORMS REQUIRMENTS

Iso requires all commercial line policies whether MonoLine or multiline include the common policy conditions (IL 00 17) form

Commercial Policy conditions

Important marks: copyright insurance services offices Inc means its an ISO FORM

Name: common policy conditions form

Form # top right and bottom left: IL 00 17 98(98 is what yr created)

How many pages: page 1 of 1 make sure you have entire form

Check how does form relate to other policy forms: at the top underneath the title

A.Cancellation

Refers to who can cancel the policy under what terms

-cancellable by the first named insured- anytime with prior written notice

-Cancellable by the insurance company

-10 days notice non payment of premium

-30 days notice for other reasons

Pro Rata Premium Refund

Policy cost 1200 a year and premiums are paid up front. Insurer decides to cancel it after 3 months therefore insurer has earned 3 months of premium (300) therefore the insurer has to return unearned premium ($900)

Insurance regulated by states

Each state requires admmited insurance policies include state amendatory endorsements(grant rights to insureds).

One of them is insurance companies must give a longer notice of cancellation or non-renewal to the insured

Wording on this form will be the same only know by looking at the state amendatory endorsements

Common Policy Conditions:Changes

Policy agreement between insured and insurer are made up of all of the forms that make up this policy and if you want to change them you can but must between the first named insured and insurance company and must be in writing

Common policy conditions:examinations of your books and records

Gives insurer the right to examine the insured books and records as they may pertain to the policy.

Can do it at anytime during the policy period and up to 3 years after expiration

(Insurance company has the right to make sure all numbers line up)

Common policy condition:Inspections and surveys

-insureds have the right but not duty(can but don't have to)to inspect the insureds operations during the policy period

-insurer may give insureds the report and recommendations but is not required to do so

Common policy condition:Premiums

First named insured must pay the money and would receive any return premiums

Common policy condition: Transfer of your rights and duties under the policy

Aka:assignment of the policy

-insured cannot transfer to anyone else without insured written consent

- automatic transfer to insureds legal representatives in the event of the first named insureds death

Abandonment

Insurance company may choose to take damaged property and pay insured the value

Insured cannot surrender the damaged property to insurance company

Appraisal

If there is a dispute about value of property

-written demands

-each hires an appraiser who elect an umpire

-each pays their own and split the umpire

Duties in the event of loss

- Notify police if law may have been broken - vandalism, arson, theft, etc.

- Provide Prompt Notice to Insurer as soon as feasible/practical

- Description of Loss - how, when, etc.

- Protect property from further loss

- Upon request, provide inventories & allow inspection

- Cooperate with Insurer

- Submit signed, sworn proof of loss within 60 days of request

Loss payment

Insurance company has 4 options

-pay amount of loss/damage

-pay the cost of repairing or replacing damaged property

-take ownership of damaged property and lay its agreed or appraised value

-repair/Replace damaged property with like kind and quality

•Insurance company has 30 days to responds

Recovered Property

If property is lost/stolen and later recovered AFTER the insurer has paid insured, the insured has the option to return claims payment and accept property

Vancancy

If building is vacant more than 60 days

-no coverage for certain perils, such as vandalism, theft, or sprinkler leakage(unless sprinkler protected from freezing)

-all other causes of loss (aka Perils) will be reduced by 15%. Perils that would be reduced by 15% include fire and windstorm

-A building being vacant means not enough personal property to conduct normal operations

Valuation

-Understanding policy is valued on ACV

-RCV is available by added the optional coverage

-stock (inventory held for sale) is valued at the cost to the insured, no the selling price

Coinsurance

-Coinsurance in BPP/ property insurance policy is used to encourage policy holders to insure to full value

-Insured who UNDERVALUES property by too much will be hit with a coinsurance penalty at the time of a loss

Property coinsurance formula

Insurance limit/(value x coinsurance) x loss= claims payment

Mortgageholder

If listed in the dec page, mortgage holders have significant rights-

-included in loss payment if mortgaged property damaged

-notified prior to cancellation or non renewal of policy. (10/30 days) if non payment of premium is the issue, mortgage holder may assume payments for own interest/benefit

-if claim denied due to insureds act/default, mortgage holder still paid for their own interest

Commercial property conditions

- Concealment, Misrepresentation, Fraud

- Control of property (If loss happens, but insured can't do anything because its not his property, ex: installing a security camera in a rented apartment)

- Insurance under 2 or more coverages (only one policy triggers)

- Legal action against us (2 years to bring up lawsuit in a breach of contract)

- Liberalization (insurer can change policy if it broadens language and benefits insured)

- Transfer of rights or recovery against others (subrogation)

- No benefit to bailee (bailee's insurance coverage triggers, not bailor)

- Other insurance (can't produce betterment, only one policy applies)

- Policy period, coverage territory (US, Canada)

Premiums

Factors impacting the risks associated with the insured property

Factors impacting the likelihood and amounts of policy loss payouts

All of these factors affect premium

-linit of insurance

-covered causes of loss

-coinsurance percentage

-deductible amount

- optional coverages

-COPE data

-Location

Co insurance mixed impact

-insurance companies WANT insureds to insure to value. Therefore insurers will decrease the rate when the insured accepts a high coinsurance percentage

-however the insured will need to increase the limit of insurance in order to ensure they meet the coinsurance obligation. A higher limit increases the rate.

Optional coverages

Policy default is ACTUAL CASH VALUE

If insured wants Replacement costs it will cost more. Insured will also need a higher limit of insurance

COPE

Construction, Occupancy, Protection, Exposure

C= what are the construction materials(jointed mansory)

O=What is the building used for?

P=What are the protections for this building

E=What perils is this building exposure to?