Insurance and Risk Management

Insurance and Risk Management

Introduction to Risk Management

  • Risk Management Definition: The act of limiting risk associated with a property.
  • Inevitable Risks: Everyday risks include slipping on ice, robbery, car accidents, and flooding.
  • Insurance Compensation: Exists to compensate for loss, damage, or injury.
  • Premium: Payment for insurance coverage; higher potential risk leads to higher premiums.
  • Property Management Insurance: Essential for buildings, occupants, contents, and third-party claims.
  • Risk Reduction: Property managers identify and eliminate or reduce potential risks.

Key Insurance Terminology

  • Insurer (Underwriter):
    • The company that issues the insurance policy in exchange for payment.
    • Also known as the insurance company or insurance provider.
    • An underwriter agrees to accept a risk for a certain amount of money.
  • Insured:
    • The person or organization whose interests are protected by the insurance policy.
  • Named Insured:
    • The person or organization named on the declarations page of the insurance contract.
  • Unnamed Insured:
    • Any other party that falls within the definition of “insured” within the insurance policy, even if their name is not specifically on the declarations page.
    • May include employees or subsidiaries of the named insured.
  • Insurance Policy:
    • The contract between the insurer and the insured.
    • Sets out the claims the insurer is obligated to respond to and the maximum payout for various claims.
    • Includes conditions or obligations on the insured in case of a claim.

Insurance Premium and Deductible

  • Insurance Premium: The annual cost of the insurance.
    • Set by the insurance company based on the risk it is taking on; higher risk, higher premium.
    • Factors affecting premium cost: claims history, property type, and available indemnity.
  • Insurance Deductible: The amount the insured pays before the insurer provides indemnity.
    • The deductible amount can be negotiated; lower deductible, higher premium.

Insurance Claim

  • Definition: Formal request to the insurer for payment pursuant to the terms of the insurance policy after an event or loss occurs.
  • Process: Initial notification usually goes to the insurance broker, who then passes it to the insurer.

Insurance Broker

  • Definition: The party that sells or negotiates the insurance contract; also referred to as an insurance agent.
  • Role:
    • Works for the insured or the insurer.
    • Acts as an advocate for their clients.
    • Negotiates the insurance contract.
    • Ensures claims are accepted and paid by the insurer.
  • Property Manager's Responsibility:
    • Should work with an insurance broker who is acting on their behalf
    • Create a long-lasting relationship with the insurance broker.
    • Keep old insurance policies on file
    • Review changes in insurance premiums and coverages
    • Insurance brokers should obtain at least three insurance quotes, as insurance costs can vary greatly between insurers.
    • Some insurers will not take on specific risks.

Insurance Adjuster

  • Definition: A person appointed by the insurer to investigate an insurance claim.
  • Role:
    • Investigates the claim by interviewing parties, obtaining documents, taking photos, and inspecting damage.
  • Insured's Obligation:
    • Cooperate with the insurance adjuster.
    • The insurance adjuster acts as the agent of the insurer.

Duty to Defend and Duty to Indemnify

  • Duty to Defend:
    • The insurance company’s obligation to appoint a lawyer to defend the insured if they are sued and the claim is covered.
  • Duty to Indemnify:
    • The insurer’s obligation to pay for any covered loss or damage suffered by the insured.

Types of Insurance Coverages to Consider

  • Third party liability
  • Sprinkler system leakage and sewer backup
  • Water damage
  • Earthquakes and natural disasters
  • Environmental liability
  • Building contents
  • Loss of income/rent
  • Plate glass
  • Employment
  • Fire
  • Machinery and equipment
  • Vandalism and malicious mischief
  • Extended coverage
  • Pressure vessels

Property Insurance

  • Definition: Protection against damage, loss, or destruction of property from certain risks (e.g., fire, windstorms, vandalism).
  • Coverage: Pays for the cost to repair or replace damaged, destroyed, or stolen property.

Fire Insurance

  • Importance: Fire damage is one of the greatest risks against which a building must be insured.
  • Commercial Leases: Landlord typically insures the building against fire; the cost is often included in operating expenses passed on to the tenant (net lease) or included in the rent (gross lease).
  • Factors Affecting Premium: Building construction, sprinklers, distance to fire hall and hydrant, alarm system, smoke and heat detectors.
  • Insurance Act Amendment (2012): Mandates coverage for fire loss