Purpose This assignment is intended to help you learn to do the following: Expla
ID: 1174854 • Letter: P
Question
Purpose
This assignment is intended to help you learn to do the following:
Explain the ISO Builders Risk Form and its coverages.
Explain the ISO farm program.
Describe the coverages under crop hail insurance, animal mortality insurance, and feedlot insurance.
Describe Bond Form 24. Describe the characteristics of surety bonds.
Describe coverages available through the National Flood Insurance Program.
Compare the NFIP general property form to the standard commercial property form.
Explain the ISO Flood coverage and ISO Earthquake coverage.
Describe the typical Difference in Conditions policy, including its advantages and disadvantages.
Action Items
In your own words, answer the following questions in a Word document with detailed explanations. Provide an example when necessary.
g) What options are available to the surety if a contractor defaults under a performance bond?
h) What do fiduciary bonds guarantee?
i) What are the differences between the NFIP General Property Form and the standard commercial property form?
j) How can the ISO Flood coverage endorsement provide broader coverage than the NFIP flood policies?
k) How are deductibles expressed in ISO Earthquake endorsements? What is the ensuing loss provision of the ISO Earthquake endorsement?
l) Why would an insurer write a DIC policy without a coinsurance clause? What are the advantages of a DIC policy to an insured?
Explanation / Answer
Answer) A property insurance policy that is designed to cover property in the course of construction. There is no single standard builders risk form; most builders risk policies are written on inland marine (rather than commercial property) forms. Coverage is usually written on an all risks basis and typically applies not only to property at the construction site, but also to property at off-site storage locations and in transit. Builders risk insurance can be written on either a completed value or a reporting form basis; in either case, the estimated completed value of the project is used as the limit of insurance.
Answer ) Farmers today are doing more than tending to crops and livestock. They are doing everything from running pick-your-own farms to corn mazes; from hayrides to raising exotic animals; from dealing with pollution issues to dealing with genetically modified organisms. To meet the needs of today’s farms, ISO is revising all of their farm coverage forms and more than half of their endorsements. They are also introducing 20 new endorsements.
Current ISO Program .
Coverage options are limited for farmers engaging in agritainment:
New Coverage Options Coming
1. Agritainment added as exclusion on property forms
2. Separate endorsements for property and liability coverage options have been introduced
3. Type of agritainment must be scheduled on both endorsements. Schedule could be used for both rating and underwriting criteria Criteria considered include: type of agritainment, liquor liability, use of mobile equipment, livestock.
Answer) Crop-hail insurance is a type of insurance that insures against crop damage caused by hail, as well as damage caused to crops from fires. Crop-hail insurance is purchased by farmers, and is designed to protect crops while they are still in the field and have yet to be harvested.
Crop-hail insurance protects the livelihood of farmers, who are often at the mercy of the weather. Sudden events, such as a winter storm or a fire, can wipe out a harvest. In the United States, farmers can purchase crop insurance from Federal Crop Insurance Corporation (FCIC), a government program. This type of policy is called Multiple Peril Crop Insurance (MPCI), and generally covers losses due to changes in the price of farm commodities.
Crop-hail insurance is a type of private insurance and is not offered as part of a federal insurance program. This type of policy covers a loss caused by a specific event, just as flood insurance protects against damages caused by floods. Farmers can have both MPCI and crop-hail insurance policies, as they cover different types of losses.
How Crop-Hail Insurance Works
According to the United States Department of Agriculture Risk Management Agency, hail typically comprises six percent of all crop losses in any given year. But a crop-hail policy goes beyond simply protecting against the physical damages of hail. In addition to fire, depending on the crop and the region of the country, this type of policy may also provide coverage for loss caused by lightning, wind, vandalism and malicious mischief. However, these policies will never cover other weather-related risks like frost, drought or excess moisture, and it will not cover price risk (which is covered by MPCI).
With a crop-hail policy, you’ll first select a dollar amount of coverage. Then, you can select options with different deductibles to allow you to partially self-insure for lower premium costs. Coverage is provided on an acre-by-acre basis, so that damage that occurs on only part of your farm may be eligible for payment when the rest of the field remains unaffected.
This type of insurance is sold on an acre-by-acre basis, meaning that a farmer does not have to purchase a policy for an entire farm. This allows the farmer to cover more at-risk areas. Because the policy is purchased for a specific acre it cannot be moved to cover another area once it is finalized.
The policy insures up to the expected value of the crop covered under the policy, provided that damage to the crops is caused by events that are considered covered. The expected value is calculated on a dollar per acre basis, with this value chosen by the farmer leading up to the policy purchase.
Farmers may also find they are operating in areas that are prone to other types of weather-related risks, such as wind or sudden frosts. Protection from these types of events may often be purchased as policy add-ons. Some policies may also allow farmers to purchase coverage from theft.
Animal mortality insurance is a type of financial protection for businesses, governments or individuals that depend highly on one or more animals in their core operation. Farmers, zoos, aquariums and professional horse stables use animal mortality insurance, for example.
Animal mortality insurance functions similarly to other types of insurance in that the insurance company will cover claims based on specified events. These might include storms, hypothermia, traffic accidents, contaminated food or water, or accidental shootings.
Animal mortality insurance protect policyholders from the cost of replacing an animal that dies, as well as from the anticipated profits that the deceased animal can no longer generate.
Businesses and government organizations value some animals very highly because of the cost and time of their training. This is the case for police dogs and services dogs, for example. These groups often purchase animal mortality insurance.
Other animal mortality insurance contracts cover animals tied to income, such as show horses or pandas in zoos.
For farms and ranches, the insured animals themselves are commodities by which the business earn income, such as chickens on a poultry farm. A farmer uses animal mortality insurance to cover both the natural and accidental death of these animals, as well as injury, sickness, disease and theft.
Some animals won't qualify for mortality insurance if they have a pre-existing condition or are too old. Insurance premiums depend on the animal’s age, sex and value as determined by an appraiser. Some companies base the appraisal on the actual sales price of the animal.
Feedlot Cattle Insurance provides coverage for livestock in open air or pastures from an array of perils. The coverage specifically protect valuable livestock for an array of perils, including:
Features that fit the insurer’s needs
Answer)
Because financial institutions have a large number of employees handling cash, securities, and high-value goods, it’s particularly important to be extra vigilant in protecting against criminal activity.
The Guarantee’s Financial Institution Bond Form 24 provides coverage for federal and provincial regulated lending institutions against losses that occur when employees commit fraudulent and dishonest acts. Additionally, the Computer Crime Policy for financial institutions is a standalone companion policy designed to protect financial institutions against harmful exposures associated with their computer systems.
Who needs to purchase Form 24 coverage?
Coverage features:
Specialized extensions include:
Submission Requirements:
Answer) The National Flood Insurance Program aims to reduce the impact of flooding on private and public structures. It does so by providing affordable insurance to property owners, renters and businesses and by encouraging communities to adopt and enforce floodplain management regulations. These efforts help mitigate the effects of flooding on new and improved structures. Overall, the program reduces the socio-economic impact of disasters by promoting the purchase and retention of general risk insurance, but also of flood insurance, specifically.
Answer) National Flood Insurance Program (NFIP): A federally funded program established in 1968 to make flood insurance available at a reasonable cost for properties located in participating communities. NFIP flood insurance is available only for direct damage to buildings and contents; there is no time element coverage.
General Property Form : The General Property Policy Form is issued to owners of residential buildings with five or more units, and to owners or lessees of non-residential buildings or units.
Answer) ISO Flood Coverage : Coverage for damage to property caused by flood. May be available by endorsement to an all risks policy or to a difference-in-conditions (DIC) policy. Normally, the coverage provided is subject to a per occurrence sublimit, an annual aggregate limit, and a separate deductible. Coverage may also be available from the National Flood Insurance Program (NFIP).
Earthquake Coverage :Typically excluded (along with other earth movement) from most property insurance policies, except ensuing fire. In most cases, earthquake coverage must be purchased by endorsement to a difference-in-conditions (DIC) policy or to an all risks policy. Normally, the coverage provided is subject to a per occurrence sublimit, an annual aggregate limit, and a separate deductible.
Answer)
Difference In Conditions (DIC) Insurance : Difference in conditions (DIC) insurance is a type of policy that provides expanded coverage for some perils not covered by standard insurance policies. DIC insurance is designed to fill in gaps in insurance coverage and is most frequently used by larger organizations, looking for protection from catastrophic perils.
Difference in conditions insurance provides expanded coverage for perils not covered by standard insurance policies. Insurance companies typically offer policies that cover perils that are well-defined and predictable. They are less willing to underwrite policies that cover infrequent and severe perils, as these are more difficult to account when setting the premium that should charged. Thus, most policies cover higher frequency, lower severity perils. However, this does not mean that the insured party is fully insulated from risks of catastrophes. It does mean that many insurers shy away from providing coverage for catastrophes.
DIC insurance is designed to increase coverage for perils that can result in severe losses, such as floods, earthquakes, and other catastrophes. As a gap filler form of insurance, DIC insurance is designed to provide coverage that the broader insurance market won't provide. This type of coverage goes beyond the purchase of additional coverage limits, since standard coverage typically excludes certain perils. The insured purchases this coverage in addition to a standard insurance policy, though some standard policies allow the purchase of a policy endorsement that may provide for much of the same needs.
To determine if you need DIC insurance, the best course of action is to review your situation with your agent or broker, who will look at your current policy levels and determine whether they are satisfactory for your insurance needs. DIC insurance isn't like auto insurance, where everyone needs to have it. DIC policies are fluid, with the ability to change them and to tailor-make them. If, for example, you need more coverage for property out in the open, for spoilage, for flood or earthquake, than your primary carrier is able to cover, then DIC might be an answer.
Difference in Conditions Insurance in Action
An example of a company that might buy a DIC insurance policy would be a firm with a property insurance policy that excludes flood coverage. They may purchase DIC insurance that specifically covers floods. Similarly, a construction company may purchase DIC insurance to bridge the coverage gap between a contractor’s policy and its own policy. In some cases, multinational firms will purchase DIC insurance to fill in coverage gaps between their master policies and local policies
Answer g)
Upon receiving notice of a performance bond claim, the surety should:
1) Acknowledge receipt of the claim, request from the claimant additional documentation to substantiate the claim, and reserve all of the surety’s defenses and rights.
2) Begin an investigation of the claim. The surety will look into the facts to determine if the principal is in default and, if so, whether the surety is at risk under the bond. The surety should gather facts from as many sources as possible.
3) Give written notice to the principal and indemnitors of the claim, any potential losses to the surety, and their indemnity obligations. Also, request their cooperation and any documents and information they may have about the claim.
The surety then has several options:
In every case, the surety and its counsel should carefully review the language of the bond. In some cases, all of the options above may not be available, or they may be available but may not be desirable. Some performance bonds spell out the available options and make them part of the agreement. Some bonds are silent as to the options when there is a default.
With every claim under a performance bond, the surety must act promptly and, based on the information it collects about the project, select a strategy that best fits its goals for the situation.
Answer h) A Fiduciary Bond (also known as a probate bond) is a type of court bond that guarantees that the fiduciary will execute his/her court-appointed duties according to law.
A Fiduciary Bond protects against fraud, embezzlement, or dishonest acts carried out by a fiduciary. The bond also holds the fiduciary liable for any deficits that may occur.
If a fiduciary commits fraud, embezzlement, or does not act in accordance with their appointment, a claim can be made against their bond.
Answer i) The NFIP’s General Property Form offers commercial policyholders coverage for:
1. Building Property up to $500,000
2. Personal Property up to $500,000
For businesses, Personal Property refers to the contents of the business (see page 2) and will include stock as defined in the policy. The NFIP encourages everyone to purchase both types of coverage. Your lender might require that you purchase a certain amount of flood insurance coverage.
Commercial Property Coverage Forms:Insurance Services Office, Inc. (ISO), commercial property insurance forms that define, limit, and explain what property or property interest is covered. An ISO commercial property policy consists of: one or more coverage forms, one or more causes of loss forms, the commercial property conditions form, the common policy conditions form, and the declarations. The most widely used ISO commercial property coverage forms are the building and personal property coverage form (CP 00 10) and the business income and extra expense coverage form (CP 00 30).
Answer j) The ISO endorsement can cover a greater variety of property than the NFIP policies.
-The ISO endorsement can be attached to a commercial property coverage part providing the full range of commercial property coverages, whereas the NFIP policies provide no business income coverage and only very limited extra expenses.
-NFIP policies are primarily written on a ACV basis, whereas the ISO endorsement can be written subject to the replacement cost or functional valuation options available under commercial property forms.
Answer k) The deductible is expressed as a percentage. In the coinsurance form of the endorsement (CP1040), the deductible is the specified percentage of the limit of insurance on the damaged property. In the sublimit form, the deductible is the specified percentage of the value of the property that has sustained covered loss.
In the event of ensuing loss caused by another covered peril (such as fire), the most the policy will pay for the entire loss (for example, a loss caused by earthquake and following fire) is the limit for the other covered peril (fire in this case). The insurer will not pay the sum of the two limits.
Answer l) If a no-coinsurance clause applies, the insurer can write the policy for a lower limit than the full value of the property. Keeping the limit low has the advantage of allowing the insurer to reduce the cost and increase the availability of its reinsurance.
Advantages of a DIC policy to an insured
-DIC can be a cost-effective method of obtaining flood and earthquake coverage.
-DIC policies usually do not require coinsurance.
-DIC policies are nonfiled in many states and are therefore often easier to modify to meet the insured's particular needs.
-DIC forms may offer broader coverage for some perils, and some exclusions may be less restrictive.
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