Study 10 - Intro to Risk Management and Commercial Lines Insurance C72

Study 10 – Package Policies

1.     What type of package policy is discussed in this study? (p. 2)

        A package policy is a general term, and various policies in common use are really packages.  For instance, a homeowners policy is basically a package combining physical damage (Named Perils or All-Risk’s) on buildings and contents, with Liability in a single policy.  Many commercial policies cover several lines of insurance with one policy.  A multi-line policy or multi-peril policy fits this general description.

        Package policies are designed to provide most of the needed coverages for particular business insureds in a single document.  Such policies typically cover property (both building and contents, as need), business interruption, general liability, and often crime, with various special features and optional extra coverages. 

2.     What are its advantages and main disadvantages? (p. 2-3)

        Advantages:

·         Lower premium

·         One insurer is involves for easier handling and reduced work.

·         Convenience

·         Avoid gaps

·         Special features and extensions that are difficult to obtain on good term for individual risks.

Disadvantages:

·         Lack of flexibility, because the insurer needs to have coverage as uniform as possible to keep the cost of handling low.

·         Packages vary in detail between insurers

·         Endorsements – if they are added to the policy, special care must be taken.  Endorsements will apply to the whole policy or to a part of it.  The endorsements should specifically identify the particular line of insurance to which it applies.

3.     Note the types of risk that are eligible and excluded from most business packages. (p. 3)

        Eligibility (Type of Risk Covered::

·         Small to medium size businesses such as retail sale operations, contractors, motels, hotels (no cooking), offices, apartment blocks, condominiums.

Excluded Risks:

·         Cooking hazards

·         Manufacturers

·         Large risks

4.     What does the typical business package cover? (p. 4)

        Package policies are not standardized, but a typical policy covers:

·         Property Insurance:

Ø  Building (coverage is needed if the insured owns the building or is responsible for insuring it)

Ø  Contents (stock, equipment and tenant’s improvements)

·         Business Interruption:

Ø  Extra Expense (Gross Earnings or Profits in some packages)

·         General Liability

·         Crime: often limited in the regular package, with optional extensions.

5.     Review the usual coverage features. (p. 4-5)

        Property:

·         Named perils

·         Replacement cost

·         Subject to coinsurance unless amended

·         “Inflation guard” coverage

·         Seasonal or Peak period automatic increase on contents

·         Consequential Loss: this feature is not found in all policies.

Business Interruption:

·         Named Perils

·         Extra Expense

·         Gross Earnings

·         Profits

Crime:

·         Money and securities – inside and outside hold-up

·         Forgery

·         Counterfeit Money

General Liability:

·         Tenant’s Legal Liability: which covers damage to rented premises for which the insured is legally liable, if caused by certain perils.

·         Non-Owned Automobile: covers the insured’s legal liability for negligent driving of non-owned vehicles used on is business.

6.     Review the optional coverages. (p. 6)

        These vary between insurers, and some coverages that are optional for one insurer may be standard for another and vice versa.  Here are some of the usual options:

·         “All-risks” coverage for Buildings, Contents and Business Interruption.

·         Among the important exclusions in the all-risks coverage are Earthquake and Flood.  Earthquake, but not Flood, is usually an optional extension of the all-risks insurance.

·         Exterior signs -  all-risks coverage

·         Exterior (building) glass – special coverage

·         Accounts Receivable

·         Valuable Papers

·         Crime coverage extensions: i) Employee Dishonesty ii) Stock and Safe Burglary

·         Electronic Data Processing (e.g. “mini” computers)

·         Boiler and Machinery – boilers, heating and air conditioning, etc.

·         Innkeepers Liability – special liability coverage on the property of guests for motels, hotels, etc

·         Errors and Omissions

7.     Note the information provided about limits and ratings. (p. 7)

        There are limits set out on the coverages and these vary between insurers.  Usually all policies have deductibles applicable to property, business interruption and crime.  One deductible would be applicable per loss.  It is less likely that the liability coverages carry a deductible.

        Insurers try to provide simplified rating for packages based on location of risk, type of occupancy and amounts of insurance purchased.  The premium thus produced will pay for all standard features.  Options are available at extra cost.

        In view of the different standard and optional coverages, the only way to make a proper cost comparison between different package policies is to list the desirable coverages and work out the actual premium under each plan, noting any remaining coverage differences of importance.

8.     What comments are made about packages provided by your own companies? (p. 7)

        Get to know well the coverages provided and excluded in the packages issued by your own insurers, including the options.

        Watch for eligibility of the risks that you have in mind for a package policy, limits available, etc.  Occasionally, none of the packages will fit the risk. 

9.     Note the comments under the heading “Coverages not previously discussed.” (p. 8)

        Generally speaking, the types of risks for which package policies are available have simple exposures to loss and the standard coverages and options offered are quite adequate.

10.  How is liability insurance handled in a Package Policy. (p. 8)

        One or more liability coverages could be incorporated into the package policy. 

        Liability policies wordings may differ radically from the standard CGL policy and one must not assume that a standard CGL policy will be used.

11.  Discuss crime coverages. (p. 9)

        Crime coverage varies between the packages of different insurers.  Few companies provided full coverage in their standard package.  The crime coverages are usually available are:

a)     Money and securities – hold-up insurance inside the insured’s premises.

b)     Money and securities – hold-up outside the insured’s premises.

c)     Forgery – loss through the acceptance of forged cheques, money orders and similar documents.

d)     Counterfeit Money – loss due to acceptance of counterfeit money

e)     Employee dishonesty

f)      Stock burglary

g)     Safe burglary

Coverages (a) through (d) are typical of companies that provide limited crime coverage in their standard package.

Often the most important coverages are:

·         Inside and outside hold-up

·         Employee dishonesty

·         Stock and/or safe burglary depending on the client’s business and his method of handling cash.

12.  What perils are covered under B&M policy? (p. 10)

        Boiler and Machinery coverage is available, generally as an option, under most package policies.  Unlike industrial or manufacturing firms which may have large boilers and heavy machinery, the businesses to which package policies apply have exposure quite like a private home.

        The objects covered are usually heating, hot water and air conditioning systems.  The perils covered are typically described as “breakdown” which includes boiler explosion, rupture of boilers or piping, and breakdown of the air conditioning system.

13.  What objects are covered in a B&M policy? (p. 10)

The objects covered are usually heating, hot water and air conditioning systems.  The perils covered are typically described as “breakdown” which includes boiler explosion, rupture of boilers or piping, and breakdown of the air conditioning system.  Some packages cover refrigeration systems which are important to stores selling food.

14.   What does glass insurance cover? (p. 11)

Damage to glass is normally covered in a package policy against named perils or all risks.  Coverage for glass may be incorporated directly into the package policy wording.  An all-risks policy may provide only limited named perils coverage for exterior glass.  A named perils policy may provide coverage for exterior glass or vitrolite and lettering and ornamentation for any accidental breakage.  There may or may not be a limitation on the amount of insurance per plate glass.

A plate glass rider may be added to the policy.  This usually covers “exterior” glass such as windows and doors of a store but not interior glass such as shelving and mirrors.

Typical exclusions under a glass rider are:

·         Fire;

·         War risks;

·         Losses during construction, alteration or addition to the premises other than ordinary repair or maintenance;

·         Vacancy;

·         Increased cost or repair due to bylaws.