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INDEX

SR. NO CHAPTER NAME PAGE NO


1 INTRODUCTION TO PROPERTY INSURANCE 2
2 NATURE OF INSURANCE CONTRACTS 4
3 HISTORY OF PROPERTY INSUARANCE 6
4 BENEFITS OF PROPERTY INSURANCE 10
5 ROLE OF PROPERTY INSURANCE 11
6 PRODUCTS OF PROPERTY INSURANCE 15
7 NAVIGATING THE CHALLENGES OF PROPERTY 19
INSURANCE CLAIM
8 RISKS TO YOUR HOME 24
9 INSURANCE FOR YOUR HOME 25
10 DAMAGES & COVERAGE OF RISK 29
11 FACTORS TO BE TAKEN INTO CONSIDERATION 33
WHILE CALCULATION OF CLAIM
12 PROPERTY DAMAGE INSURANCE CLAIM 41
13 PROPERTY INSURANCE PREMIUM TAX RATES & 49
FEES
14 FAQS ON PROPERTY INSURANCE 51
15 PROPERTY INSURANCE POLICIES IN INDIA 55
16 UNDERWRITING & INVESTING IN PROPERTY 59
INSURANCE
17 TYPES OF PROPERTY INSURANCE 61
18 REGULATORY DIFFERENCES IN INSURANCE 82
19 PROBLEM FACED BY INSURANCE COMPANIES 83
20 CONCLUSION 89
21 QUESTIONNAIRE 90

INTRODUCTION TO PROPERTY INSURANCE

KINDS OF PROPERTY
Definition interest, or group of interests, that is legally protected Tangible Property physical
objects Intangible Property that does not exist in a physical form Real Property land and
interests in land Personal Property all property that is not real property Fixture personal
property so firmly attached to real property that an interest in it arises under real property law

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TRANSFER OF TITLE TO PERSONAL PROPERTY Sale transfer of property for
consideration (price) Gift transfer of property without consideration
Delivery includes both manual transfer of the item and constructive delivery (delivery of
something that symbolizes control over the item)
Intent
Acceptance
Classification Will right to property acquired upon death of the owner Accession right of a
property owner to any increase in such property Confusion intermixing of goods belonging to
two or more owners such that they can identify their individual property only as part of a
mass of like goods
If due to mistake, accident, or agreement, loss shared proportionately
If caused by an intentional or unauthorized act, wrongdoer bears loss Possession a person
may acquire title by taking possession of property
Abandoned Property intentionally disposed of by the owner; the finder is entitled to the
property
Lost Property unintentionally left by the owner; the finder is generally entitled to the
property
Mislaid Property intentionally placed by the owner but unintentionally left; the owner of the
premises is generally entitled to the property
Treasure Trove coins or currency concealed by the owner for such a length of time that the
owner is probably dead or undiscoverable; the finder is entitled to the property.

FIRE AND PROPERTY INSURANCE


General Definition of Insurance contractual arrangement that distributes risk of loss among a
large number of members (the insured) through an insurance company (the insurer) Coverage
of fire and property insurance provides protection against loss due to fire or related perils
Types of Fire
Friendly Fire: fire contained in its intended location
Hostile Fire any fire outside its intended or usual location Co-insurance insurance in which
a person insures property for less than its full or stated value and agrees to share the risk of
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loss Other Insurance Clauses if multiple insurers are involved, liability is distributed pro rata
Types of Policies
Valued Policy covers full value of property as agreed upon by the parties at the time the
policy is issued
Open Policy covers fair market value of property as calculated immediately prior to the loss

NATURE OF INSURANCE CONTRACTS

General Contract Law basic principles of contract law apply Insurable Interest a financial
interest or a factual expectancy in someones property that justifies insuring the property; the
interest must exist at the time the property loss occurs Premiums amount to be paid for an
insurance policy Defence of the Insurer
Misrepresentation false representation of a material fact made by the insured that is
justifiably relied upon by the insurer; enables the insurer to rescind the contract within a
specified time
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Breach of Warranty the failure of a required condition; generally an insurer may avoid
liability for a breach of warranty only if the breach is material
Concealment fraudulent failure of an applicant for insurance to disclose material facts that
the insurer does not know; allows the insurer to rescind the contract
Waiver an insurer intentionally relinquishes the right to deny liability
Estoppel an insurer is prevented by its own conduct from asserting a defence Termination
an insurance contract may be terminated by due performance or cancellation

Bailments and Documents of Title BAILMENTS


Definition the temporary transfer of personal property by one party (the bailer) to another (the
bailee)

Classification of Bailments
For the Bailers Sole Benefit
For the Bailees Sole Benefit
For Mutual Benefit includes ordinary commercial bailments
Essential Elements
Delivery of Possession
Personal Property
Possession, but not Ownership, for a Determinable Time
Restoration of Possession to the Bailer
Rights and Duties
Bailees Duty to Exercise Due Care the bailee must exercise reasonable care to protect the
safety of the property and to return it to the proper person
Bailees Absolute Liability occurs when
(1) The parties so agree;
(2) The custom of the industry requires the bailee to insure the property against the risk in
question, but he fails to do so; or
(3) The bailee uses the bailed property in an unauthorized manner
Bailees Right to Limit Liability certain Bailees are not permitted to limit their liability for
breach of their duties, except as provided by statute
Bailees Right to Compensation entitled to reasonable compensation for work or services
performed on the bailed goods

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Bailers Duties in bailment for sole benefit of bailee, the bailer warrants that she is unaware
of any defects; in all other bailments, the bailer has a duty to warn of all known defects and
all defects she should discover upon a reasonable inspection

Special Types
Pledge security interest by possession
Warehouser storer of goods for compensation; warehouser must exercise reasonable care to
protect the safety of the stored goods and to deliver them to the proper person
Carrier of Goods transporter of goods; a common carrier is an extraordinary bailee, and a
private carrier is an ordinary bailee
Innkeeper hotel or motel operator; is an extraordinary bailee except as limited by statute or
case law
DOCUMENTS OF TITLE
Definition an instrument evidencing ownership of the record and the goods it covers Types
Warehouse Receipt issued by person storing goods
Bill of Lading document issued to the shipper by the carrier
(1) as a receipt for the goods,
(2) as evidence of their carriage contract, and
(3) as a document of title Negotiability a document of title is negotiable if, by its terms, the
goods are to be delivered to bearer or to the order of a named person Due Negotiation
delivery of a negotiable document in the regular course of business to a holder, who takes in
good faith, for value, and without notice of any defence or claim.

HISTORY OF PROPERTY INSURANCE

Property insurance can be traced to the Great Fire of London, which in 1666 devoured more
than 13,000 houses. The devastating effects of the fire converted the development of
insurance "from a matter of convenience into one of urgency, a change of opinion reflected in
Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for
London in 1667".[1] A number of attempted fire insurance schemes came to nothing, but in
1681, economist Nicholas Barbon and eleven associates established the first fire insurance

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company, the "Insurance Office for Houses", at the back of the Royal Exchange to insure
brick and frame homes. Initially, 5,000 homes were insured by Barbon's Insurance Office.[2]
In the wake of this first successful venture, many similar companies were founded in the
following decades. Initially, each company employed its own fire department to prevent and
minimise the damage from conflagrations on properties insured by them. They also began to
issue 'Fire insurance marks' to their customers; these would be displayed prominently above
the main door to the property in order to aid positive identification. One such notable
company was the Hand in Hand Fire & Life Insurance Society, founded in 1696 at Tom's
Coffee House in St. Martin's Lane in London.[3]
The first property insurance company still extant was founded in 1710 as the 'Sun Fire Office'
now, though many mergers and acquisitions, the RSA Insurance Group.[4]
In Colonial America, Benjamin Franklin helped to popularize and make standard the practice
of insurance, particularly Property insurance to spread the risk of loss from fire, in the form
of perpetual insurance. In 1752, he founded the Philadelphia Contribution ship for the
Insurance of Houses from Loss by Fire. Franklin's company refused to insure certain
buildings, such as wooden houses, where the risk of fire was too great.
There are the three types of insurance coverage. Replacement cost coverage pays the cost of
repairing or replacing your property with like kind & quality regardless of depreciation or
appreciation. Premiums for this type of coverage are based on replacement cost values, and
not based on actual cash value. [5] Actual cash value coverage provides for replacement cost
minus depreciation. Extended replacement cost will pay over the coverage limit if the costs
for construction have increased. This generally will not exceed 25% of the limit. When you
obtain an insurance policy, the limit is the maximum amount of benefit the insurance
company will pay for a given situation or occurrence. Limits also include the ages below or
above what an insurance company will not issue a new policy or continue a policy.[6]
This amount will need to fluctuate if the cost to replace homes in your neighborhood is rising;
the amount needs to be in step with the actual reconstruction value of your home. In case of a
fire, household content replacement is tabulated as a percentage of the value of the home. In
case of high-value items, the insurance company may ask to specifically cover these items
separate from the other household contents. One last coverage option is to have alternative
living arrangements included in a policy. If property damage caused by a covered loss
prevents you from living in your home, policies can pay the expenses of alternate living
arrangements (e.g., hotels and restaurant costs) for a specified period of time to compensate
for the loss of use of your home until you can return. The additional living expenses limit
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can vary, but is typically set at up to 20% of the dwelling coverage limit. You need to talk
with your insurance company for advice about appropriate coverage and determine what type
of limit may be appropriate for you.[7]

PURPOSE OF PROPERTY INSURANCE

Property insurance is the part of an insurance plan designed to protect cars, homes, and
businesses from financial loss due to theft, destruction, or damage. In order to purchase a
property insurance policy, a person must either own the property outright or be listed on a
loan as the buyer. Property insurance is priced according to the appraised value of the
property involved and the number of perils covered. Policies have a renewable set term--
usually one year.
Function

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Property insurance is a financial product designed to reimburse a property owner if property
is damaged, stolen, or destroyed. Property insurance abides by a principle called
indemnification, which means that the purpose of the insurance is to restore the policyholder
to roughly the same state as before the property loss occurred--no more and no less.
According to the principle of indemnification, a policyholder cannot legally profit from filing
a property insurance claim; that policyholder can only be made whole or restored as nearly as
possible to personal conditions before the loss.
Types
The most common types of property insurance are auto insurance, home insurance, and
commercial or business insurance. Other common types of property insurance include boat
insurance, motorcycle insurance, snowmobile insurance, and manufactured home insurance.
Personal lines insurance is a specialty product that provides property insurance for unusual
items that are not generally covered by auto, home, or commercial policies--or items that are
beyond the underwriting capabilities of major insurance carriers because of their extreme
value or large size.
Features
Property insurance is usually combined with casualty or liability insurance to provide
maximum protection for individual policyholders. The property portion of an insurance
policy protects actual physical items from damage or loss. The casualty and liability portion
provides protection for costs incurred when an insured causes or is involved in accident, such
as hospital and medical bills, legal fees, and lost wages. In order to purchase property
insurance, a person must have an insurable interest in the property in question. A person with
no insurable interest in a home, for instance, cannot purchase property insurance on that
home, because it would immediately be in that person's interest to cause a loss.
Considerations
Property insurance can be written for specific perils. When only a few possible causes of loss
are covered, the property insurance is called a basic perils policy. Basic perils include
coverage for losses resulting from fire or lightning, volcanic eruption, windstorm or hail,
vehicle explosion, riot or civil commotion, aircraft, smoke, vandalism, theft, and glass
breakage (when the glass is part of a building). Broad perils property insurance includes all
the basic perils, adding further coverage for loss from falling objects, weight of ice and snow,
sudden tearing or breaking apart, accidental discharge, freezing of plumbing, and damage
from sudden electrical currents.
Exclusions and Limits
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No property insurance policy covers all possible losses. Almost all property insurance
policies exclude losses caused by acts of war, nuclear accidents, earthquakes, and floods.
Further exclusions may be outlined in any given policy, and these exclusions may vary
according to state and type of policy purchased. Coverage for loss of property resulting from
earthquake or flood is available through the federal flood insurance program, or by
purchasing separate earthquake insurance. In some parts of the United States, property
insurance for earthquake or flood is required on all homes and businesses.

BENEFITS OF PROPERTY INSURANCE

An advantageous purchase = good price + good service + good product


Good price
The client creates his/her own property insurance product, paying only for those risks
that are deemed most important for him/her, without overpaying for other risks.
If you have chosen to insure only specific risks, the policy price offered by us can be
up to 50 % lower than those offered by other insurers.
10 % discount if you pay for the policy with a single payment.
10 % discount for a purchase through the Internet http://www.seesampolise.lv/

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Good service
Advice and Assistance Help Desk Services http://www.seesampolise.lv/ 24 hours a
day.
Fair and prompt payment of indemnity.
Convenient purchase of the policy over the phone or the Internet without leaving your
home.
Good product a broad coverage
Property can be insured against about 20 different types of risks.
Personal effects and active equipment can be insured according to a list and without
any list.
Active equipment insurance covers, for example, prams, skis, bicycles, video and
audio equipment. In the event of active equipment theft, burglary, vehicle impact and
fire damage, compensation is calculated and paid, even if the insured property is
located in the territory of the Republic of Latvia but outside the address indicated in
the policy.
Third party liability insurance covers loss and damage caused to neighbours and third
parties. For example, if due to technical reasons the washing machine water discharge
pipe has been broken and the water has flooded your neighbour's apartment, causing
damage to the ceiling, the neighbour may present a claim and request compensation
for the damage suffered by him. If a liability insurance contract has been concluded,
the insurer shall examine the neighbours claim and pay the cost of repairs of his
apartment, taking into account the deductible specified in the contract.

ROLE OF PROPERTY INSURANCE


The basic goal behind buying insurance is to make you financially whole following a loss.
You agree to pay a (relatively) small fee to an insurance company today, causing a small
but certain loss to you now, in exchange for a guarantee from the insurance company that it
will bear the burden of a large but uncertain loss in the future.
Let's say that you have a house that you own, free and clear - with no insurance. As long as
you continue to pay your property taxes, you have every right to enjoy the use of that house
for as long as you like, as guaranteed by law. You may live there, rent it out, leave it vacant or
even sell it if you like. However, if that giant tree in the back yard falls on your house causing
severe damage, it is still up to you to cover the cost to repair the house. This is the basic

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reason to carry property insurance, which would have paid for your property to be fixed or
replaced
Who Needs Insurance?
Thankfully for those of us who might be negligent in our responsibility to have insurance on
our property, we are forced in many cases by either law or contract (the mortgage contract) to
carry insurance. While not many, if any, U.S. state laws require you to carry property
insurance, they do often require some form of liability insurance, especially for cars. This
covers repair or financial restitution to someone else besides the individual at fault. For
example, the person at fault's liability insurance pays to have their car fixed, or pays their
medical bills. Fortunately, when most of us purchase the required liability coverage, we are
given the opportunity to purchase the property insurance (i.e. comprehensive or collision
insurance) rather easily, thus saving us from financial hardship if our own car is damaged in
the accident.
Coverage
According to a survey published in the Journal of Financial Planning, many homeowners
have vastly misguided views of what their homeowners insurance actually covers. According
to this survey conducted by the National Association of Insurance Commissioners, "One third
of homeowners believe flood damage will be covered by their standard policy. Over half
think their policy covers them in the event of a water line break. Thirty-five percent say they
will be compensated for an earthquake, and a slightly lesser proportion thinks mold is
covered."
In actuality, the typical perils (causes of property destruction) that are typically not
covered are:
Flood damage (this is a separate policy)
Earthquake (this is also a separate policy)
Mold
Acts of war
Parts of the property in disrepair (Including worn-out plumbing, electrical wiring, air
conditioners, heating units and roofing).
Policies are often written so that for something to be covered, it must be "sudden and
accidental", meaning that it wasn't a slow leak that caused damage over many months. Often
this is not covered by insurance. If your roof caves in from old age, and not from storm

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damage, it will likely not be covered.
The typical perils which typically are covered include:
Fire
Wind (tornado or hurricane)
Hail
Theft
Liability Coverage
In addition to covering the value of your home or other property, many insurance policies
also include an important provision for liability coverage. You may not think this is very
important, being the careful person that you are, however, there are scores of eager lawyers in
every city searching high and low for lawsuits against people such as yourself. Liability
coverage is well known to owners of automobiles, but may be lesser-known to homeowners.
If your neighbours house catches fire because you left your charcoal grill unattended, who
do you think will pay for the damage caused by the fire? You will. You have paid the
insurance company your premiums so that they will pay for larger claims when they do
occur. The same goes for someone who is hurt and requires medical attention while on your
property.
If you are on vacation and your property is stolen, such as a diamond ring, you may be
entitled to reimbursement. Be sure to document the theft with evidence that you owned it and
you should be able to provide a police report to the insurance company.
Don't Guess - Know
You should know what your policy does and - more importantly - does not cover. Insurance
companies don't stay in business by charging a minimal amount to cover any and all things
which could possibly happen to your property.
Additional (Non) Coverage
Home-based businesses are not typically covered. This doesn't include a home study, but
rather a place where people come into your home as customers, such as a workshop where
you repair furniture. You will need a separate business (commercial) policy to properly insure
this area and its related liability. Again, these rules vary from state to state and country to
country.
Also, if your property, especially your house, is left vacant for more than a certain time
period, such as 60 days, then the homeowners policy may be canceled immediately by the
insurance company. It is assumed that a vacant house is at a much higher danger of perils

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such as fire or theft, and therefore changes the risk profile enough to require a separate policy.
If you have a second home or a vacation property, you may get another policy to cover this
home as well.
Pitfalls to Avoid
Check to see if your policy covers repairs at actual cash value (ACV) or at replacement cost.
Replacement cost is usually much better. Case in point: If your roof was damaged and needs
to be completely replaced, replacement cost will pay for it to be fully repaired less
your deductible, while ACV will pay you what your roof was estimated to actually be worth
at the time of the damage. The trade-off is that ACV costs less than replacement cost
coverage.
Art and Jewellery
additionally, if you have expensive jewellery or art that you want covered, you may need to
add a floater. This is an add-on to your main policy. Many policies have standard amounts
that they will pay out for losses to particular items, and they will pay no more.
Co-Insurance Clauses
finally, some property owners only want to insure a property for what they paid for it, which
may bring into play a co-insurance clause. This is (depending on local laws) where the
property is insured for less than say 80% of its current replacement cost. A lesser amount of
coverage and the insurance company will require you to share in a percentage of the repairs
above and beyond the deductible amount.
Premium Factors
Do you live in an area prone to tornadoes, hurricanes or floods? Do you own a large dog or a
swimming pool? Are you a smoker? How's your credit score?
You may be a higher-than-normal risk based on your answers to these questions, and they
will charge you accordingly. These are factors that the insurance company takes into account
when setting your insurance rates. The more that these and other risks are applicable to you,
the higher your rates will be.
Final Thoughts
One last warning: some insurance companies provide seemingly unbelievable rates for their
policies. If the company is unknown and its rates are exceptionally good, this should be a red
flag for you. Check around for the company's reputation, and don't just take the salesman's
word for it. Have a look at the policy and see what they cover, and what they don't. You may
find only too late that what you thought was adequate coverage, was barely the legal

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minimum in your area. Seek quality coverage - remember, "Cheap insurance can be very
expensive."

PRODUCTS OF PROPERTY INSURANCE

The most common types of commercial insurance are property, liability and workers'
compensation. In general, property insurance covers damages to your business
property; liability insurance covers damages to third parties; and workers'
compensation insurance covers on-the-job injuries to your employees. Depending on
your business, you may want additional specialized coverage. Listed below are some
of the different types of business insurance.
Property Insurance

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Property insurance pays for losses and damages to real or personal property. For
example, a property insurance policy would cover fire damage to your office space.
You can purchase additional coverage for business property, including:

Boiler and Machinery Insurance


Boiler and machinery insurance sometimes referred to as "equipment breakdown" or
"mechanical breakdown coverage," provides coverage for the accidental breakdown of
boilers, machinery, and equipment. This type of coverage usually will reimburse you
for property damage and business interruption losses. For example, this coverage
would cover fire damage to computers.

Debris Removal Insurance


Debris removal insurance covers the cost of removing debris after a fire, flood,
windstorm, etc. For example, a fire burns your building to the ground. Before you can
start rebuilding, the remains of the old building have to be removed. Your property
insurance will cover the costs of rebuilding, but not of removing the debris.

Builder's Risk Insurance


Builder's risk insurance covers buildings while they are being constructed. For
example, a Builder's risk policy would cover losses if a windstorm takes down your
partially constructed condominium complex.

Glass Insurance
Glass insurance covers broken store windows and plate glass windows.

Inland Marine Insurance


Inland marine insurance covers property in transit and other people's property on your
premises. For example, this insurance would cover fire-damage to customers' clothing
from a fire at your dry cleaning business.

Business Interruption Insurance


Business interruption insurance covers lost income and expenses resulting from
property damage or loss. For example, if a fire forces you to close your doors for two

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months, this insurance would reimburse you for salaries, taxes, rents, and net profits
that would have been earned during the two-month period.

Ordinance or Law Insurance


Ordinance or law insurance covers the costs associated with having to demolish and
rebuild to code when your building has been partially destroyed (usually 50 percent).
For example, your three-story building is 100 years old. A flood destroys the basement
and first two stories. Because more than 50 percent of your building has to be rebuilt,
a local ordinance requires that the building be completely demolished and rebuilt
according to current building codes. Property insurance covers only the replacement
value, not the upgrade.

Tenant's Insurance
Commercial leases often require tenants to carry a certain amount of insurance. A
renter's commercial policy covers damages to improvements you make to your rental
space and damages to the building caused by the negligence of your employees.

Crime Insurance
Crime insurance covers property crimes such as theft, burglary, and robbery of money,
securities, stock, and fixtures from employees and outsiders.

Fidelity Bonds
A bond company covers losses due to a bonded employee's theft of business property
and money.

Liability Insurance
Liability insurance covers injuries that you cause to third parties. If someone sues you
for personal injuries or property damage, the cost of defending and resolving the suit
would be covered by your liability insurance policy. A general liability policy will
cover you for common risks, including customer injuries on your premises. More
specialized varieties of liability insurance include:
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Errors and Omissions Insurance
Errors and omissions ("E & O") insurance covers inadvertent mistakes or failures that
cause injury to a third party. The act must actually be an inadvertent error, and not
merely poor judgment or intentional acts. For example, an E & O policy would cover
damages arising from an insurance agent failing to file policy applications, or a notary
forgetting to fill out notarizations properly.

Malpractice Insurance
Malpractice insurance, or professional liability insurance, pays for losses resulting
from injuries to third parties when a professional's conduct falls below the profession's
standard of care. For example, if a doctor makes a mistake that other doctors of his
specialty would not have made, his patient might sue him. A malpractice policy will
pay his defense costs and any judgment or settlement. Malpractice insurance is
available for doctors, dentists, accountants, real estate agents, architects, and other
professionals.

Automobile Insurance
Commercial automobile policies cover the cars, vans, trucks and trailers used in your
business. The coverage will reimburse you if your vehicles are damaged or stolen or if
the driver injures a person or property.

Directors' and Officers' Liability Insurance


This type of insurance is generally purchased by corporations and non profit
organizations to cover the costs of lawsuits against directors and officers.

Workers' Compensation Insurance


Workers' compensation insurance covers you for an employee's on-the-job injuries.
Businesses with employees are required by various state laws to carry some type
of workers' compensation insurance. In most cases, workers' compensation laws
prohibit the employee from bringing a negligence lawsuit against an employer for
work-related injuries.
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NAVIGATING THE CHALLENGES OF A PROPERTY/CASUALTY
INSURANCE CLAIM

Superstorm Sandy, EF5 tornadoes in Oklahoma, the BP oil spill; disruptions stemming from
damage to a critical customer or suppliers facility. Disasters can strike anytime and
anywhere, and when they do, the impact can be crippling to a business. Recovering from such
losses is a complex, and often daunting, task.

Regardless of whether a policyholder has a sophisticated risk management department, with


experience recognizing risks, placing insurance coverage, and handling claims, or relies upon
a team that wears several hats within the organization, the challenge of managing the
financial impact of a large property damage and business interruption event, and the
associated insurance recovery effort, is arduous and requires skills from across the
organization.

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In the course of guiding hundreds of policyholders through the insurance recovery process,
The Claro Group has identified guiding principles that may not remove all of the headaches
that inevitably accompany an insurance recovery, but which will help make the road to
recovery smoother and set the policyholder on a course to an equitable outcome. The
following guide highlights some of these principles that will help policyholders successfully
navigate a complex insurance claim process and recover from the financial loss arising from a
catastrophe to the maximum extent allowable under their insurance policy.

Treat Your Claim like a Capital Project


Large-loss insurance claims should be viewed as any other major project with an uncertain
outcome. Claims should be managed to achieve the highest return possible, within the context
of the business strategic needs. Like any capital project, a claim requires an investment of
resources and time to yield results. A claim team typically includes personnel from various
departments, including risk management, finance and accounting, operations, and legal, plus
outside professionals, including brokers, experienced claims consultants, and potentially
outside counsel, if there may be some challenging coverage issues.

Avoid Premature Estimates of Loss


Inaccurate loss expectations are one of the hardest things to overcome in resolving a large
claim. If the insurers appointed adjuster establishes a loss reserve that is too low, the
policyholder may need to spend significant time and resources trying to educate the insurer(s)
in an effort to reset expectations. Managing policyholder management expectations can be
equally challenging, particularly when stakeholders have unrealistically high recovery
expectations. No CFO wants to book an insurance receivable and later have to communicate
to stakeholders the bad news of a less-than-expected recovery.

Proactively Manage Claim Communications


Miscommunication can derail an otherwise smooth claim process. Rogue communication,
internally or externally, may lead to misunderstandings, which will take time and resources to
overcome. Policyholders should be open within the organization and with the insurance
carriers, and their representatives, about the importance of establishing and working through
a clear communication protocol. This typically works best when a single, senior-level
manager is responsible for controlling the flow of information, and for coordinating internal
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communication of important claim information to the policyholders executive management
team and carriers. Caution: prudency suggests policyholders assume that every analysis,
email, memo and press release could be used in the context of a claim dispute. In the event of
a potentially difficult claim, consider channeling communications through counsel to
establish legal privilege where appropriate and available.

Know that the Actual Loss and the Insured Loss are Two Different Numbers
Estimating the amount of loss from an insured event is often more certain than estimating the
insurance recovery itself. The actual loss sustained may typically be estimated within a range
not long after the incident, once the physical damages have been assessed and rebuild and
restoration plans have been established. However, valuing a likely insurance recovery
involves analysis of insurance contracts to determine what losses may, or may not, be covered
by responding policies. Insurance policies are not designed to cover all possible losses, and
each policy will have varying grants and/or restrictions i.e., exclusions, sub-limits, etc., of
coverage that may, or may not, respond to elements of a loss. Understanding how the various
elements of loss relate to the provisions of an insurance policy can be challenging, and
misunderstandings about what is and is not covered often create frustrations for
policyholders, particularly those that have encountered losses of a type/magnitude not fully
appreciated when the policy was originally placed.

Evaluate and Manage Uncertainty in the Claim Values


Property/Casualty claims can generally be grouped into two broad buckets; first, the cost to
rebuild or restore physical assets to pre-loss conditions and second, lost profits that stem from
the damage sustained to physical assets. Each group has facets that a trained eye can help
navigate.

A physical damage claim, that is, the cost to investigate, rebuild, repair, or restore a piece of
physical property to its pre-loss condition, may appear straight forward on its face, but often
poses challenges. Many policies allow for a claimant to replace or restore damaged assets
with assets of like kind and quality. That term is often the subject of significant debate and
scrutiny, especially in instances where a claimant may not be able, or does not wish, to
replace a damaged piece of property with an identical replacement. In addition, policies
frequently contain sub-limits for certain recovery or repair costs, such as debris removal or
allowances for technological advances. When thorny elements such as these are encountered,

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consideration should be given to developing an analysis of potential recovery costs under
varying, including hypothetical, scenarios.

Business interruption claims, that is, the lost profits stemming from a covered physical
damage event, may require a comparison of actual post-loss business performance with an
estimate of how the business would have performed had the loss not occurred. The difference
between the actual and but for gross profit calculation is the essence of a traditional
business interruption loss. Estimating what likely would have happened absent the loss event
is not a trivial proposition, even in steady businesses where the calculation of loss of income
would seem relatively straightforward. For one reason, tangible accounting and other records
generally do not exist for the lost production and revenue. A well-prepared claim considers
pre-loss business performance, market conditions, budgets and other factors in conjunction
with market and business conditions before, during and after physical property damage is
restored in order to glean a reasonable measure of economic impact. In addition, some
insurers contend that the but for calculations should incorporate post-loss market changes,
e.g., reduction in demand for a product after a hurricane because of the displacement of the
consumer base, etc. These are challenging issues that may well depend upon the specific
wording of the policy.
Given uncertain outcomes under various scenarios, it can be difficult to determine whether a
settlement offer is a fair outcome. In situations where claim amounts are sensitive to certain
key assumptions, scenario modelling and other analytical techniques should be used to
quantify various uncertainties. Likewise, where the interpretation of insurance coverage
issues and positions are murky, input and advice from experienced coverage counsel often
represents an important, and valuable, asset to the policyholders claim team.

Manage the Business Relationship With Your Insurance Company


The conduct of both the insurer and the policyholder in the context of an insurance claim can
have implications for insurance retention and renewal. Overly aggressive claim assertions,
unmeritorious denials, and/or hard-ball negotiation tactics have the potential to damage
valuable insurance market relationships and ruin credibility. Unlike personal home or auto
insurance, the market for commercial insurance for large risks is limited, and negotiations for
next years premium are often occurring as claims are being made against last years policy.

Be Proactive With Your Claim

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It is important to understand that the policyholder owns the claim and should drive the claims
process. Be proactive, not reactive. Do not rely on the insurance companys appointed
adjusters to always look out for the policyholders best interest. It is the adjusters job, on
behalf of the underwriters, to adjust the claim presented by the policyholder. The policyholder
has the burden of demonstrating and documenting the claim in the first instance. In real
estate, the adage is location, location, location; in commercial insurance claims, its
documentation, documentation, documentation.

Be Aware the Insurance Company has Leverage in the Negotiations


An insurance claim is a business negotiation with a for-profit company. And like most
negotiations, one party generally has a more natural advantage than its counterpart in the
negotiation. In the case of a claim, advantage usually rests with the insurer. Not only does the
policyholder have the burden of proving its claim, but the insurance company has the distinct
advantage primarily because the insurer is holding the money that the insured is seeking in
recovery. Insurance companies are obligated to pay adjusted claims promptly only after the
policyholder has presented sufficient information and claim documentation in accordance
with the relevant provisions of the insurance contact.

The policyholder must recognize that negotiating an insurance claim is an asymmetric


exercise, and the burden is on the policyholder to do everything it can to make sure the
insurance company has what it reasonably needs to evaluate and pay claims. Otherwise, the
claim process may not feel like the good faith and fair dealing that was experienced when
the insurance was purchased.

Consider the Assistance of Outside Claims Professionals


Disasters are inherently disruptive. Most policyholders are not staffed to set about reacting to
and restoring operations after a significant loss event, let alone accumulating and
communicating the vast amount of information that is required in large property/casualty
claims. Further, the deck is often stacked against the policyholder facing an insurer and
adjuster whose day-to-day business is evaluating and addressing similar claims. Marshalling
resources to assist in the increased workload and level the playing field can help expedite the
path toward negotiations and ultimately, claim resolution.

Large or complex losses require knowledgeable and experienced professionals who specialize
in quantifying, preparing and resolving claims. Spearheading claim activities on a day-to-day

22
basis may not be the best use of the companys senior executives time. Fortunately, policies
often provide coverage for claim preparation or professional fees that reimburse the
policyholder for consultants retained to help prepare and document the claim and respond to
adjusters information requests, which in a complex claim situation, can be daunting.

The insurance claim process is challenging and often fraught with frustrations for companies
with modest, or perhaps no, large claim experience. Implementing the principles described
herein can assist policyholders in steering clear of the many avoidable sources of
consternation.

RISKS TO YOUR HOME

Why Buy insurance for My Home?


Your home is a valuable asset. If damaged or destroyed, it may take many years to recover
the money that you invested in your home. Insurance can help pay to repair or replace your
home. Your home is where you store other valuable assets. Beyond the bricks and mortar, you
keep your clothes, furniture, mementos and other things inside your home. Insurance can help
repair or replace items that may be damaged or lost. Your home is the place that you live.
Almost everything associated with your non-work life is in your home. If damage to your
home makes you live elsewhere, you not only want to fix what is wrong, but you may need to
pay for additional living expenses while you cant live in your home. Insurance can help pay
some transition costs until you return to your home.
What Could Ever Happen to My Home?
Just about anything. Fires or natural disasters, including hurricanes or earthquakes, could
destroy your home. Your home may be susceptible to electrical fires, frozen pipes, burglaries
or lawsuits filed by other parties claiming your negligence caused them harm. If you dont
properly maintain your home, it could also be damaged by leaky roofs. Insurance is intended
to address the costs of unexpected damages beyond your reasonable control. It is not intended
to pay the expected repairs you need to maintain your home whether by replacing worn out
roofs or taking appropriate precautions. By purchasing the right insurance policy, you may be
23
able to protect yourself from the financial costs of unforeseen losses. Without appropriate
protection, you could lose everything that you have worked to obtain.
Am I Required to Buy Insurance for My Home?
Home insurance is financial protection to cover you and your loved ones from the costs of
unexpected events damaging your home. There is no law requiring anyone to purchase any
insurance on your home, but it is prudent to consider this coverage to protect your investment
in your home. You should note, however, if you need a mortgage to help pay for your home,
your lender or bank may not loan you money unless you buy and maintain insurance on your
home. If you drop coverage or stop paying for it, some mortgage agreements permit the
lender to take action against you to recover the amount that they did loan you. You should be
aware, however, that even if your lender requires you to have insurance, the lender cannot
require you to obtain the coverage from a particular insurer and cannot require you to insure
your home for more than the replacement cost of the dwelling.
INSURANCE FOR YOUR HOME

How Does an Insurance Policy Work?

An insurance policy is a legal contract. Unlike a bank account, where you may deposit
money to pay for a rainy day, under an insurance contract you pay a premium to an insurance
company in return for the insurance companys promise to pay for covered losses that occur
during the specified term of the policy, usually for a one-year period. The contract and any
insurance company obligations end at the conclusion of the term, unless you and the
insurance company agree to extend the promise for another specified term. You and the
company each have responsibilities under this contract.. There is an expectation of good faith,
i.e., that you and the insurance company will be fair and honest in your dealings with one
another.

How Do I Obtain Insurance for My Home?

Can I Ever Be Turned Down? In most cases, you will contact an insurance company or an
insurance producer (sometimes also known as a broker or agent) to obtain coverage. In some
cases, you may be contacted by direct mail or internet solicitations. In all cases, the insurance
company will want to collect information about your home before issuing any coverage. You
should know that insurance for your home is offered in a competitive market. You can shop
around for coverage from companies available in your area and an insurance company can
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decide to turn down your application for coverage. You should be aware, however, that under
Massachusetts law (M.G.L. c. 175, 4C), an insurance company cannot consider your race,
colour, religious creed, national origin, sex, age, ancestry, sexual orientation, children, marital
status, veteran status, the receipt of public assistance or disability when deciding whether to
provide, renew or cancel home insurance. If you believe that a company has used any of these
factors, you should file a complaint with the Division of Insurance at (617) 521-7777. In
order to obtain an insurance policy for your home, you must fill out an application to help the
insurance company learn about you, your home, and the risks the insurance company would
be responsible for if you were given an insurance policy. After reviewing the information, the
insurance company will use its own standards, known as underwriting guidelines, to decide
whether to give you a policy, and the rate it would charge for any coverage it would provide.
If an insurer decides to accept your application, the producer or company may issue you an
insurance binder, which is a legally binding statement that you have immediate protection for
a specified period of time while the company decides whether or not to issue you a policy. If
the company formally accepts your application, you will be issued a policy, usually for one
year. If your application is rejected, you may need to apply to another insurer or to the FAIR
Plan

Can an Insurer Ever Cancel or Non renew My Coverage?

Until a policy has been in effect for 60 days, an insurance company is permitted by law to
cancel a policy at any time. Once a policy has been in effect for 60 days, under Massachusetts
law (M.G.L. c. 175, 99), it can be cancelled during the term of the contract only for the
following:

(1) Non payment of premium;

(2) Conviction of a crime which increases hazard under the policy;

(3) Fraud or misrepresentation by the insured in obtaining the policy;

(4) Wilful or reckless acts or omissions by the insured increasing the hazard of damage;

(5) Physical changes in the property making property uninsurable; or

(6) A determination by the commissioner that continuation of the policy would violate or
place the insurer in violation of the law. Prior to cancellation, aninsurer is required to provide
you with sufficient written notice of cancellation, except in case of nonpayment of premium
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when the insurer is to provide at least ten days written notice. Once a policy is in effect, under
Massachusetts law (M.G.L. c. 175, 193P), a home insurance company can refuse to renew
coverage at the end of the term of the contract (usually one year), provided that at least forty-
five (45) days prior to policy expiration, it gives the insured written notice of nonrenewal
with a statement of the reasons for nonrenewal.

How Do I Find Companies that Sell Homeowners Insurance?

Licensed Insurance Companies There are many insurers that sell homeowners policies in
Massachusetts under a license that has been granted by the Massachusetts Division of
Insurance. In order to be licensed, an insurer must demonstrate it meets the states minimum
financial requirements to pay claims now and in the future. It must also agree to participate in
the states guaranty fund which is designed to protect policyholders if any licensed property
and casualty insurance company is financially unable to pay its bills. You can check
www.mass.gov/doi/consumer for a list of companies in your area. When considering a
company, you may want to contact your neighbours, relatives, and friends for
recommendations regarding their insurance companys service and price.

The Surplus Lines Market The surplus lines market is an unlicensed insurance market which
can be an alternative market to cover a home, usually for an unusual or expensive property or
when an insured cannot obtain coverage from insurers licensed to do business in
Massachusetts. Although surplus lines companies are permitted to issue policies to
Massachusetts residents, they are not licensed by the Division of Insurance, are not regulated
by state law and are not members of the state guaranty fund. If you are interested in surplus
lines coverage, you will need to meet with a producer specifically authorized to sell this type
of coverage.

The FAIR Plan The Massachusetts Property Insurance Underwriting Association (The FAIR
Plan) is a statutorily created program that is known as the insurer of last resort. The Fair
Plan will offer insurance to consumers who have been refused coverage from licensed
insurance companies so long as they meet the plan criteria.

What Type of Insurance Do I Need to Protect My Home?

Although your insurer or agent can provide some assistance, it is ultimately your
responsibility to choose the right level of coverage. You may need to consult local building

26
contractors to understand the cost of repair and periodically review your coverage limits to
see if they are adequate. You should consider a dwelling limit that is high enough to help
you rebuild your home at todays labour and material costs in the event of a total loss. This
cost may be very different from the market value of your home. When considering your home
or real property, you should consider not only your house, but also unattached garages, sheds
or other structures that may be on your property. You should also consider

(1) the level of coverage needed to replace your personal property or the contents of your
home, such as furniture, clothing, electronics, jewelry or other personal items that may be
damaged in the event of loss to your home and

(2) sufficient liability coverage to protect you and your assets from lawsuits if others claim
damages due to your negligence either on or off your property. In addition to choosing the
type and overall limits to your coverage, you will also choose the deductible level up to
which you will be responsible for paying the costs of each claim. The higher the deductible
chosen and greater proportion of low-dollar claims that are your and not the insurers
responsibility the lower the premium that you will have to pay. Almost all policies are
issued with fixed dollar deductibles, but some have percentage deductibles that are based on
overall policy limits.

There are differing packages of insurance that may be offered to protect your home and
belongings. Most single-family homes are covered under what is called homeowners
insurance; other policies are more appropriate for renters or those owning condominiums.
You should consult your insurance producer for the type of policy that is right for your home.
It is important to know which risks a policy covers and which risks are excluded. Each policy
protects against a specific number of perils (events that cause damage to property), including,
for example, fire, windstorm, and theft. Policies may specifically exclude coverage for certain
events, including for example floods,1 earthquakes, or damages related to poorly maintained
properties. 1 Depending on where your home is located, you may be able to purchase flood
insurance through the National Flood Insurance Program. Your producer or company can help
you with application forms for flood coverage.
If your home is In addition to knowing the risks or perils covered, it is important to consider
the expenses that are covered in the event of a covered peril. Each policy usually contains
coverage for the following:

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(1) damage to your real property, including your home and other structures on your property,
(2) damage to your personal property,
(3) the additional cost of alternate living arrangements,
.

DAMAGES & COVERAGE OF RISK

(1) Damage to Your Real Property Damage Your homes structure is known as your dwelling.
The overall dwelling coverage limit will cover the expenses of repairing or replacing the
structure of your dwelling. Coverage for other structures on your property - including sheds,
barns, detached garages, - are usually covered at a level equal to 10% of the dwelling
coverage limit. You should check with your insurance company or producer to make sure the
amount of coverage on your dwelling, as well as on your other structures, is appropriate to
cover a loss. There are also limited additional coverages for removing debris, for the
increasing cost of construction, for the application of building ordinances that may require
repairs, for the cost of reasonable repairs to protect your property against further damage, for
damage to trees, shrubs and other plants, any fire department service charge (where
applicable) and the cost of removing property from the premises to protect it from further
damage. For coverage to apply, the damage must be caused by a peril you are insured for
under the policy. You should check your policy to verify exactly what it covers.

(2) Damage to Your Personal Property Personal property includes the contents within the
walls of your home and other personal belongings owned by you or by family members who
live with you. Personal property does not typically apply to belongings of other people who
may live with you (i.e., boarders or renters). Their belongings will generally only be covered
if you made arrangements with your insurer. Personal property coverage is based on a
percentage (e.g., 50%) of the dwelling coverage limit. Some forms of personal property, such

28
as silverware, computers, guns, money, expensive antiques, and jewelry, have limited
coverage under your home policy and you may need additional insurance. This coverage can
be added to your policy as an endorsement (or rider) in the form of a personal property
schedule if appropriate for certain valuable personal property. Check with your insurer or
insurance producer at least once a year to make sure your policy gives you adequate limits of
coverage. You should know that insurance policies for your home do not cover private
passenger automobiles or other motorized vehicles unless they are unlicensed and used only
at your home, including, for example, a riding mower. Your insurance company or licensed
producer can help you find coverage for your car, boat or recreational equipment outside the
standard insurance you buy for your home.

(3) Additional Cost of Alternate Living Arrangements If property damage caused by a


covered loss prevents you from living in your home, policies can pay the expenses of
alternate living arrangements (e.g., hotels and restaurant costs) for a specified period located
in a special flood hazard area, and your lender will require flood insurance. For more
information about federal flood insurance, contact the National Flood Insurance Program at
1-800-638-6620 of time to compensate for the loss of use of your home until you can
return. The additional living expenses limit can vary, but is typically set at up to 20% of the
dwelling coverage limit. You talk with your producer for advice about appropriate coverage
and determine what type of limit may be appropriate for you.

(4) Personal Liability Lawsuits Personal liability coverage protects you against a claim or
lawsuit resulting from (non-auto and non business) bodily injury or property damage to
others caused by your or your familys alleged negligence (non-auto and non-business). The
personal liability coverage limit is usually $100,000. You should determine whether a higher
limit is appropriate.

(5) Medical Payments Medical payments coverage pays for any medical expenses incurred by
persons not living with you who are accidentally injured on your property in a non-
automobile-related accident, regardless of fault. Although the medical payments coverage
limit is usually set at $1,000, you should determine if the amount of medical payments
coverage on your policy is sufficient, or whether a higher limit would be more appropriate for
you.

Do I Need to Buy More Insurance as the Value of My Home Increases?

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Your homes value can be looked at in three very different ways: Market value represents
what your property would sell for on the real estate market. Actual cash value represents what
your property is worth today after adjusting for the normal wear and tear that may have
depreciated the value of the property. Replacement cost value represents the cost that it may
take to rebuild your house if it were destroyed. Each of these may be significantly different
than the other and should not be confused in determining the amount of coverage that you
may need to repair or rebuild your home. A home that may sell for $300,000 may actually
cost $600,000 to replace. Although rising property values usually go hand-in-hand with the
increasing costs to rebuild houses, it may be appropriate to talk with your insurer, insurance
producer or a contractor about how much it may cost to replace your house when considering
the limits of your coverage. If your coverage is less than the cost to replace your home, your
insurance company is not obligated to pay the total costs to replace your home. In the case of
a total loss, the company only needs to pay up to the policy limits. For partial losses, an
insurance company may only be obligated to pay a percentage of the loss based on the
percentage that your policy limit would pay toward the cost to replace your entire property.

What Happens If I Do Not Have Enough Coverage?

If an insurer requires an owner to insure a home at 100% of replacement cost and the owner
fails to insure for the percentage of replacement cost required by the contract, a penalty is
applied to partial or total losses. If your contract requires coverage for at least 80% of the
homes replacement costs, but you do not have sufficient coverage, the insurer may only pay
for a proportional amount of the total claim. For example, assuming that there is no
deductible on your policy (not typical but done to simplify the example), if your policys
dwelling limit is set at $120,000, but it would cost $200,000 to replace your home, if a fire
causes $40,000 in damages, your insurer would only pay: Insurance on Your Policy $120,000
75% x $40,000 loss = $30,000. Amount of Insurance Necessary $160,000 to Cover Assets
(80% of $200,000) You would be responsible for the remaining $10,000 of the loss. Since
such underinsurance can be catastrophic, you should make sure you review and update your
coverage every year. It is important to keep track of its value since inflation and home
improvements can increase the replacement cost of your home, even if the actual cash value
of your home may decrease over time. Please note that carriers may offer inflation guard
coverage that can automatically increase your dwelling limit to match the expected rate of
inflation in building costs each year. Whether your home is insured for replacement cost or

30
actual cash value, it is important to keep track of its value. For instance, adding a new room,
new insulation, remodelling, and inflation all increase the replacement cost of your home,
while the actual cash value of the home may decrease over time. Check with your insurer or
insurance producer at least once a year to make sure your policy gives you adequate limits of
coverage. In addition to considering the replacement cost of your dwelling, you should be
aware that most insurance policies for your home cover your personal property on an actual
cash value basis (i.e., the contents of your home based on their actual cash value). Since a
five-year old couch is worth much less than a new couch, due to normal wear and tear, if your
couch were destroyed in a fire, the insurance company will likely pay only a fraction of the
cost to replace the couch. Many insurers offer an option for you to insure your belongings or
personal property at replacement cost. This will increase the premium for the policy, but you
may decide with your producer that the coverage is appropriate to your needs.

What Is a Wind or Hurricane Deductible and How Does It Affect My Coverage?

In addition to a policys standard deductible, carriers may apply a specific wind deductible or
a specific hurricane deductible on certain home insurance policies if a home is in an area that
is susceptible to wind or hurricane damage. For many years, insurers have offered, for a
reduced premium, optional wind loss deductibles that are higher than the standard insurance
policy deductible. As insurers have become more aware of the potential costs of windstorm
losses in certain parts of Massachusetts, many insurance companies have implemented
mandatory wind loss deductibles. These deductibles are either offered as fixed dollar amounts
or a percentage based on the amount of dwelling coverage and a homes proximity to the
coastline. It is important that you understand how a percentage wind deductible applies to a
loss you may incur. Most carriers apply a wind deductible percentage to the dwelling limit
listed on the policy. For example, if a wind deductible percentage is 5% and you have a
$200,000 dwelling limit on your policy, then you will need to pay all covered wind-related
losses up to $10,000 (5% x $200,000) before the insurance company will pay for any losses.
As we have said on many policy features, you should read your policy to understand the
specific workings of this type of deductible to your home. If you have questions about this
deductible, contact your producer or insurance company.

What May Affect the Cost of Insurance for My Home?

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Amount of Coverage: The amount of coverage you buy for your house, contents, and
personal liability will affect the price you pay. Deductible Amount: The amount of loss that
the covered person is required to pay before the insurance company will pay any losses. The
higher the deductible, the lower the premium will be for the policy.

FACTORS TO BE TAKEN INTO CONSIDERATION WHILE


CALCULATING CLAIM

Type of Construction: Wood frame houses are more susceptible to certain types of property
damage than houses built from brick, stone or stucco.

Age and Condition of House: New or remodelled homes may have certain safety features to
reduce risk while older homes may be subject to more damage in case of an accidental event.
Homes with older electrical wiring or plumbing systems, swimming pools or flat roofs
present particular hazards that may affect the cost or even an insurers willingness to issue a
policy.

Recreation: Having pets or potentially hazardous recreational equipment, such as


trampolines, increase the risk of losses on your policy and may affect the cost or even an
insurers willingness to issue a policy.

Local Fire Protection: If your home is located more than 5 road miles from a responding
fire station and/or more than 1,000 feet from a recognized hydrant then you are likely to pay
more for home insurance since it may take fire teams longer to respond in the event of a fire.

Geographic Location of House: If your home is located near a coast, flood plain or other
area susceptible to natural disasters, such as hurricanes, floods, tornadoes or mudslide, you
may pay more for the increased exposure or a higher deductible may apply.

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Past Loss Activity: Small dollar claim activity can drive the price up or result in non-
renewal (the policy is not intended to be a home maintenance policy.)

Discounts: Most insurance companies offer a variety of discounts, including some of the
following based upon projected reduced risks for certain features: Multi-Policy, Group, Non-
Smoker or Senior Discount Alarm, Dead Bolt, Automatic Sprinkler, Smoke Detector, Fire
Extinguisher credits New home, new wiring credits, new plumbing credits

How Can I Find Out How Much an Insurer May Charge to Insure My House?

When you shop for homeowners insurance, premium quotations are a useful tool for
comparing different companies products. However, when you ask for price quotations, it is
important that you give the same information to each producer or company.

To give you an accurate quote, the producer or company will usually ask for the following: -
a description of your house; the distance from the nearest fire department and fire hydrant; -
the square footage; if you have security devices; a picture of your home; the coverages and
limits you want.

How Do Insurance Companies Market Policies?

Insurance companies generally use one of three methods to market their product: direct
marketing, independent producers, or exclusive producers. The type of marketing method
may or may not meet your needs, depending on the type of services offered. Therefore, you
should be aware of each of the three methods and may want to consider these when you
decide to buy insurance. Some insurance companies use direct marketers who sell insurance
through the mail and by telephone. In some cases, consumers can save money with direct
sales because companies do not have to pay insurance producers commissions to sell their
policies. Companies can pass along some of these savings to you. However, some consumers
prefer to have a local producer available to them. If you decide to call producers for prices,
ask them how many companies they represent. Independent agents or producers represent
several companies; therefore, you can get quotes for more than one company from just one
producer. Many consumers consider this an advantage. Some insurance companies sell
coverage through producers that only represent their company. These companies call their
producers an exclusive agency or producer force. Exclusive producers can only offer you
coverage from the company they represent. Sometimes exclusive producers may work for a
33
lower rate of commission than independent agents and the lower commission structure,
especially on commissions for renewal business, can represent cost savings to the insurance
company and often a portion of that savings is passed along to the consumer in lower
premiums.

What Should I Do to Lower the Premium that I May Pay?

Shop Around Prices can vary greatly. However, dont consider price alone since service and
the insurers financial strength is also important. Quality service may cost more, but it also
may be worth it. Be sure to talk to your friends. Raise Your Deductible Deductibles are the
amounts you may pay out of your own pocket for a loss before the insurance company pays.
Although choosing a high deductible may decrease the annual premium cost, you should
carefully consider a deductible level that you can comfortably pay if a loss were to occur.
Shop for Discounts Some companies may offer a 5% to 15% discount on your premium if
you have two or more policies with them. Before You Buy a Home

Think about how much it will cost to insure. Some insurers may offer discounts on new or
remodelled homes because it is likely to be in better condition and therefore less likely to
have a loss. Insure Your House, not the Land The land your house is on is not at risk from fire
or theft or any of the other things covered by your homeowner policy. So dont include the
land value in deciding how much insurance to buy. Improve Your Security Some companies
offer discounts for smoke alarms, burglar alarms, or dead-bolts. Their credits vary for the
type of device, usually 2% for smoke alarms and up to 15% for an alarm system that notifies
a third party (e.g., ADT).

Stop Smoking : Smoking causes many residential fires a year. Many insurance companies
offer reduced premiums if none of the residents smoke. (This is sometimes known as the
Smoke Free credit.)

LOSSES

How Can I Protect My Home and Reduce My Insurance?

An ounce of prevention is worth a pound of cure. This statement has great relevance to the
topic of loss prevention. Most losses are preventable for the prepared homeowner.

Here are some tips on preventing losses before they occur:

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Preventing Fire Damage:

Woodstoves and Fire places: Inspect and clean chimneys and stove pipes regularly and at
least twice a year. Make sure that you have proper floor protection. Keep combustible
materials away from fireplaces and woodstoves. Remove ashes into a non combustible
container and dispose of them properly.

Furnaces: Ensure that they are serviced annually by a licensed technician.

Fire extinguishers: Keep them in the kitchen, near the furnace and near your fireplace or
woodstove and make sure that you know how to use them.

Smoke alarms and smoke and carbon monoxide detectors: Install ones adequate to meet
building codes for the appropriate type, number and placement.

Check detector batteries at least twice each year and change batteries when low.

Matches and lighters: Keep all matches and lighters out of the reach of children.

Properly dispose of smoking materials and avoid smoking in bed.

Fire drills: Hold practice drills at least twice a year, especially if you have children.

Know what to do, where to meet outside, and make plans to call the fire department from a
neighbours home.

Wiring: If you have an older home, have a licensed electrician check the wiring. Older
systems have difficulty handling the energy requirements of todays appliances. Also consider
that dishwashers, kitchen stoves, dryers and washers should be professionally installed to
prevent electrical fires.

Electrical outlets: Dont overload or overuse extension cords. Space heaters, candles, and
hurricane lanterns: Dont leave them unattended and keep combustible materials away.
Preventing Roof and Water Damage: Roofs: Check for excessive snow buildups. Clean snow
to prevent ice dams and collapse from weight. Make sure that the roof is vented properly.

Shingles: Periodically check for loose shingles and repair them

35
Plumbing: Periodically check the pipes and hoses throughout your home and repair as
needed. This includes items such as the water hose for your clothes washer, exterior faucets,
water heaters and sump pumps and drains.

Mold: Take special precautions to clean up all water spills or leakage immediately to prevent
the spread of mold, fungus, wet or dry rot or mildew. Use anti-fungal cleaners wherever
possible.

Managing the Damages of Winter Freeze-ups Frozen pipes arent just an inconvenience,
families have their homes ruined and their lives disrupted each winter because water pipes
freeze. Before the cold hits:

Make sure that even small holes or cracks in the exterior siding are insulated.

Cover around any water pipes that are on the inside of exterior walls. If your house is
occupied throughout the winter, when it is extremely cold:

Maintain temperature at 3-4 degrees higher than normal temperature settings

Turn on your faucets and let the water trickle constantly.

Open cabinet doors under sinks - this will allow the heat to warm the pipes. Insulate pipes
insulation goes a long way toward preventing freeze-ups.

Shut off exterior faucets used for garden hoses from inside your basement and leave the
exterior faucets open outside (even if you have freeze-proof sill cocks.) If your house is
unoccupied at times during the winter and has hot water heat:

Set the thermostat no lower than 60 degrees and install a low heat alarm.

Have a plumber install a low water cutoff switch on a forced hot water boiler.

Heat tape the water meter and water service, unless the water meter is plastic; if plastic, heat
the meter and service area.

If heated by oil, install a low-oil alarm.

Have the house checked once a week. If your house is not occupied at all during the winter
months:

Have the water service shut off in the street.


36
Drain all domestic waterlines, leave faucets and drain valves open.

Drain all heating lines, leave all drain valves open.

Drain boilers and hot water heaters, and leave drain valves open.

Drain plumbing fixtures, add antifreeze to all traps.

Shut off gas service at meter.

Have house checked weekly. Managing Wind Losses for Coastal Homeowners

Elevate housing above the base flood elevation when possible.

Check and secure anchoring for covered porches making sure that connections are made in
accordance with local building codes.

When re-roofing a house, check and inspect all decking and allied components and install
shingles that meet high-wind standards.

Install shutters to protect window glass and glass doors from flying debris. Install gable
end, garage door, patio and double door bracing.

Install tie-downs for sheds, fuel tanks, TV antennas, and satellite dishes. Install backflow
valves on septic/sewer lines in flood-prone areas.

Elevate flood-prone utilities, heating/cooling systems and appliances and anchor securely.
Use tie-downs or strapping materials to secure woodpiles outdoors.

Keep downspouts and drains open and free flowing.

Thin treetops near buildings with the rule of thumb that one-third of the tree limbs
removed.

Managing Liability Exposures: Swimming pools: Make sure that fences surround pools and
keep the fence locked when not supervised - otherwise this could be grounds for your insurer
to cancel your policy.

Dogs: Obey all leash laws. Dog bite exposure is a serious problem for insurance companies.
Most have restrictions on the types of dogs they are willing to cover. Check with your

37
producer to find out if your company has any restrictions on the type of dog they are willing
to cover.

Trampolines: Think twice before putting one on your property. Most insurance companies
consider a trampoline an unacceptable liability exposure because of the potential for injury,
even if the trampoline has a restraint or sides that are intended to keep someone from falling
off or over the side. Check with your insurer or producer before you place a trampoline on
your property. The presence of a trampoline can negatively affect your ability to buy or keep
your homeowners insurance policy. When installing a trampoline use common sense. For
example, dont install a trampoline next to a picket fence.

Walkways and steps: Keep steps in good condition and clear of obstructions, including ice.

Decks, porches, or landings: If these structures are elevated more than 12 inches from ground
level, install a railing. Make sure that you keep railings and handrails in good repair to
prevent people from falling and replace them periodically, especially in the multi-family
units. Make sure residents and visitors recognize and abide by the capacity limitations on
such structures,

Full tanks: Periodically check the tanks and connections and repair as needed

Lead paint: Inpect your home for exposure to lead paint and take deleading and mitigation
measures required by law, especially if children under the age of 6 live in the home.

What Should I Do If Anything Happens to My Home?

Most home insurance policies generally require you do the following things: If you intend
to file a claim for a loss, give immediate notice of a possible claim to your insurance
company or licensed producer. If the loss is a theft, also notify the police. If your checkbook
or credit cards are missing, contact your bank or credit card company immediately. Protect
your property from further loss or damage. If you make temporary repairs, keep a record of
what you do and save all receipts for all expenses you incur in undertaking repairs, including,
for example, buying plywood and nails to board up broken windows. Give your insurance
producer, claims adjuster and/or insurance company a copy of a list of all damaged, destroyed
or stolen property (being sure to keep a copy for yourself). In case of theft, be sure to give
another copy to the police. Show the damaged property to your insurance producer, claims
adjuster and/or insurance company, if asked. Your company may also require a proof of
38
loss statement be submitted to them. Do not dispose of any damaged property until your
producer, claims adjuster and/or company says you can. If you feel that the amount of
money offered by your insurance company to pay for a loss is not fair or there are other
insurer practices that seem unfair or deceptive, there are several alternative courses of action
that you may want to consider; o You can demand an appraisal, per the terms of your
homeowners insurance policy, which is a method for resolving the question of the loss
amount when the insurer and insured cant agree; o You can file a complaint with the
Massachusetts Division of Insurance; o You can file a claim in small claims court; or o You
can hire a lawyer to represent your interests in court.

What If I Have Questions or Problems with My Claim?

If you are having a problem with your insurance, you should first check with your licensed
producer or with the company that sold you the policy. If you do not get satisfactory answers
from the agent or company, contact the Consumer Services Section of the Massachusetts
Division of Insurance during normal business hours at or by the internet at
www.state.ma.us/doi. When completing a complaint form, make sure you have included
detailed information about your insurance problem, including the correct name of the
insurance company and a complete and accurate description of any company actions to
respond to your complaint.

39
PROPERTY DAMAGE INSURANCE CLAIMS

Q: What should my first steps be?


If your home has been damaged or destroyed, you are likely to feel overwhelmed by the loss
and by the repair, replace and recovery process that lies ahead. If your property was insured,
that insurance policy is the best vehicle to get you back home. If this is your first experience
with a large insurance claim, recognize that it's basically a business negotiation.

When it comes to insurance lingo, laws and construction estimating...you're not on a level
playing field with the experienced insurance company. But although you may be unfamiliar
with your policy and the process in general, there are laws and rules that give you rights. Use
them to negotiate and recover the full benefits you're entitled to under the policy you paid for.

Our goal is to help you understand the process and your rights so you can be your own best
advocate and know where and how to get help if you need it.

Start by reading your policy's "declarations page". It shows how your policy is divided into
coverage categories: Dwelling ("Coverage A"), Other Structures ("Coverage B"), Personal
Property ("Coverage C"), Loss of Use/Additional Living Expenses ("Coverage D"), as well
as other categories such as liability and medical payments. You may also have additional
"Endorsements" or extras that may be listed on your declaration page. UP's "Simplified
Guide to Your Homeowners Policy" will help you understand what's inside your policy.

Do your best to read your policy over and over until you have a basic understanding of what's
in it. If you don't have a complete and current copy, ask for one (in writing) and make sure
you and the company adjuster are working off the same document. There's math involved in
figuring out how much you're entitled to for dwelling replacement , debris removal, trees and
building code compliance. If you rely only on the company adjuster to calculate your losses,

40
you may leave money on the table. UP offers many publications to help you read and
understand your policy but if you can't do it on your own, (and many can't), consider filing a
Request for Assistance with the State Department of insurance and/or hiring an experienced
and reputable policyholder lawyer or public adjuster to help you.

Q: What does the Additional Living Expense (ALE) part of my policy cover?
Temporary rent, pet boarding and other expenses you have to cover because you've lost the
use of your home;

Gas and mileage: If you have to drive further from your temporary home to school, work,
shopping, Laundromat or elsewhere

Food: If your temporary home has no cooking facilities, submit restaurant receipts to your
insurance company. Relocate to a fully equipped home as quickly as possible to avoid using
up the ALE coverage you'll need for temporary rent.

Ask your insurance company (in writing) to give you a list of common items that are covered
and reimbursable under Additional Living Expense, (or Loss of Use). Most policies contain
either a dollar or a time limit (or both) that cap your total ALE benefits. If delays beyond your
control cause you to run out of ALE benefits before repairs/rebuilding are completed, ask in
writing for an extension and file a complaint with the Department of Insurance if your request
is denied.

Ask your insurer for an advance ALE payment to help you get on your feet, but know that
ALE benefits are generally paid on a reimbursement basis. You have to pay for the item
yourself then submit receipts. ALE does not cover items you were paying for before the loss,
such as your mortgage.

If you're confused about whether an expense belongs in the ALE versus Contents or Dwelling
coverage category, ask yourself: Is this an expense I incurred because of the loss event? If
the answer is yes, put it under your ALE/Loss of Use coverage. Replacement items for living:
As you replace things you need for daily living, (cooking utensils, personal hygiene, etc.)
request reimbursement under your Contents coverage. Most people need all available ALE
coverage to pay their rent during the repair/replacement phase. For more information, read
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our "Survivors Speak: ALE"

Q: Will my insurer cover the cost if I live in a trailer during reconstruction?


If you're planning to rebuild/repair and stay in the area and are willing to live in a trailer, try
negotiating with your insurer to "cash out" your Additional Living Expenses (ALE) coverage
limits so that you can buy a trailer or motor home with your ALE policy limits instead of
using the money to pay rent. Negotiating a cash-out gives you flexibility and saves you from
having to submit more receipts and paperwork to your insurance company.

Q: How long will it take for my insurance claim to be settled?


Most people find it takes at least 18-24 months to repair/rebuild/replace their home and
possessions after a large loss.

Q: Who is responsible for clearing the debris from my lot and is that covered under my
policy?
The homeowner is responsible for clearing debris. Policies vary if you have appropriate
coverage, the cost for this work is covered. If your home was damaged or destroyed in a
natural disaster, check with your local government officials to see if they're coordinating a
debris removal program. If your soil needs to be tested and/or re-compacted, work with the
adjuster to make sure a qualified professional does the work at a reasonable cost. For more
information, read our "Debris Removal Tips"

Helpful Math Hint: One of the more common additional coverages in policies is an extra
amount of money for debris removal. You have to read the coverage carefully and do the
math you may have debris removal coverage in an amount that is above the limits of your
"A" dwelling coverage.

Q: Is there anything I need to do before my lot gets cleared?


Photograph recognizable items before they are taken away, particularly items your insurer
removes for cleaning/salvage. Your insurer may bring in a company to clean and store items.
Their fees usually get deducted from your insurance benefits for contents.

Disagreements often arise over whether damaged items are salvageable and can be cleaned or
whether it makes more sense to replace them. Examine the items your insurer or cleaning
42
company deem salvageable. If you feel they really can't be cleaned, or that cleaning and
storage costs will exceed the cost to replace them, work it out with the adjuster. After these
costs get deducted from your contents insurance coverage, you'll be left with less money to
replace destroyed items.

Helpful Hint: It's a good idea to confirm in writing with your insurance company that they
have fully inspected the loss location to their satisfaction and that you can move forward with
debris removal and clearing the site.

Q: How can I get a fair claim settlement?


If you're like most people, your home is your biggest asset. Insurance companies often read
their policies with a bias that is too much in their own favor. Don't accept an insurance
company's calculation of what they owe on your claim without getting other opinions. Read:

Dwelling Claim Tips


Contents Claim Tips

You can also refer to the samples and examples of our website, and get a free copy of the
"little yellow" Disaster Recovery Handbook and Household Inventory Guide that has guided
thousands of disaster victims through the recovery process since its publication in 2006.

You paid good money for insurance benefits and good claim service. Do your best to settle
your claim directly with your adjuster/insurer by following United Policyholders tips. Try
getting help from elected officials, Case Managers and government agencies. But if you run
out of energy or time, or feel you're over your head, hire qualified professional help.
Depending on your particular situation, a construction professional, policyholder attorney or
a reputable public adjuster can make a huge difference in getting you back home without
further delays and aggravation. But always be careful before hiring anyone or signing
contracts. Scam artists prey on disaster victims.

Q: My adjuster seems friendly. Can I trust him/her?


Trust but verify. Insurance companies are profit-making businesses, and their employees are
not social workers. Your adjuster may be friendly, but he or she is not your friend.

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Remember: settling a large insurance claim is a business negotiation. The more you
understand the process, the better you'll do. Insurance companies naturally try to limit their
payouts. There is a lot of confusing wording and legalese in insurance contracts that helps
them do that, but there are laws to protect you and keep the claim process fair. Visit our
website, use our library, and use our Ask an Expert forum. All our information is free to
disaster survivors.

Q: What are the most common post-disaster insurance problems?

Not having enough coverage ("underinsured")


Delays

Confusion over what's covered and what's not

"Lowball" estimates and settlement offers

The adjuster assigned to the claim is unpleasant or hard to work with

Differences of opinion over scopes and values of losses

Q: Does everyone have problems with their insurance company?


NO. Many claims go relatively smoothly and we hope your does. But every large loss
insurance claim is time-consuming.

Q: I think I may be underinsured/not have enough coverage for my home, contents or


temporary living expenses. What should I do?
Underinsurance is such a common problem after total losses that United Policyholders has an
entire section of our website devoted to offering tips and strategies for people who
are underinsured. It is a challenging problem and there is no "one size fits all" solution.
Much depends on the history of your policy limits.

Q: Are there "good" and "bad" insurance companies?


Some insurance companies have the reputation of being fairer and faster in handling claims
than others. Speak "UP" by learning your rights, keeping a claim diary and proving the value
of your losses will help you get a fair settlement with any insurance company.

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Q: The insurance company will only pay according to its "pricing guidelines" but they
don't match what local contractors are charging what can I do?
Computers don't repair and build homes...licensed contractors do. Your insurance company
owes you for what an experienced and reputable contractor would charge you to do the
required work to put your home back to its pre-loss condition. Insurance companies use
guideline pricing and "Xactimate" (computerized home replacement cost estimating software)
to predict how much materials and labor should cost. But an estimate prepared by a qualified
local, licensed and bonded contractor who has visited the loss site and reviewed information
about the pre-loss structure is generally the most reliable basis for a claim settlement.

Q: My home is very badly damaged but my insurance company is refusing to pay


anything up front for my contractor's overhead and profit. I don't have the cash to
advance this item, and he won't get started without it, so I'm stuck. What can I do?
Push back and assert your rights. Overhead and profit, ("O & P") is a known expense that all
contractors charge, usually at a rate of 10% and 10%. An insurer that holds back O & P until
repairs are completed puts the property owner in an impossible financial position. Under a
replacement cost policy, if you have a signed contract to rebuild, it is wrong for your
insurance company to hold back O & P until your home is completely repaired. Check out
this helpful article on Payment of Overhead and Profit for more information.

Q: My insurance company keeps reducing what they're going to pay by "depreciating"


items in my claim; what can I do?
Depreciation is frustrating and confusing to most people. It's subjectivenot a science. Each
adjuster makes his or her own decisions on how much and which items they depreciate. That
means it's up to you to argue for more reasonable numbers. Many adjusters will try and apply
a set depreciation across the board to every item. That's not fair. The condition of an item, its
age and its useful life are all factors to consider. Not everything in your home is subject to
depreciation. For example, paint, vinyl and roofing are exposed to the elements, so of course
they deteriorate and are subject to depreciation. The underlying materials that held your home
togetherstuds, cement, rebar, and framingare not. Studs can last 200 years, so don't allow
your adjuster/insurer to depreciate those items.

Adjusters and insurers rarely volunteer to tell you that if you submit receipts for items you
45
replace, they must pay you the difference between what they paid you for the item's Actual
Cash Value (ACV) and what it actually cost you (if you have a Replacement Cost, not strictly
ACV policy). For more information, read United Policyholders' Depreciation Basics.

Q: My adjuster is rushing me to complete my contents inventory, but I just can't


remember everything yet.
It's normal not to remember much after a traumatic loss. Take your time and don't be
pressured. Ninety nine percent of all disaster victims can't remember much of what they had
even after months and years after their loss. UP offers free inventory forms and lists on a
flash drive and on our website that will help job your memory. If you're not a computer
person, use the lists in the Disaster Recovery Handbook and Household Inventory Guide.

If you allow yourself to be rushed into a fast settlement, you are definitely going to
underestimate what you had and get less than you're entitled to. Don't forget to include taxes,
transportation and shipping costs associated with replacing items. Your policy probably has a
deadline for submitting your contents inventory. Ask in writing for extensions of time and if
your insurer refuses, get help from the Department of Insurance and/or a qualified
professional.

Q: My home is only partially damaged, but it will look weird if half the vinyl siding is
old and half is new. The insurance company is telling me they don't owe for matching. Is
that true?
Generally speaking, the insurer owes to restore your property to its pre-loss condition subject
to the dollar limits of your coverage. The appearance of your home after repairs have been
made should be "uniform and consistent." If you didn't have two different colors of siding on
your house before the loss, you don't have to have them after the loss. Insurance should to put
you back where you were before the loss. In recent years, some insurers have been sneaking
new wording in to their policies that can cause problems in this area. For more information,
read UP's Tips on Partial Losses.

Q: The contractor estimates I've received are $20,000 and more above the ones the
insurance company has gotten. How can I break the logjam and still hire the contractor
I trust?
Differences in construction estimates are a very, very common problem with large losses.
46
Ideally, you and the insurance company should reach agreement on a "Scope" of loss that lists
in detail the quantities and qualities of construction materials, the trades, labor, profit and
overhead, building code compliance and every single item required to be priced to repair or
rebuild your original home. If you can reach an agreement on a scope then have contractors
bid on that it's far easier to break a logjam due to conflicting contractor estimates.

If you've submitted all the information that your insurance company needs to pay your
dwelling claim, written follow-up letters and made phone calls to higher-ups in the company,
but nothing's worked, consider "Mediation" or "Appraisal" to resolve the difference.
Mediation is an informal way of resolving problems without going to court. Insurance
appraisals are like mini-trials without a jury. Almost every homeowner's policy has an
Appraisal section that is supposed to help resolve disputes over repair estimates.
If you and your insurance company are far apart on the amount you're owed for repairs,
consider using the appraisal process to settle the dispute. If you decide to use the process,
make sure you get help from experts who don't do most or all their work for the insurance
industry or you'll be wasting your time and money.
For more information, read Guidelines for Reviewing Adjuster and Contractor
Estimates and Policyholders Guide to Mediation.

Q: If I can't handle this myself and I need to hire professional help, where do I find the
right help?
Read UP's tips on hiring professional help, and visit the "Find Help" section
atwww.uphelp.org Make sure you check references carefully, and hire only an experienced
and reputable, licensed claim or law professional who specializes in representing
policyholders, not insurance companies. If you need someone to help you document and
value your losses, consider hiring a public adjuster and negotiate a fair fee - typically @7-
10% of whatever they recover from the insurance company after you've hired them. If you
need someone to help you exercise your legal rights, consider hiring a plaintiff-side insurance
attorney on a contingent fee basis who will advance litigation costs if a settlement cannot be
reached and a lawsuit becomes necessary.

47
PROPERTY INSURANCE PREMIUM TAX RATES & FEES

One of the most common interactions you may have with Wake County
Government is through the payment of property taxes. If you reside in
one of Wake County's 16 cities or towns, your municipal property taxes
are included in the property tax bill you receive from Wake County.

In addition to County and municipal tax, your tax bill may also include the following:

Recycling Fees Charged per living unit on the property. A single-family home
would normally have one living unit, whereas a duplex would have two.

Fire District Tax A rate charged in addition to County and/or municipal taxes if the
property is located in a fire tax district.

Special District Tax A rate charged in addition to County and/or municipal taxes if
the property is located in a special district designated by legislation. This is normally a
downtown area.

Municipal Fees Various fees assessed by the towns. Example: Stormwater


assessment

Vehicle Fee Charged annually for motor vehicles located within a municipality.

How to Calculate Taxes

Tax rates are calculated against each $100 in value.

Example 1

A single-family home with a value of $200,000. The property is located in the City of
Raleigh but not a Fire or Special District.

County rate = .6005 Raleigh rate = .4183 Combined Rate = 1.0188 Recycling Fee = $20

Property value divided by 100: $200,000/100 = 2,000


48
2,000 x .1.0188 = $2,037.60

Plus $20 Recycling fee = $2,057.60 estimated annual tax

Example 2

A motor vehicle with a value of $8,500. The property is not located in a municipality but is in
a Fire District.

County rate = .6005 Fire District rate = .096 Combined Rate = .6965
(No vehicle fee is charged if the property is not in a municipality)

Property value divided by 100: $8,500/100 = $85


$85 x .6965= $59.20 estimated annual tax

Householder Insurance
Having adequate protection under a householder insurance plan means your losses are
minimized in the event of an unfortunate incident, such as a burglary or damage. There are
various covers available in householders. insurance. Depending upon you needs, you can opt for
the ones that make sense to you. Covers include those for the house itself (the building) as well
as for the contents of the house.
You might want to learn about the basic features of a householders. policy, such as exclusions in
a policy or policy duration. You might also want to know what happens when a house covered
under householders. insurance is sold. Or perhaps, the need for householders. insurance even if
the co-operative society has insured the building? There might also be questions regarding the
claims procedure, premiums, renewals, discounts, and so on.
You will find all insurers that provide householder insurance. Go through each of them to help
you select the one that best suits your needs.

49
FAQS ON PROPERTY INSURANCE

Q. What are the requirements to purchase a property insurance policy?

A. The proposer of the policy should first and foremost have an interest in the assets being
proposed for insurance, i.e. he/she should stand to lose financially in the event of loss or
damage to such assets. Secondly, the proposer should submit a proposal form (which can be
obtained at any insurers website or office). The proposal form should disclose all details,
which are true to the insureds best knowledge and other information, which the proposer
may feel is relevant.

Q. What are the different types of Property Insurance Policies?

A. The most popular is the Standard Fire & Allied Perils Policies which covers most of the
perils the property is exposed to like fire, riots, flood, and storm. Loss of current assets due to
burglary and theft can be covered under Burglary & House Breaking Insurance Policy.
Valuables can be covered under All Risks Policies and there are 10 11 package policies for
house owners and shopkeepers.

Q. How does one fix the sum insured?

A. Generally, there are two methods. One is Market Value ( MV) and the other is
Reinstatement Value (RIV). In the case of M.V, in the event of a loss, depreciation is levied
on the asset depending on its age. Under this method, the insured is not paid amount
sufficient to buy the replacement. In the RIV method, the Insurance Co. will pay the cost of
replacement subject to ceiling of S.I. Under this method, no depreciation is levied. One
condition is that the damaged asset should be repaired / replaced in order to get the claim. It
may be noted that RIV method is allowed only for FIXED ASSETS and not for other assets
like stocks and stocks in process.

Q. What will be the cost of a fire insurance policy?

A. The cost of a fire insurance policy or the Premium can depend on the

Perils to be covered

The value of the items covered


50
The usage of the premises proposed for insurance

The location details of the premises proposed for insurance etc.

The construction of building and occupancy Consequent to de-tariffing of the non - life
insurance segment (except Motor Third Party Insurance where premium rates are laid down
by the IRDA) , premium rates charged by each insurer may differ. However, they should have
been filed with the IRDA under the File & Use procedure.

Q . How does one arrive at the value of assets in Dwellings or Offices or Industries?

A. Other than dwellings, industrial units or offices will maintain books of accounts showing
therein value of assets, therefore it will not be any problem in arriving at the sum insured. In
case of dwellings, one should take stock of assets under broad categories like furniture &
fixture, clothing, Bed linen, kitchen equipment, electronic gadgets etc and arrive at the sum
insured.

Q . Why should I insure my Building? Fire cant possibly do any harm to the building.

A. Fire and other perils (normally covered under a fire insurance policy) can cause loss /
damage to 12 13 buildings. There have been fire accidents that have completely destroyed
multi-storied buildings. Floods can also bring about devastating losses. Similarly, Riots, Acts
of Terrorism can also produce huge losses to human lives as well as property.

Q. Can I ask for cancellation of policy mid-term? Will I get any premium refund?

A. Yes. At Insureds option: Retention of premium on short period scale and balance if any,
will be refunded. At Insurers option: Pro-rate refund of premium will be given.

Q. In case of loss, what are the obligations of the insured?

A. Every insured is expected to behave as though he is uninsured. Take all precautions to


prevent / aggravate the loss. Inform Insurance Company who have to be given an opportunity
to inspect the damages. Inform fire brigade who will assist to put out the fire. During fire
fighting, any damage caused to other insured property caused by water, will be paid by
Insurance Company. Extend cooperation to surveyor while inspecting and assessing the loss.
If arrival of surveyor is likely to be delayed, then, take photos / and shift unaffected assets to
a place of safety. Give completed claim form and documents as required by Insurer, in
support of your claim. After repairs / replacement, submit bills to Insurer.
51
Q. If I insure for a higher value, will I get a higher claim amount?

A. No. When you apply for a fire insurance policy, the current market value of the property or
the Reinstatement value of the property, depending upon the basis of the Sum Insured, should
be accurately calculated for arriving at the correct amount to be insured. The compensation
payable when a covered loss or damage occurs shall be based on whether or not the property
has been insured adequately. If the amount insured is excessive, it will mean overpayment of
unnecessary premium; if the amount insured is inadequate you will receive amounts in
proportion to the market value only.

Q. Can items like jewellery, ornaments and art works be covered by the general fire
insurance policy?

A. Unless prior consent has been given by the Insurer, general fire insurance policy does not
cover items like jewellery ornaments, art works, scripts, documentary information, computer
system information, shares and stocks, cash. These can be covered on specific request and
subject to valuation where necessary.

Q. I have taken an insurance policy covering my building. My Bank which has financed my
business has also taken insurance separately. Both policies are in force covering same
property. What happens in the event of a claim?

A. In the event of a claim, each insurer will pay the loss amount in proportion to the Sum
Insured under their respective policies, in accordance with the principle of contribution. The
object of the principle of indemnity is to place the insured in the same place as he occupied
prior to occurrence. Insured is prevented from making claim for full amount of loss under
each policy. Insurance company indemnifies the insured only to the extent of actual loss
suffered subject to depreciation, policy excess etc., and not permit to make profit out of a
loss.

Q . What is the relevance of Salvage?

A. In case of claims under various types of insurance policies, the partly damaged goods or
the wreck of a car or any machinery or any other property settled on Total Loss Basis is
known as Salvage. After settling the claim for the full amount the salvage becomes the
property of insurance company. Generally the job of salvage disposal is entrusted by the
insurance company to the surveyor who carried out the loss assessment, subject to observance

52
of procedure for salvage disposal. The amount realized through salvage disposal will be set
off by insurer against losses paid by them.

Q. I want to cover my goods against transit risk. What policy do I take?

A. The Marine Cargo policy offers cover for goods against transit risks. You can take this
policy if you are, for instance, transporting your household goods from one place to another.
You may either opt for a Basic Cover or for an All Risks one. The latter offers a wider
scope of coverage. Please read the terms and conditions of the policy to understand what you
are buying .

Q. Who has to arrange for Marine Cargo insurance the buyer or the seller? Or do both need
some protection?

A. This depends on the Sale Contract the two enter into. For each Sale Term such as Free on
Board (FOB), Cost and Freight (C&F), Cost Insurance and Freight (CIF) etc, the
responsibility for arranging for insurance varies.

Q. I need to cover my jewellery. What policy should I take?

A. Insurers offer All Risks policy for covering jewellery. You must ensure that your
jewellery is valued correctly and you are able to show proof of valuation should a claim
occur. An All Risks policy also has exclusions, so go through the terms and conditions
thoroughly.

PROPERTY INSURANCE POLICIES IN INDIA

Insurance of property means insurance of buildings, machinery, stocks etc against Fire and
Allied Perils, Burglary Risks and so on. Goods in transit via Sea, Air, Railways, Roads and

53
Courier can be insured under Marine Cargo Insurance. Hulls of ship and boats can be insured
under Marine Hull Insurance. Further, there are specialized policies available such as
Aviation Insurance Policy for insurance of planes and helicopters. Thus Property Insurance is
a very vast category of General Insurance and the type of cover that you need depends upon
the type of property you are seeking to cover.

Package or Umbrella policies There are package or umbrella covers available which give,
under a single document, a combination of covers. For instance there are covers such as
Householders Policy, Shopkeepers Policy, Office Package policy etc that, under one policy,
seek to cover various physical assets including buildings, contents etc. Such policies, apart
from seeking to cover property may also include certain personal lines or liability covers.
Make sure you understand the complete details of cover and exclusions contained in the
policy you are considering. Package or Umbrella covers could have common terms and
conditions for all sections as also specific terms for specific sections of the policy.

Fire Insurance The most popular property insurance is the standard fire insurance policy.
The fire insurance policy offers protection against any unforeseen loss or damage
to/destruction of property due to fire or other perils covered under the policy. The different
types of property that could be covered under a fire insurance policy are dwellings, offices,
shops, hospitals, places of worship etc and their contents; industrial/manufacturing risks and
contents such as machinery, plants, equipment and accessories; goods including raw material,
material in process, semifinished goods, finished goods, packing materials etc in factories,
godowns and in the open; utilities located outside industrial/manufacturing risks; storage
risks outside the compound of industrial risks; tank farms/gas holders located outside the
compound of industrial risks etc. What a Fire Policy covers: Thought it is called Fire
Insurance, apart from the risk of fire, it also offers cover against lightning,
explosion/implosion, aircraft damage, riot, strike and 4 5 malicious damage , storm , cyclone ,
typhoon , hurricane, flood and inundation, impact damage, subsidence and landslide
including rockslide, bursting and/or overflowing of water tanks, apparatus and pipes, missile
testing operations, accidental leakage from automatic sprinkler installations, bush fire etc.
What a Fire Policy excludes: A fire insurance policy usually does not cover a certain amount
known as excess under the policy. Loss or damage caused by war and warlike operations,
nuclear perils, pollution or contamination, electrical/mechanical breakdown, burglary and
housebreaking are excluded. Certain perils like earthquake, spontaneous combustion etc can
be covered on payment of additional premium. Fire insurance policies are issued for one year
54
except for dwellings, where a policy may be issued for long term (with a minimum period of
three years).

Burlary Insurance A Burglary Insurance policy may be offered for a business enterprise or
for a house. The policy covers property contained in the premises including stocks/goods
owned or held in trust if specifically covered . It also covers cash, valuables, securities kept in
a locked safe or cash box in locked steel cupboard if you specifically request for it. Apart
from offering cover for the contents in the premises, a Burglary Insurance policy covers
damage to your house or premises caused by burglars during burglary or attempts at burglary.
The Policy pays actual loss/damage to your insured property caused by burglary/house
breaking subject to the limit of Sum Insured. If Sum Insured is not adequate, Policy pays only
proportionate loss. Hence, you must ensure that you value the property covered correctly to
ensure that there is no underinsurance. A Burglary Insurance Policy can generally be
extended to cover Riot, Strike, Malicious Damage and Theft. What is not covered in a
Burglary Insurance Policy: Generally, the Policy will not pay for loss/damage to goods held
in trust/commission unless specifically covered, jewellery, curios, title deeds, business books
unless specifically insured; any amount that is recoverable under Fire/Plate glass insurance
policy; loss from a safe using a key or duplicate key, unless it 6 7 is obtained by violence or
threat; Due to shop lifting, acts involving you/your family members/ your employees; due to
War perils, Riot & Strike ( covered by payment of additional premium), Acts of God, Nuclear
perils

All Risks Insurance All Risks Insurance generally offers cover for jewellery and/or portable
equipment etc. This cover is generally offered selectively. The design of the policy may vary
from company to company. It is important to note that an All Risks policy is not free from
exclusions. So, the term All Risks doesnt mean that anything and everything is covered.
What is generally excluded in All Risks Insurance: Lookout for the exclusionsgenerally
actions of moth, vermin, mildew, wear and tear or repairs, dyeing or bleaching or any
gradually operating cause, Mere breaking/ scratching or cracking of fragile items unless
caused by accident to the means of conveyance and Any mechanical or electrical
breakdown/derangement except due to accidental external means, Over winding, denting or
internal damage to watches or clocks Thefts from cars except fully closed saloons
Consequential losses, any legal liability, War perils, nuclear risks, any government/ local
authority action and Any loss due to insured's action which has contributed to increase in risk

55
are excluded from the scope of the policy. On payment of additional premium mechanical
and/ or electrical/ electronic breakdown extension may be offered.

Marine Cargo Insurance Marine Cargo Insurance covers transits by Water, Air, Road or
Rail, Registered Post Parcel, Courier or a combination of two or more of these. Who can take
a Marine Cargo Insurance Policy: Buyers, Sellers, Import/Export merchants, Buying Agents,
Contractors and Banks etc. Marine Cargo Policies cover the interest in the cargo and also
extend to cover the interests of any third party who has acquired interest upon transfer of
ownership, as determined by the Terms of Sale. How Marine Cargo Insurance helps: Cargo
can be damaged on exposure to a wide variety of risks, including an accident of the vehicle
carrying the cargo, damage due to jolts, jerks etc. Decide 8 9 whether you want to take a
Basic Cover or a wider cover. Read and understand the terms and conditions of the policy.
Check whether there are any Deductibles. .

What is generally excluded in a Marine Cargo Insurance Policy: Loss or damage due to
Inherent Vice , Delay, Insufficiency of packing, loss or damage due to financial default or
insolvency of the ship owner etc. What are the other types of property insurance available?
Some of the other property insurances available are engineering insurance policies like the
Electronic Equipment Insurance, Machinery Breakdown insurance etc.

Claims and loss handling is the materialized utility of insurance; it is the actual "product"
paid for. Claims may be filed by insureds directly with the insurer or through brokers or
agents. The insurer may require that the claim be filed on its own proprietary forms, or may
accept claims on a standard industry form, such as those produced by ACORD.

Insurance company claims departments employ a large number of claims adjusters supported
by a staff of records management and data entry clerks. Incoming claims are classified based
on severity and are assigned to adjusters whose settlement authority varies with their
knowledge and experience. The adjuster undertakes an investigation of each claim, usually in
close cooperation with the insured, determines if coverage is available under the terms of the
insurance contract, and if so, the reasonable monetary value of the claim, and authorizes
payment.

The policyholder may hire their own public adjuster to negotiate the settlement with the
insurance company on their behalf. For policies that are complicated, where claims may be

56
complex, the insured may take out a separate insurance policy add-on, called loss recovery
insurance, which covers the cost of a public adjuster in the case of a claim.

Adjusting liability insurance claims is particularly difficult because there is a third party
involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer
and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel
for the insured (either inside "house" counsel or outside "panel" counsel), monitor litigation
that may take years to complete, and appear in person or over the telephone with settlement
authority at a mandatory settlement conference when requested by the judge.

If a claims adjuster suspects under-insurance, the condition of average may come into play to
limit the insurance company's exposure.

In managing the claims handling function, insurers seek to balance the elements of customer
satisfaction, administrative handling expenses, and claims overpayment leakages. As part of
this balancing act, fraudulent insurance practices are a major business risk that must be
managed and overcome. Disputes between insurers and insureds over the validity of claims or
claims handling practices occasionally escalate into litigation (see insurance bad faith)

UNDERWRITING AND INVESTING IN PROPERTY INSURANCE

The business model is to collect more in premium and investment income than is paid out in
losses, and to also offer a competitive price which consumers will accept. Profit can be
reduced to a simple equation:

Profit = earned premium + investment income incurred loss underwriting


expenses.

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Insurers make money in two ways:

Through underwriting, the process by which insurers select the risks to insure and
decide how much in premiums to charge for accepting those risks
By investing the premiums they collect from insured parties

The most complicated aspect of the insurance business is the actuarial science of
ratemaking (price-setting) of policies, which uses statistics and probability to
approximate the rate of future claims based on a given risk. After producing rates, the
insurer will use discretion to reject or accept risks through the underwriting process.

At the most basic level, initial ratemaking involves looking at


the frequency and severity of insured perils and the expected average payout resulting
from these perils. Thereafter an insurance company will collect historical loss data, bring
the loss data to present value, and compare these prior losses to the premium collected in
order to assess rate adequacy.[23] Loss ratios and expense loads are also used. Rating for
different risk characteristics involves at the most basic level comparing the losses with
"loss relativities"a policy with twice as many losses would therefore be charged twice
as much. More complex multivariate analyses are sometimes used when multiple
characteristics are involved and a univariate analysis could produce confounded results.
Other statistical methods may be used in assessing the probability of future losses.

Upon termination of a given policy, the amount of premium collected minus the amount
paid out in claims is the insurer's underwriting profit on that policy. Underwriting
performance is measured by something called the "combined ratio", which is the ratio of
expenses/losses to premiums.[24] A combined ratio of less than 100% indicates an
underwriting profit, while anything over 100 indicates an underwriting loss. A company
with a combined ratio over 100% may nevertheless remain profitable due to investment
earnings.

Insurance companies earn investment profits on "float". Float, or available reserve, is the
amount of money on hand at any given moment that an insurer has collected in insurance
premiums but has not paid out in claims. Insurers start investing insurance premiums as
soon as they are collected and continue to earn interest or other income on them until
claims are paid out. The Association of British Insurers (gathering 400 insurance

58
companies and 94% of UK insurance services) has almost 20% of the investments in
the London Stock Exchange.[25]

In the United States, the underwriting loss of property and casualty insurance companies
was $142.3 billion in the five years ending 2003. But overall profit for the same period
was $68.4 billion, as the result of float. Some insurance industry insiders, most
notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from
float without an underwriting profit as well, but this opinion is not universally held.

Naturally, the float method is difficult to carry out in an economically


depressed period. Bear markets do cause insurers to shift away from investments and to
toughen up their underwriting standards, so a poor economy generally means high
insurance premiums. This tendency to swing between profitable and unprofitable periods
over time is commonly known as the underwriting, or insurance, cycle.[26]

Marketing

Insurers will often use insurance agents to initially market or underwrite their customers.
Agents can be captive, meaning they write only for one company, or independent,
meaning that they can issue policies from several companies. The existence and success
of companies using insurance agents is likely due to improved and personalized service.
Companies also use Broking firms, Banks and other corporate entities (like Self Help
Groups, Microfinance Institutions, NGOs etc.) to market their products.[27]

TYPES OF INSURANCE

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may
give rise to claims are known as perils. An insurance policy will set out in detail which
perils are covered by the policy and which are not. Below are non-exhaustive lists of the
many different types of insurance that exist. A single policy that may cover risks in one or
more of the categories set out below. For example, vehicle insurance would typically
cover both the property risk (theft or damage to the vehicle) and the liability risk (legal

59
claims arising from an accident). A home insurance policy in the United States typically
includes coverage for damage to the home and the owner's belongings, certain legal
claims against the owner, and even a small amount of coverage for medical expenses of
guests who are injured on the owner's property.

Business insurance can take a number of different forms, such as the various kinds of
professional liability insurance, also called professional indemnity (PI), which are
discussed below under that name; and the business owner's policy (BOP), which
packages into one policy many of the kinds of coverage that a business owner needs, in a
way analogous to how homeowners' insurance packages the coverages that a homeowner
needs.[28]

Auto insurance
Main article: Vehicle insurance

A wrecked vehicle in Copenhagen

Auto insurance protects the policyholder against financial loss in the event of an incident
involving a vehicle they own, such as in a traffic collision.

Coverage typically includes:

Property coverage, for damage to or theft of the car


Liability coverage, for the legal responsibility to others for bodily injury or property
damage

Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost
wages and funeral expenses

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Gap insurance
Main article: Gap insurance

Gap insurance covers the excess amount on your auto loan in an instance where your
insurance company does not cover the entire loan. Depending on the company's specific
policies it might or might not cover the deductible as well. This coverage is marketed for
those who put low down payments, have high interest rates on their loans, and those with
60-month or longer terms. Gap insurance is typically offered by a finance company when
the vehicle owner purchases their vehicle, but many auto insurance companies offer this
coverage to consumers as well.

Health insurance
Main articles: Health insurance and Dental insurance

Great Western Hospital, Swindon

Health insurance policies cover the cost of medical treatments. Dental insurance, like
medical insurance, protects policyholders for dental costs. In most developed countries,
all citizens receive some health coverage from their governments, paid for by taxation. In
most countries, health insurance is often part of an employer's benefits.

Income protection insurance

Workers' compensation, or employers' liability insurance, is compulsory in some


countries

61
Disability insurance policies provide financial support in the event of the policyholder
becoming unable to work because of disabling illness or injury. It provides monthly
support to help pay such obligations as mortgage loans and credit cards. Short-term
and long-term disability policies are available to individuals, but considering the
expense, long-term policies are generally obtained only by those with at least six-
figure incomes, such as doctors, lawyers, etc. Short-term disability insurance covers a
person for a period typically up to six months, paying a stipend each month to cover
medical bills and other necessities.
Long-term disability insurance covers an individual's expenses for the long term, up
until such time as they are considered permanently disabled and thereafter Insurance
companies will often try to encourage the person back into employment in preference
to and before declaring them unable to work at all and therefore totally disabled.

Disability overhead insurance allows business owners to cover the overhead expenses
of their business while they are unable to work.

Total permanent disability insurance provides benefits when a person is permanently


disabled and can no longer work in their profession, often taken as an adjunct to life
insurance.

Workers' compensation insurance replaces all or part of a worker's wages lost and
accompanying medical expenses incurred because of a job-related injury.

Casualty insurance
Main article: Casualty insurance

Casualty insurance insures against accidents, not necessarily tied to any specific property.
It is a broad spectrum of insurance that a number of other types of insurance could be
classified, such as auto, workers compensation, and some liability insurances.

Crime insurance is a form of casualty insurance that covers the policyholder against
losses arising from the criminal acts of third parties. For example, a company can
obtain crime insurance to cover losses arising from theft or embezzlement.
Terrorism insurance provides protection against any loss or damage caused
by terrorist activities. In the United States in the wake of 9/11, the Terrorism Risk
62
Insurance Act 2002 (TRIA) set up a federal program providing a transparent system
of shared public and private compensation for insured losses resulting from acts of
terrorism. The program was extended until the end of 2014 by the Terrorism Risk
Insurance Program Reauthorization Act 2007 (TRIPRA).

Kidnap and ransom insurance is designed to protect individuals and corporations


operating in high-risk areas around the world against the perils of kidnap, extortion,
wrongful detention and hijacking.

Political risk insurance is a form of casualty insurance that can be taken out by
businesses with operations in countries in which there is a risk that revolution or
other political conditions could result in a loss.

Life insurance
Main article: Life insurance

Amicable Society for a Perpetual Assurance Office, Serjeants' Inn, Fleet Street, London,
1801

Life insurance provides a monetary benefit to a decedent's family or other designated


beneficiary, and may specifically provide for income to an insured person's family, burial,
funeral and other final expenses. Life insurance policies often allow the option of having
the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. In
most states, a person cannot purchase a policy on another person without their
knowledge.

Annuities provide a stream of payments and are generally classified as insurance because
they are issued by insurance companies, are regulated as insurance, and require the same
kinds of actuarial and investment management expertise that life insurance requires.
Annuities and pensions that pay a benefit for life are sometimes regarded as insurance
against the possibility that a retiree will outlive his or her financial resources. In that
sense, they are the complement of life insurance and, from an underwriting perspective,
are the mirror image of life insurance.

Certain life insurance contracts accumulate cash values, which may be taken by the
insured if the policy is surrendered or which may be borrowed against. Some policies,
63
such as annuities and endowment policies, are financial instruments to accumulate
or liquidate wealth when it is needed.

In many countries, such as the United States and the UK, the tax law provides that the
interest on this cash value is not taxable under certain circumstances. This leads to
widespread use of life insurance as a tax-efficient method of saving as well as protection
in the event of early death.

In the United States, the tax on interest income on life insurance policies and annuities is
generally deferred. However, in some cases the benefit derived from tax deferral may be
offset by a low return. This depends upon the insuring company, the type of policy and
other variables (mortality, market return, etc.). Moreover, other income tax saving
vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value
accumulation.

Burial insurance

Burial insurance is a very old type of life insurance which is paid out upon death to cover
final expenses, such as the cost of a funeral. The Greeks and Romans introduced burial
insurance c. 600 CE when they organized guilds called "benevolent societies" which
cared for the surviving families and paid funeral expenses of members upon death. Guilds
in the Middle Ages served a similar purpose, as did friendly societies during Victorian
times.

Property
Main article: Property insurance

This tornado damage to an Illinois home would be considered an "Act of God" for
insurance purposes

64
Property insurance provides protection against risks to property, such
as fire, theft or weather damage. This may include specialized forms of insurance such as
fire insurance, flood insurance, earthquake insurance, home insurance, inland marine
insurance or boiler insurance. The term property insurance may, like casualty insurance,
be used as a broad category of various subtypes of insurance, some of which are listed
below:

US Airways Flight 1549 was written off after ditching into the Hudson River

Aviation insurance protects aircraft hulls and spares, and associated liability risks,
such as passenger and third-party liability. Airports may also appear under this
subcategory, including air traffic control and refuelling operations for international
airports through to smaller domestic exposures.
Boiler insurance (also known as boiler and machinery insurance, or equipment
breakdown insurance) insures against accidental physical damage to boilers,
equipment or machinery.

Builder's risk insurance insures against the risk of physical loss or damage to property
during construction. Builder's risk insurance is typically written on an "all risk" basis
covering damage arising from any cause (including the negligence of the insured) not
otherwise expressly excluded. Builder's risk insurance is coverage that protects a
person's or organization's insurable interest in materials, fixtures or equipment being
used in the construction or renovation of a building or structure should those items
sustain physical loss or damage from an insured peril.

Crop insurance may be purchased by farmers to reduce or manage various risks


associated with growing crops. Such risks include crop loss or damage caused by
weather, hail, drought, frost damage, insects, or disease.

Earthquake insurance is a form of property insurance that pays the policyholder in the
event of an earthquake that causes damage to the property. Most ordinary home
65
insurance policies do not cover earthquake damage. Earthquake insurance policies
generally feature a high deductible. Rates depend on location and hence the
likelihood of an earthquake, as well as the construction of the home.

Fidelity bond is a form of casualty insurance that covers policyholders for losses
incurred as a result of fraudulent acts by specified individuals. It usually insures a
business for losses caused by the dishonest acts of its employees.

Hurricane Katrina caused over $80 billion of storm and flood damage

Flood insurance protects against property loss due to flooding. Many U.S. insurers do
not provide flood insurance in some parts of the country. In response to this, the
federal government created the National Flood Insurance Program which serves as
the insurer of last resort.

Home insurance, also commonly called hazard insurance or homeowners insurance


(often abbreviated in the real estate industry as HOI), provides coverage for damage
or destruction of the policyholder's home. In some geographical areas, the policy may
exclude certain types of risks, such as flood or earthquake, that require additional
coverage. Maintenance-related issues are typically the homeowner's responsibility.
The policy may include inventory, or this can be bought as a separate policy,
especially for people who rent housing. In some countries, insurers offer a package
which may include liability and legal responsibility for injuries and property damage
caused by members of the household, including pets.[31]

Landlord insurance covers residential and commercial properties which are rented to
others. Most homeowners' insurance covers only owner-occupied homes.

Marine insurance and marine cargo insurance cover the loss or damage of vessels at
sea or on inland waterways, and of cargo in transit, regardless of the method of
transit. When the owner of the cargo and the carrier are separate corporations, marine
66
cargo insurance typically compensates the owner of cargo for losses sustained from
fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the
carrier's insurance. Many marine insurance underwriters will include "time element"
coverage in such policies, which extends the indemnity to cover loss of profit and
other business expenses attributable to the delay caused by a covered loss.

Supplemental natural disaster insurance covers specified expenses after a natural


disaster renders the policyholder's home uninhabitable. Periodic payments are made
directly to the insured until the home is rebuilt or a specified time period has elapsed.

Surety bond insurance is a three-party insurance guaranteeing the performance of the


principal.

The demand for terrorism insurance surged after 9/11

Volcano insurance is a specialized insurance protecting against damage arising


specifically from volcanic eruptions.
Windstorm insurance is an insurance covering the damage that can be caused by wind
events such as hurricanes.

Liability
Main article: Liability insurance

Liability insurance is a very broad superset that covers legal claims against the insured.
Many types of insurance include an aspect of liability coverage. For example, a
homeowner's insurance policy will normally include liability coverage which protects the
insured in the event of a claim brought by someone who slips and falls on the property;
automobile insurance also includes an aspect of liability insurance that indemnifies

67
against the harm that a crashing car can cause to others' lives, health, or property. The
protection offered by a liability insurance policy is twofold: a legal defense in the event
of a lawsuit commenced against the policyholder and indemnification (payment on behalf
of the insured) with respect to a settlement or court verdict. Liability policies typically
cover only the negligence of the insured, and will not apply to results of wilful or
intentional acts by the insured.

The subprime mortgage crisis was the source of many liability insurance losses

Public liability insurance or general liability insurance covers a business or


organization against claims should its operations injure a member of the public or
damage their property in some way.
Directors and officers liability insurance (D&O) protects an organization (usually a
corporation) from costs associated with litigation resulting from errors made by
directors and officers for which they are liable.

Environmental liability or environmental impairment insurance protects the insured


from bodily injury, property damage and cleanup costs as a result of the dispersal,
release or escape of pollutants.

Errors and omissions insurance (E&O) is business liability insurance for professionals
such as insurance agents, real estate agents and brokers, architects, third-party
administrators (TPAs) and other business professionals.

Prize indemnity insurance protects the insured from giving away a large prize at a
specific event. Examples would include offering prizes to contestants who can make
a half-court shot at a basketball game, or a hole-in-one at a golf tournament.

Professional liability insurance, also called professional indemnity insurance (PI),


protects insured professionals such as architectural corporations and medical
68
practitioners against potential negligence claims made by their patients/clients.
Professional liability insurance may take on different names depending on the
profession. For example, professional liability insurance in reference to the medical
profession may be called medical malpractice insurance.

Often a commercial insured's liability insurance program consists of several layers. The
first layer of insurance generally consists of primary insurance, which provides first
dollar indemnity for judgments and settlements up to the limits of liability of the primary
policy. Generally, primary insurance is subject to a deductible and obligates the insured to
defend the insured against lawsuits, which is normally accomplished by assigning
counsel to defend the insured. In many instances, a commercial insured may elect to self-
insure. Above the primary insurance or self-insured retention, the insured may have one
or more layers of excess insurance to provide coverage additional limits of indemnity
protection. There are a variety of types of excess insurance, including "stand-alone"
excess policies (policies that contain their own terms, conditions, and exclusions),
"follow form" excess insurance (policies that follow the terms of the underlying policy
except as specifically provided), "umbrella" insurance policies (excess insurance that in
some circumstances could provide coverage that is broader than the underlying
insurance), and "surplus lines" insurance (policies written by non-admitted carriers).[32]

Credit
Main article: Payment protection insurance

Credit insurance repays some or all of a loan when the borrower is insolvent.

Mortgage insurance insures the lender against default by the borrower. Mortgage
insurance is a form of credit insurance, although the name "credit insurance" more
often is used to refer to policies that cover other kinds of debt.
Many credit cards offer payment protection plans which are a form of credit
insurance.

Trade credit insurance is business insurance over the accounts receivable of the
insured. The policy pays the policy holder for covered accounts receivable if the
debtor defaults on payment.

69
Collateral protection insurance (CPI) insures property (primarily vehicles) held as
collateral for loans made by lending institutions.

Other types

All-risk insurance is an insurance that covers a wide range of incidents and perils,
except those noted in the policy. All-risk insurance is different from peril-specific
insurance that cover losses from only those perils listed in the policy.[33] In car
insurance, all-risk policy includes also the damages caused by the own driver.

High-value horses may be insured under a bloodstock policy

Bloodstock insurance covers individual horses or a number of horses under common


ownership. Coverage is typically for mortality as a result of accident, illness or
disease but may extend to include infertility, in-transit loss, veterinary fees, and
prospective foal.

Business interruption insurance covers the loss of income, and the expenses incurred,
after a covered peril interrupts normal business operations.

Defense Base Act (DBA) insurance provides coverage for civilian workers hired by
the government to perform contracts outside the United States and Canada. DBA is
required for all U.S. citizens, U.S. residents, U.S. Green Card holders, and all
employees or subcontractors hired on overseas government contracts. Depending on
the country, foreign nationals must also be covered under DBA. This coverage
typically includes expenses related to medical treatment and loss of wages, as well as
disability and death benefits.

Expatriate insurance provides individuals and organizations operating outside of their


home country with protection for automobiles, property, health, liability and business
pursuits.
70

Legal expenses insurance covers policyholders for the potential costs of legal action
against an institution or an individual. When something happens which triggers the
need for legal action, it is known as "the event". There are two main types of legal
expenses insurance: before the event insurance and after the event insurance.

Livestock insurance is a specialist policy provided to, for example, commercial or


hobby farms, aquariums, fish farms or any other animal holding. Cover is available
for mortality or economic slaughter as a result of accident, illness or disease but can
extend to include destruction by government order.

Media liability insurance is designed to cover professionals that engage in film and
television production and print, against risks such as defamation.

Nuclear incident insurance covers damages resulting from an incident involving


radioactive materials and is generally arranged at the national level. (See the nuclear
exclusion clause and for the US the Price-Anderson Nuclear Industries Indemnity
Act.)

Pet insurance insures pets against accidents and illnesses; some companies cover
routine/wellness care and burial, as well.

Pollution insurance usually takes the form of first-party coverage for contamination of
insured property either by external or on-site sources. Coverage is also afforded for
liability to third parties arising from contamination of air, water, or land due to the
sudden and accidental release of hazardous materials from the insured site. The
policy usually covers the costs of cleanup and may include coverage for releases from
underground storage tanks. Intentional acts are specifically excluded.

Purchase insurance is aimed at providing protection on the products people purchase.


Purchase insurance can cover individual purchase protection, warranties, guarantees,
care plans and even mobile phone insurance. Such insurance is normally very limited
in the scope of problems that are covered by the policy.

Tax insurance is increasingly being used in corporate transactions to protect taxpayers


in the event that a tax position it has taken is challenged by the IRS or a state, local,
or foreign taxing authority[34]

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Title insurance provides a guarantee that title to real property is vested in the
purchaser or mortgagee, free and clear of liens or encumbrances. It is usually issued
in conjunction with a search of the public records performed at the time of a real
estate transaction.

Travel insurance is an insurance cover taken by those who travel abroad, which
covers certain losses such as medical expenses, loss of personal belongings, travel
delay, and personal liabilities.

Tuition insurance insures students against involuntary withdrawal from cost-intensive


educational institutions

Interest rate insurance protects the holder from adverse changes in interest rates, for
instance for those with a variable rate loan or mortgage

Divorce insurance is a form of contractual liability insurance that pays the insured a
cash benefit if their marriage ends in divorce.

Insurance financing vehicles

Fraternal insurance is provided on a cooperative basis by fraternal benefit societies or


other social organizations.[35]

No-fault insurance is a type of insurance policy (typically automobile insurance)


where insureds are indemnified by their own insurer regardless of fault in the
incident.

Protected self-insurance is an alternative risk financing mechanism in which an


organization retains the mathematically calculated cost of risk within the organization
and transfers the catastrophic risk with specific and aggregate limits to an insurer so
the maximum total cost of the program is known. A properly designed and
underwritten Protected Self-Insurance Program reduces and stabilizes the cost of
insurance and provides valuable risk management information.

Retrospectively rated insurance is a method of establishing a premium on large


commercial accounts. The final premium is based on the insured's actual loss
experience during the policy term, sometimes subject to a minimum and maximum
premium, with the final premium determined by a formula. Under this plan, the

72
current year's premium is based partially (or wholly) on the current year's losses,
although the premium adjustments may take months or years beyond the current
year's expiration date. The rating formula is guaranteed in the insurance contract.
Formula: retrospective premium = converted loss + basic premium tax multiplier.
Numerous variations of this formula have been developed and are in use.

Formal self-insurance is the deliberate decision to pay for otherwise insurable losses
out of one's own money.[citation needed] This can be done on a formal basis by establishing
a separate fund into which funds are deposited on a periodic basis, or by simply
forgoing the purchase of available insurance and paying out-of-pocket. Self-insurance
is usually used to pay for high-frequency, low-severity losses. Such losses, if covered
by conventional insurance, mean having to pay a premium that includes loadings for
the company's general expenses, cost of putting the policy on the books, acquisition
expenses, premium taxes, and contingencies. While this is true for all insurance, for
small, frequent losses the transaction costs may exceed the benefit of volatility
reduction that insurance otherwise affords.[citation needed]

Reinsurance is a type of insurance purchased by insurance companies or self-insured


employers to protect against unexpected losses. Financial reinsurance is a form of
reinsurance that is primarily used for capital management rather than to transfer
insurance risk.

Social insurance can be many things to many people in many countries. But a
summary of its essence is that it is a collection of insurance coverages (including
components of life insurance, disability income insurance, unemployment insurance,
health insurance, and others), plus retirement savings, that requires participation by
all citizens. By forcing everyone in society to be a policyholder and pay premiums, it
ensures that everyone can become a claimant when or if he/she needs to. Along the
way this inevitably becomes related to other concepts such as the justice system and
the welfare state. This is a large, complicated topic that engenders tremendous debate,
which can be further studied in the following articles (and others):


National Insurance


Social safety net

73

Social security


Social Security debate (United States)


Social Security (United States)


Social welfare provision

Stop-loss insurance provides protection against catastrophic or unpredictable losses. It


is purchased by organizations who do not want to assume 100% of the liability for
losses arising from the plans. Under a stop-loss policy, the insurance company
becomes liable for losses that exceed certain limits called deductibles.

Closed community and governmental self-insurance

Some communities prefer to create virtual insurance amongst themselves by other means
than contractual risk transfer, which assigns explicit numerical values to risk. A number
of religious groups, including the Amish and some Muslim groups, depend on support
provided by their communities when disasters strike. The risk presented by any given
person is assumed collectively by the community who all bear the cost of rebuilding lost
property and supporting people whose needs are suddenly greater after a loss of some
kind. In supportive communities where others can be trusted to follow community
leaders, this tacit form of insurance can work. In this manner the community can even out
the extreme differences in insurability that exist among its members. Some further
justification is also provided by invoking the moral hazard of explicit insurance contracts.

In the United Kingdom, The Crown (which, for practical purposes, meant the civil
service) did not insure property such as government buildings. If a government building
was damaged, the cost of repair would be met from public funds because, in the long run,
this was cheaper than paying insurance premiums. Since many UK government buildings
have been sold to property companies, and rented back, this arrangement is now less
common and may have disappeared altogether.

In the United States, the most prevalent form of self-insurance is governmental risk
management pools. They are self-funded cooperatives, operating as carriers of coverage
for the majority of governmental entities today, such as county governments,
municipalities, and school districts. Rather than these entities independently self-insure
and risk bankruptcy from a large judgment or catastrophic loss, such governmental
74
entities form a risk pool. Such pools begin their operations by capitalization through
member deposits or bond issuance. Coverage (such as general liability, auto liability,
professional liability, workers compensation, and property) is offered by the pool to its
members, similar to coverage offered by insurance companies. However, self-insured
pools offer members lower rates (due to not needing insurance brokers), increased
benefits (such as loss prevention services) and subject matter expertise. Of approximately
91,000 distinct governmental entities operating in the United States, 75,000 are members
of self-insured pools in various lines of coverage, forming approximately 500 pools.
Although a relatively small corner of the insurance market, the annual contributions (self-
insured premiums) to such pools have been estimated up to 17 billion dollars annually.[36]

Insurance companies

Certificate issued by Republic Fire Insurance Co. of New York c. 1860

Insurance companies may be classified into two groups:

Life insurance companies, which sell life insurance, annuities and pensions products.
Non-life or property/casualty insurance companies, which sell other types of
insurance.

General insurance companies can be further divided into these sub categories.

Standard lines
Excess lines

In most countries, life and non-life insurers are subject to different regulatory regimes
and different tax and accounting rules. The main reason for the distinction between the
two types of company is that life, annuity, and pension business is very long-term in

75
nature coverage for life assurance or a pension can cover risks over many decades. By
contrast, non-life insurance cover usually covers a shorter period, such as one year.

In the United States, standard line insurance companies are insurers that have received a
license or authorization from a state for the purpose of writing specific kinds of insurance
in that state, such as automobile insurance or homeowners' insurance.[37] They are
typically referred to as "admitted" insurers. Generally, such an insurance company must
submit its rates and policy forms to the state's insurance regulator to receive his or her
prior approval, although whether an insurance company must receive prior approval
depending upon the kind of insurance being written. Standard line insurance companies
usually charge lower premiums than excess line insurers and may sell directly to
individual insureds. They are regulated by state laws, which include restrictions on rates
and forms, and which aim to protect consumers and the public from unfair or abusive
practices.[37] These insurers also are required to contribute to state guarantee funds, which
are used to pay for losses if an insurer becomes insolvent.[37]

The subscription room at Lloyd's of London in the early 19th century.

Excess line insurance companies (also known as Excess and Surplus) typically insure
risks not covered by the standard lines insurance market, due to a variety of reasons (e.g.,
new entity or an entity that does not have an adequate loss history, an entity with unique
risk characteristics, or an entity that has a loss history that does not fit the underwriting
requirements of the standard lines insurance market).[37] They are typically referred to as
non-admitted or unlicensed insurers.[37] Non-admitted insurers are generally not licensed
or authorized in the states in which they write business, although they must be licensed or
authorized in the state in which they are domiciled.[37] These companies have more
flexibility and can react faster than standard line insurance companies because they are
not required to file rates and forms.[37] However, they still have substantial regulatory
requirements placed upon them.
76
Most states require that excess line insurers submit financial information, articles of
incorporation, a list of officers, and other general information.[37] They also may not write
insurance that is typically available in the admitted market, do not participate in state
guarantee funds (and therefore policyholders do not have any recourse through these
funds if an insurer becomes insolvent and cannot pay claims), may pay higher taxes, only
may write coverage for a risk if it has been rejected by three different admitted insurers,
and only when the insurance producer placing the business has a surplus lines license.
[37]
Generally, when an excess line insurer writes a policy, it must, pursuant to state laws,
provide disclosure to the policyholder that the policyholder's policy is being written by an
excess line insurer.[37]

On July 21, 2010, President Barack Obama signed into law the Nonadmitted and
Reinsurance Reform Act of 2010 ("NRRA"), which took effect on July 21, 2011, and was
part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The NRRA
changed the regulatory paradigm for excess line insurance. Generally, under the NRRA,
only the insured's home state may regulate and tax the excess line transaction.[38]

Insurance companies are generally classified as either mutual or proprietary companies.


[39]
Mutual companies are owned by the policyholders, while shareholders (who may or
may not own policies) own proprietary insurance companies.

Demutualization of mutual insurers to form stock companies, as well as the formation of


a hybrid known as a mutual holding company, became common in some countries, such
as the United States, in the late 20th century. However, not all states permit mutual
holding companies.

Other possible forms for an insurance company include reciprocals, in which


policyholders reciprocate in sharing risks, and Lloyd's organizations.

Insurance companies are rated by various agencies such as A. M. Best. The ratings
include the company's financial strength, which measures its ability to pay claims. It also
rates financial instruments issued by the insurance company, such as bonds, notes, and
securitization products.

Reinsurance companies are insurance companies that sell policies to other insurance
companies, allowing them to reduce their risks and protect themselves from very large
losses. The reinsurance market is dominated by a few very large companies, with huge
reserves. A reinsurer may also be a direct writer of insurance risks as well.
77
Captive insurance companies may be defined as limited-purpose insurance companies
established with the specific objective of financing risks emanating from their parent
group or groups. This definition can sometimes be extended to include some of the risks
of the parent company's customers. In short, it is an in-house self-insurance vehicle.
Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-
insured parent company); of a "mutual" captive (which insures the collective risks of
members of an industry); and of an "association" captive (which self-insures individual
risks of the members of a professional, commercial or industrial association). Captives
represent commercial, economic and tax advantages to their sponsors because of the
reductions in costs they help create and for the ease of insurance risk management and
the flexibility for cash flows they generate. Additionally, they may provide coverage of
risks which is neither available nor offered in the traditional insurance market at
reasonable prices.

The types of risk that a captive can underwrite for their parents include property damage,
public and product liability, professional indemnity, employee benefits, employers'
liability, motor and medical aid expenses. The captive's exposure to such risks may be
limited by the use of reinsurance.

Captives are becoming an increasingly important component of the risk management and
risk financing strategy of their parent. This can be understood against the following
background:

Heavy and increasing premium costs in almost every line of coverage


Difficulties in insuring certain types of fortuitous risk

Differential coverage standards in various parts of the world

Rating structures which reflect market trends rather than individual loss experience

Insufficient credit for deductibles or loss control efforts

There are also companies known as "insurance consultants". Like a mortgage broker,
these companies are paid a fee by the customer to shop around for the best insurance
policy amongst many companies. Similar to an insurance consultant, an 'insurance broker'
also shops around for the best insurance policy amongst many companies. However, with

78
insurance brokers, the fee is usually paid in the form of commission from the insurer that
is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks
are transferred to them in insurance transactions. Third party administrators are
companies that perform underwriting and sometimes claims handling services for
insurance companies. These companies often have special expertise that the insurance
companies do not have.

The financial stability and strength of an insurance company should be a major


consideration when buying an insurance contract. An insurance premium paid currently
provides coverage for losses that might arise many years in the future. For that reason,
the viability of the insurance carrier is very important. In recent years, a number of
insurance companies have become insolvent, leaving their policyholders with no
coverage (or coverage only from a government-backed insurance pool or other
arrangement with less attractive payouts for losses). A number of independent rating
agencies provide information and rate the financial viability of insurance companies.

Across the world

Life insurance premiums written in 2005

Non-life insurance premiums written in 2005

Global insurance premiums grew by 2.7% in inflation-adjusted terms in 2010 to $4.3


trillion, climbing above pre-crisis levels. The return to growth and record premiums
generated during the year followed two years of decline in real terms. Life insurance
premiums increased by 3.2% in 2010 and non-life premiums by 2.1%. While
industrialised countries saw an increase in premiums of around 1.4%, insurance markets
79
in emerging economies saw rapid expansion with 11% growth in premium income. The
global insurance industry was sufficiently capitalised to withstand the financial crisis of
2008 and 2009 and most insurance companies restored their capital to pre-crisis levels by
the end of 2010. With the continuation of the gradual recovery of the global economy, it
is likely the insurance industry will continue to see growth in premium income both in
industrialised countries and emerging markets in 2011.

Advanced economies account for the bulk of global insurance. With premium income of
$1.62 trillion, Europe was the most important region in 2010, followed by North America
$1.409 trillion and Asia $1.161 trillion. Europe has however seen a decline in premium
income during the year in contrast to the growth seen in North America and Asia. The top
four countries generated more than a half of premiums. The United States and Japan
alone accounted for 40% of world insurance, much higher than their 7% share of the
global population. Emerging economies accounted for over 85% of the world's
population but only around 15% of premiums. Their markets are however growing at a
quicker pace.[40] The country expected to have the biggest impact on the insurance share
distribution across the world is China. According to Sam Radwan of ENHANCE
International LLC, low premium penetration (insurance premium as a % of GDP), an
ageing population and the largest car market in terms of new sales, premium growth has
averaged 1520% in the past five years, and China is expected to be the largest insurance
market in the next decade or two.[41]

REGULATORY DIFFERENCES IN INSURANCE


Main article: Insurance law
80
In the United States, insurance is regulated by the states under the McCarran-Ferguson
Act, with "periodic proposals for federal intervention", and a nonprofit coalition of state
insurance agencies called the National Association of Insurance Commissioners works to
harmonize the country's different laws and regulations.[42] The National Conference of
Insurance Legislators (NCOIL) also works to harmonize the different state laws.[43]

In the European Union, the Third Non-Life Directive and the Third Life Directive, both
passed in 1992 and effective 1994, created a single insurance market in Europe and
allowed insurance companies to offer insurance anywhere in the EU (subject to
permission from authority in the head office) and allowed insurance consumers to
purchase insurance from any insurer in the EU.[44] As far as insurance in the United
Kingdom, the Financial Services Authority took over insurance regulation from the
General Insurance Standards Council in 2005;[45] laws passed include the Insurance
Companies Act 1973 and another in 1982,[46] and reforms to warranty and other aspects
under discussion as of 2012.

The insurance industry in China was nationalized in 1949 and thereafter offered by only a
single state-owned company, the People's Insurance Company of China, which was
eventually suspended as demand declined in a communist environment. In 1978, market
reforms led to an increase in the market and by 1995 a comprehensive Insurance Law of
the People's Republic of China[48] was passed, followed in 1998 by the formation of China
Insurance Regulatory Commission (CIRC), which has broad regulatory authority over the
insurance market of China.

In India IRDA is insurance regulatory authority. As per the section 4 of IRDA Act 1999,
Insurance Regulatory and Development Authority (IRDA), which was constituted by an
act of parliament. National Insurance Academy, Pune is apex insurance capacity builder
institute promoted with support from Ministry of Finance and by LIC, Life & General
Insurance companies.

PROBLEM FACED BY INSURANCE COMPANIES

81
Does not reduce the risk

Insurance is just a risk transfer mechanism wherein the financial burden which may arise
due to some fortuitous event is transferred to a bigger entity called an Insurance
Company by way of paying premiums. This only reduces the financial burden and not the
actual chances of happening of an event. Insurance is a risk for both the insurance
company and the insured. The insurance company understands the risk involved and will
perform a risk assessment when writing the policy. As a result, the premiums may go up
if they determine that the policyholder will file a claim. If a person is financially stable
and plans for life's unexpected events, they may be able to go without insurance.
However, they must have enough to cover a total and complete loss of employment and
of their possessions. Some states will accept a surety bond, a government bond, or even
making a cash deposit with the state.[50]

Insurance insulates too much

An insurance company may inadvertently find that its insureds may not be as risk-averse
as they might otherwise be (since, by definition, the insured has transferred the risk to the
insurer), a concept known as moral hazard. This 'insulates' many from the true costs of
living with risk, negating measures that can mitigate or adapt to risk and leading some to
describe insurance schemes as potentially maladaptive.[51] To reduce their own financial
exposure, insurance companies have contractual clauses that mitigate their obligation to
provide coverage if the insured engages in behavior that grossly magnifies their risk of
loss or liability.[citation needed]

For example, life insurance companies may require higher premiums or deny coverage
altogether to people who work in hazardous occupations or engage in dangerous sports.
Liability insurance providers do not provide coverage for liability arising from intentional
torts committed by or at the direction of the insured. Even if a provider desired to provide
such coverage, it is against the public policy of most countries to allow such insurance to
exist, and thus it is usually illegal.[citation needed]

82
Complexity of insurance policy contracts

9/11 was a major insurance loss, but there were disputes over the World Trade Center's
insurance policy

Insurance policies can be complex and some policyholders may not understand all the
fees and coverages included in a policy. As a result, people may buy policies on
unfavorable terms. In response to these issues, many countries have enacted detailed
statutory and regulatory regimes governing every aspect of the insurance business,
including minimum standards for policies and the ways in which they may
be advertised and sold.

For example, most insurance policies in the English language today have been carefully
drafted in plain English; the industry learned the hard way that many courts will not
enforce policies against insureds when the judges themselves cannot understand what the
policies are saying. Typically, courts construe ambiguities in insurance policies against
the insurance company and in favor of coverage under the policy.

Many institutional insurance purchasers buy insurance through an insurance broker.


While on the surface it appears the broker represents the buyer (not the insurance
company), and typically counsels the buyer on appropriate coverage and policy
limitations, in the vast majority of cases a broker's compensation comes in the form of a
commission as a percentage of the insurance premium, creating a conflict of interest in
that the broker's financial interest is tilted towards encouraging an insured to purchase
more insurance than might be necessary at a higher price. A broker generally holds
contracts with many insurers, thereby allowing the broker to "shop" the market for the
best rates and coverage possible.

83
Insurance may also be purchased through an agent. A tied agent, working exclusively
with one insurer, represents the insurance company from whom the policyholder buys
(while a free agent sells policies of various insurance companies). Just as there is a
potential conflict of interest with a broker, an agent has a different type of conflict.
Because agents work directly for the insurance company, if there is a claim the agent may
advise the client to the benefit of the insurance company. Agents generally cannot offer as
broad a range of selection compared to an insurance broker.

An independent insurance consultant advises insureds on a fee-for-service retainer,


similar to an attorney, and thus offers completely independent advice, free of the financial
conflict of interest of brokers or agents. However, such a consultant must still work
through brokers or agents in order to secure coverage for their clients.

Limited consumer benefits

In United States, economists and consumer advocates generally consider insurance to be


worthwhile for low-probability, catastrophic losses, but not for high-probability, small
losses. Because of this, consumers are advised to select high deductibles and to not insure
losses which would not cause a disruption in their life. However, consumers have shown
a tendency to prefer low deductibles and to prefer to insure relatively high-probability,
small losses over low-probability, perhaps due to not understanding or ignoring the low-
probability risk. This is associated with reduced purchasing of insurance against low-
probability losses, and may result in increased inefficiencies from moral hazard.[52]

Redlining

Redlining is the practice of denying insurance coverage in specific geographic areas,


supposedly because of a high likelihood of loss, while the alleged motivation is unlawful
discrimination. Racial profiling or redlining has a long history in the property insurance
industry in the United States. From a review of industry underwriting and marketing
materials, court documents, and research by government agencies, industry and
community groups, and academics, it is clear that race has long affected and continues to
affect the policies and practices of the insurance industry.[53]

In July 2007, The Federal Trade Commission (FTC) released a report presenting the
results of a study concerning credit-based insurance scores in automobile insurance. The
study found that these scores are effective predictors of risk. It also showed that African-
Americans and Hispanics are substantially overrepresented in the lowest credit scores,
84
and substantially underrepresented in the highest, while Caucasians and Asians are more
evenly spread across the scores. The credit scores were also found to predict risk within
each of the ethnic groups, leading the FTC to conclude that the scoring models are not
solely proxies for redlining. The FTC indicated little data was available to evaluate
benefit of insurance scores to consumers.[54] The report was disputed by representatives of
the Consumer Federation of America, the National Fair Housing Alliance, the National
Consumer Law Center, and the Center for Economic Justice, for relying on data provided
by the insurance industry.

All states have provisions in their rate regulation laws or in their fair trade practice acts
that prohibit unfair discrimination, often called redlining, in setting rates and making
insurance available.

In determining premiums and premium rate structures, insurers consider quantifiable


factors, including location, credit scores, gender, occupation, marital status,
and education level. However, the use of such factors is often considered to be unfair or
unlawfully discriminatory, and the reaction against this practice has in some instances led
to political disputes about the ways in which insurers determine premiums and regulatory
intervention to limit the factors used.

An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss
will occur. Any factor that causes a greater likelihood of loss should theoretically be
charged a higher rate. This basic principle of insurance must be followed if insurance
companies are to remain solvent. Thus, "discrimination" against (i.e., negative differential
treatment of) potential insureds in the risk evaluation and premium-setting process is a
necessary by-product of the fundamentals of insurance underwriting. For instance,
insurers charge older people significantly higher premiums than they charge younger
people for term life insurance. Older people are thus treated differently from younger
people (i.e., a distinction is made, discrimination occurs). The rationale for the
differential treatment goes to the heart of the risk a life insurer takes: Old people are
likely to die sooner than young people, so the risk of loss (the insured's death) is greater
in any given period of time and therefore the risk premium must be higher to cover the
greater risk. However, treating insureds differently when there is no actuarially sound
reason for doing so is unlawful discrimination.

85
Insurance patents
Further information: Insurance patent

New assurance products can now be protected from copying with a business method
patent in the United States.

A recent example of a new insurance product that is patented is Usage Based auto
insurance. Early versions were independently invented and patented by a major US auto
insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134) and a Spanish
independent inventor, Salvador Minguijon Perez (EP 0700009).

Many independent inventors are in favor of patenting new insurance products since it
gives them protection from big companies when they bring their new insurance products
to market. Independent inventors account for 70% of the new U.S. patent applications in
this area.

Many insurance executives are opposed to patenting insurance products because it creates
a new risk for them. The Hartford insurance company, for example, recently had to pay
$80 million to an independent inventor, Bancorp Services, in order to settle a patent
infringement and theft of trade secret lawsuit for a type of corporate owned life insurance
product invented and patented by Bancorp.

There are currently about 150 new patent applications on insurance inventions filed per
year in the United States. The rate at which patents have been issued has steadily risen
from 15 in 2002 to 44 in 2006.[57]

Inventors can now have their insurance US patent applications reviewed by the public in
the Peer to Patent program.[58] The first insurance patent to be granted was [59] including
another example of an application posted was US2009005522 "risk assessment
company". It was posted on March 6, 2009. This patent application describes a method
for increasing the ease of changing insurance companies.[60]

Insurance industry and rent-seeking

Certain insurance products and practices have been described as rent-seeking by critics. That
is, some insurance products or practices are useful primarily because of legal benefits, such as
reducing taxes, as opposed to providing protection against risks of adverse events.
Under United States tax law, for example, most owners of variable annuities and variable life
insurance can invest their premium payments in the stock market and defer or eliminate
86
paying any taxes on their investments until withdrawals are made. Sometimes this tax
deferral is the only reason people use these products. Another example is the legal
infrastructure which allows life insurance to be held in an irrevocable trust which is used to
pay an estate tax while the proceeds themselves are immune from the estate tax.

CONCLUSION
87
In this prevailing scenario, a number of insurance companies have adopted a new deployment
strategy of property insurance, to lower the cost of service channels. As a result other
companies too will need to align their new policies with their re invented business models.
The required changes at both the business & technology levels are enormous. In a highly
competitive market, early adopters are profiting from increased efficiencies.

Even though there are certain limitations, it is a heartening to see that many public ltd and pvt
ltd insurance companies have taken the initiative and are able to offer the home insurance
policies to customers at affordable budgets

As I move in inexorably in to the future, the banking sector is poised to scale new heights,
adopt more advanced technologies and to raise new levels. The banker of the future will look
to technology as a tool to provide better quality & service to customers, while banking
technology, will be increasingly sourced from trusted technology service providers to the
banking sectors.

What has been achieved so far is only a modest beginning and many more industry wide
projects are in the offering. In addition, insurance companies are yet to introduce new
policies. They are yet to see the real benefit of this sector. However the implications of the
large scale revolution usage are paramount for a robust & proven disaster capability.

When companies depend on customers for their day to day business, the complexity & risk of
after sales have to be understood and sufficient back up plan put in place to ensure continuous
customer service.

In addition, as more customer oriented policies are provided the demand from the customer
will keep increasing & companies would there by end up in a policy war.

In order to win this war new policies are going to increase & proper utilisation of this
investment is essentials for companies to ensure that the policy introduced are fully integrated
with their operations.

QUESTIONNAIRE

88
PROPERTY INSURANCE COMPARISON BETWEEN HDFC EARGO & AIG
INSURANCE COMPANY

1. Do you have property insurance?


Yes
No
2. Which insurance company do you prefer?
AIG Insurance
Oriental Insurance
Others
3. What is the reason that you have taken insurance for?
Protection from Loss
Personal Liability Protection
Required By Lender
Coverage for Special Circumstances
4. Do you realize the need of property insurance?
Yes
No
5. Does company provide knowledge on entire product range in its portfolio?
Yes
No
6. How have you/ other purchased property insurance?
Online
Visited The Insurance Company
Through Agent
Other
7. How satisfied are you with the service provided by property insurance you
owned?
Excellent
Very Good
Satisfactory
Poor
8. What kind of property insurance are you aware of?
Building Insurance
89
Home Insurance
Tenants Insurance
Building & Content Insurance
9. Which company do you prefer having insurance?
Private
Public

10. If given an opportunities in future to purchase a property insurance which


company would prefer for following?
Oriental Insurance Company
AIG Insurance

90