Principles of Insurance INS21 - Chapter08

5/28/2008 4:54 PM New Brand FMT-P2_28May08 1
Property Loss Exposures

A Property Loss Exposure is any condition or
situation that presents the possibility that a property
loss will happen.
The three important aspects of Property Loss Exposures
are: -
Types of property that might be exposed to loss,
damage or destruction.
Causes of loss that might result in property being
lost, damaged or destroyed.
Financial consequences that might result from a
property loss
Property Loss Exposures and Policy Provisions
Types of Property
Property is any item with value. One common approach of
classifying property is to distinguish between Real Property
and Personal Property.
Insurance practitioners use categories that relate to the insurance
treatment of property, such as: -
Buildings
Personal property (contents) contained in buildings
Furniture and Fixtures, Clothing, Television, Jewellery, Paintings etc
Money and securities
Currency, coins and bank notes. Traveller cheques, Credit card slips, Money Oreders held for sale to
Public
Types of Property
Motor vehicles and trailers
Autos and other highway vehicles
Mobile Equipment (Bulldozers, Farm Machinery, Fork Lifts etc)
Recreational Vehicles (Dune Buggies, All Terrain Vehicles, Dirt bikes)
Property in transit
Ships and their cargo
Boilers and machinery
Causes of Loss to Property
A cause of loss (or peril) is the actual means by
which property is damaged or destroyed. Examples
include fire, lighting, windstorm, hail and theft.
Named perils are listed and described in the policy.
Only losses caused by those listed perils are
covered. (Insured must Prove)
Special form coverage (also called open perils)
provides coverage for risk of direct loss to
property; In other words, coverage is provided for
any direct loss to property unless the loss is caused
by a peril specifically excluded by the policy.
(Insurer must Prove)

Potential Financial Consequences of Property
Losses
The adverse financial effects of a property loss
might occur in one or more ways: -
Reduction in the value of the property
ACV or Replacement Cost
Lost income
Increased expenses
Parties Affected by Property Losses
The property owner
Secured lenders of money to the property owner
(Mortgagee, Mortgagor)
Users of the property
Ex: Lease
Other holders of the property (Bailee)

Property Insurance Policy provisions
Property Insurance is any type of insurance that
indemnifies an insured who suffers a financial loss
because property has been lost, stolen, damaged or
destroyed.
Covered Property Locations
An insurance policy must carefully specify the property
that is covered and where the property is covered.
Floaters are policies that are designed to cover property
that floats or moves from location to location.
Examples of such property are camera, fur, jewelry, etc.,
Dwellings, Buildings and Other Structures
In commercial insurance, the term building shall also
include: -
Additions that either completed or under construction as
well as materials and supplies used for construction.
Permanently installed fixtures, machinery and equipment.
Some items that seem to be personal property such as fire
extinguishing equipment, outdoor furniture, wall-to-wall
carpeting and refrigerators.
Property Other Than the Insureds Buildings
and Contents
Autos
Non-owned Properties
Moveable Property

Covered Causes of Loss
Basic form coverage
Fire and Lightning (Friendly Fire and Hostile Fire)
Windstorm
Hail
Aircraft
Vehicle Damage
Riot and Civil Commotion
Explosion
Smoke
Vandalism
Sprinkler Leakage
Sinkhole Collapse and Mine Subsidence
Volcanic Action

Broad Form Coverage
This coverage additionally includes: -
Breakage of glass
Falling objects
Weight of snow, ice or sleet
Sudden and accidental water damage
Special Form Coverage
Collapse
Crime Perils
Coverage for various crime perils can be included in insurance
policies.
Burglary is the taking of property from inside a building by someone who
unlawfully enters or exits the building.
Robbery is the taking of property from a person by someone who has
caused or threatened to cause the personal harm.
Theft is a broad term that means any act of stealing; theft includes
burglary and robbery.
Auto Physical Damage
Insurance policies that provide auto physical
damage coverage (property coverage for autos)
offer the following types of coverage:
Collision
Other than collision (also called comprehensive)
Specified causes of loss (used primarily in
commercial auto policies)
Catastrophe Perils
Maintenance Perils
Maintenance Perils that are excluded from most policies
include: -
Wear and tear
Marring and scratching
Rust
Gradual seepage of water
Damage by insects, birds, rodents, or other animals.
Such losses are generally uninsurable because they
either are certain to occur, over time, or are avoidable through
regular maintenance and care.
Covered Financial Consequences
Property losses can lead to any or all of the following
financial consequences: -
Direct Loss
Reduction in the value of property
Indirect Loss
Lost income
Extra expenses
Additional Living Expense
Parties Covered by Property Insurance
Owner
Tenant
Secure Lender
Bailee
Other Parties Whose Property Is Covered
Many property insurance policies provide coverage to parties
who are neither named insureds nor secured lenders and
following are few examples: -
A homeowners policy can provide coverage for property owned by
relatives and other persons under the age of twenty-one who
reside in the named insureds household.
A homeowners policy can provide coverage for property belonging
to guests, residence employees, and others while it is in the named
insureds home.
A commercial property policy providing coverage on the named
insureds personal property can also provide limited coverage for
(1) the personal effects of officers, partners, or employees and (2)
personal property of others in the care, custody, or control of the
insured.
A personal auto policy can provide coverage for collision damage
if the named insured borrows a car belonging to somebody else,
the car sustains collision damage and the owner of the borrowed
car has no insurance
Amounts of Recovery
The amount payable depends on policy provisions in the
following categories: -
Policy limits
Valuation provisions
Settlement options
Paying the value
Paying the cost to repair
Repairing, Rebuilding, or Replacing the property with other
property of like kind and quality
Deductibles
Insurance-to-value provisions
Coinsurance
Other insurance provisions
Coordination of Benefits


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5/28/2008 4:54 PM New Brand FMT-P2_28May08 1

Property Loss Exposures

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