Iso Commercial Property Program-Credit and Risk Managment-Lecture Notes, Study notes of Credit and Risk Management

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LECTURE – 39 ISO COMMERCIAL PROPERTY PROGRAM • Business firms can purchase a commercial package policy (CPP) – The package policy is tailored to meet the specific needs of the business – The policy combines two or more coverages into a single policy • Advantages include: fewer gaps in coverage, lower premiums, and convenience – The policy contains: • Common policy declarations • Common policy conditions, e.g., cancellation terms • Coverage parts, e.g., commercial property, crime Building and Personal Property Coverage Form • The building and personal property coverage form is a commercial property coverage part that is widely used to cover a direct physical damage loss to commercial buildings and personal property – The form covers the buildings described in the declarations, including fixtures and permanently installed machinery and equipment – Business personal property, such as furniture and computers, is covered • Includes the insured’s interest in improvements and betterments as a tenant – Personal property of others in the care, custody, or control of the named insured is also covered – Additional coverages include debris removal, the cost of preserving property, fire department charges, and the cost to replace data destroyed by a covered loss – Under certain conditions, the insurance can be extended to cover other property, such as the personal effects of employees, newly acquired property, and property off the premises • The declarations page must show a coinsurance requirement of 80% or greater or a value-reporting period symbol – If applicable, the coinsurance requirement must be met to avoid a penalty – The policy can be endorsed to cover losses on an agreed value or replacement cost basis, or to add an inflation guard Causes-of-Loss Forms • A causes-of-loss form must be added to the policy to have a complete contract – The form specifies the covered perils for the business and personal property coverage – The causes-of-loss basic form provides coverage for 11 basic causes of loss: • Fire • Lightning • Explosion • Windstorm or hail • Smoke • Aircraft or vehicles • Riot or civil commotion • Vandalism • Sprinkler leakage • Sinkhole collapse • Volcanic action – The causes-of-loss broad form includes all causes of loss covered by the basic form plus: • Falling objects • Weight of snow, ice, or sleet • Water damage docsity.com • Also, collapse is covered for certain causes, such as hidden decay – The causes-of-loss special form insures against “risks of direct physical loss” unless specifically excluded • Also, personal property in transit is covered for certain causes of loss • Coverage also includes glass damage Reporting Forms • The reporting form is used to insure fluctuations in business personal property – Premiums are based on the actual value of the covered property – The insured can report inventory on a daily, weekly, monthly, quarterly or annual basis – If the insured underreports the property values at a location, and a loss occurs at that location, recovery is limited to the proportion that the last value reported bears to the correct value that should have been reported Business Income Insurance • Business income insurance is designed to cover the loss of business income, expenses that continue during the shutdown period, and extra expenses because of loss from a covered peril • One form is the business income (and extra expense) coverage form • This form covers the loss of business income due to suspension of operations during a period of restoration • Suspension must result from a covered direct physical loss • Extra expenses, such as relocation costs, are also covered • An extended business income provision covers the reduction in earnings for a limited period after the business reopens • Business income is defined as the net profit or loss before income taxes that would have been earned, and continuing normal operating expenses, including payroll Business Income Insurance • The coinsurance percentage selected depends on the length of time it takes to complete repairs and resume operations – A higher percentage should be selected if the business expects to be shut down for a longer period of time – Some optional coverages include: • A maximum period of indemnity of 120 days – Also eliminates the coinsurance requirement • A monthly limit of indemnity – Eliminates the coinsurance requirement and limits the maximum monthly amount that will be paid for each consecutive 30-day period • Business income agreed value – This option suspends the coinsurance clause and places no limit on the monthly amount paid, provided that the agreed amount of insurance is carried • The extra expense coverage form is a separate form that can be used to cover the extra expenses incurred by the firm in continuing operations during a period of restoration – Can be used by firms that must continue to operate after a loss occurs, such as a newspaper – The form does not cover loss of business income – Expenses to continue operations are covered, subject to certain limits • An endorsement can be added to a business income policy to cover the loss of business income from dependent properties – Used when a business depends on a single supplier for raw materials, or relies on a single customer to purchase its products docsity.com