[h] CPCU 551 – Module 5
[q] National Flood Insurance Program
[a] A government program created to share the risk of flood losses through flood insurance and to reduce flood damages by restricting floodplain development.
[q] Special flood hazard area
[a] An area, determined under the National Flood Insurance Program, with a high risk of flooding.
[q] Flood Insurance Rate Map
[a] A map that shows boundaries of flood zones. The zone in which a property is located determines flood insurance rates.
[q] NFIP emergency program
[a] The first phase of a community’s participation in the National Flood Insurance Program. During this phase, property owners can purchase limited amounts of flood insurance at subsidized rates.
[q] NFIP regular program
[a] The second phase of the National Flood Insurance Program. During this phase, the community agrees to adopt flood-control and land-use restrictions.
[q] NFIP emergency program maximum amount of insurance
[a] The maximum amount of coverage for nonresidential properties is $100,000 for building coverage and $100,000 for personal property.
[q] NFIP regular program maximum amount of insurance
[a] The maximum amount of coverage for nonresidential properties is $500,000 for building coverage and $500,000 for personal property.
[q] NFIP General Property Form
[a] A flood insurance form used to insure most commercial building and contents risks.
[q] NFIP General Property Form general characteristics
[a] Characteristics of General Property Form:
Covers direct physical loss caused by flood at the premises described in the declarations.
Covers building and contents on actual cash value basis.
Does not include a coinsurance provision.
Cannot be written on a blanket basis.
Excludes loss of use and loss of income.
Excludes several types of property and coverage for contents in a basement.
[q] Coverages under the NFIP General Property Form
Coverage A – Building Property.
Coverage B – Personal Property.
Coverage C – Other Coverages.
Coverage D – Increased Cost of Compliance.
[q] ISO Flood Coverage Endorsement
[a] A flood endorsement that is attached to the commercial property policy. Characteristics:
Can provide coverage for a greater variety of property than NFIP policies.
Can be written subject to the replacement cost or functional valuation options, as well as actual cash value.
[q] Ensuing loss provision of ISO Flood Coverage Endorsement
[a] An endorsement states that in the event of an ensuing covered loss, the insurer will not pay the sum of the limits for both perils.
[q] Other Insurance provision
[a] The flood endorsement provides that coverage under the endorsement is excess over the maximum NFIP limits available unless the insurer waives that requirement.
[q] Property Not Covered provision of ISO Flood Coverage Endorsement
[a] Under this provision, the policy does not cover:
Property in the open, unless specifically listed in the flood coverage schedule or declarations.
Property not eligible for flood insurance pursuant to the Coastal Barrier Resource Act or the Coastal Barrier Improvement Act.
Boathouses and open structures if located on or over a body of water.
Bulkheads, pilings, piers, wharves, docks, or retaining walls.
[q] ISO Earthquake And Volcanic Eruption endorsements
[a] Available endorsements:
Earthquake And Volcanic Eruption Coverage With Percentage Deductible.
Earthquake And Volcanic Eruption Coverage (Sub-Limit Form With Percentage Deductibe).
Earthquake And Volcanic Eruption Coverage With Flat-Dollar Deductible.
Earthquake And Volcanic Eruption Coverage (Sub-Limit Form With Flat-Dollar Deductible).
[q] Exclusions under the Earthquake and Volcanic Eruption endorsement that apply to property susceptible to earthquake damage
[q] Deductible under the Earthquake And Volcanic Eruption Coverage With Percentage Deductible endorsement
[a] The deductible is a percentage of the limit of insurance applicable to the property that has sustained loss or damage.
[q] Deductible under the Earthquake And Volcanic Eruption Coverage (Sub-Limit Form With Percentage Deductible) endorsement
[a] The deductible is a percentage of the value of the property that has sustained loss or damage.
[q] Ensuing Loss provision
[a] A provision that prevents stacking of the regular policy limit and the earthquake limit when an earthquake results in fire.
[q] Difference in conditions (DIC) policy
[a] Insurance that covers on an open-perils basis to fill gaps in the insured’s commercial property coverage, especially gaps in flood and earthquake coverage.
[q] Difference in conditions (DIC) policy Coverage Territory
[a] The policy generally covers property located within the United States and Canada. However, worldwide coverage can usually be provided when needed.
[q] Difference in conditions (DIC) Valuation provision
[a] A provision indicating that property can be valued in whatever way is mutually agreeable to the insurer and the insured.
[q] Difference in conditions (DIC) Other Insurance clause
[a] A clause that indicates the DIC policy will be excess over any other insurance.
[q] Difference in conditions (DIC) policy advantages
[a] Advantages include:
Can be a cost-effective method of obtaining flood and earthquake coverage.
There is usually no coinsurance requirement.
Forms are nonfiled in many states, making them easier to modify.
Coverage for some perils may be broader.
Some exclusions may be less restrictive.
[q] Difference in conditions (DIC) policy disadvantages
[a] Disadvantages include:
The market is limited, and terms can vary.
Policies are not standardized.
Insurance regulators in many states have not evaluated or approved the policy language.
The minimum premium requirements may make the coverage disproportionately expensive.
May take more time to negotiate and prepare.
[q] Output policy
[a] A type of specialty policy that combines all or most of the property coverages a commercial organization needs. Does provide liability coverage.
[q] Property covered under Output policy
[a] Policies cover buildings, other structures, and personal property.
[q] Auto physical damage coverage under Output policy
[a] An additional coverage option designed for insureds with large fleets of automobiles.
[q] Equipment breakdown coverage under Output policy
[a] An additional coverage option that provides equipment breakdown coverage.
[q] Highly protected risk
[a] A large property whose construction meets high standards of risk mitigation and control characteristics.
[q] Highly protected risks (HPRs) insurance
[a] Insurance generally used only for large property accounts. Rates are considerably lower than the usual commercial property rates.
[q] Attributes needed for highly protected risks (HPRs) insurance
[a] Attributes needed:
The insured must be committed to control property losses.
The insurer must be able to implement a complete protection plan for the insured’s property.
[q] Characteristics of properties insured under HPR insurance
Fire-resistive, masonry noncombustible, or heavy timber (mill) construction.
Automatic sprinkler systems and other loss prevention equipment.
Adequate water supply and water pressure.
Adequate public or private fire protection.
[q] Layered property insurance
[a] Two or more property policies arranged in levels of coverage. The policies in the second or higher levels provide excess coverage.
[q] Advantages of layered property insurance
Obtaining adequate and flexible limits.
Combined premium of layered policies is often lower than premium for a single policy that is subject to coinsurance.
Availability of broader coverages.
Accessing additional markets.
[q] Disadvantages of layered property insurance
Conflicts in wording and interpretation among the various layers can result in disputes.
An organization with a layered property program might have difficulty finding insurers willing to cover their liability exposures.
The market for coverage can be extremely competitive or shrink rapidly.
The cost of layered coverage could wind up being higher than the cost of a standard policy.