principles of insurance ins21_chapter08

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

● Property Loss ExposuresA 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 PropertyProperty 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 PropertyA 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 LossesThe 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 provisionsProperty 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 LocationsAn 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 StructuresIn 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 Insured’s 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 CoverageThis 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 DamageInsurance 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 theyeither are certain to occur, over time, or are avoidable throughregular maintenance and care.



● Covered Financial ConsequencesProperty 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 CoveredMany 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 insured’s household.

● A homeowners policy can provide coverage for property belonging to guests, residence employees, and others while it is in the named insured’s home.

● A commercial property policy providing coverage on the named insured’s 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 RecoveryThe 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


principles of insurance ins21_chapter08

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