What are insurance financial ratings?

One of the most important things you can do when choosing an insurance company is to pick one that is financially secure. As a result of the recent financial environment, financial solvency has probably never been more critical for insurers. There are five major agencies that rate the financial stability of insurance companies.

Insurance ratings are based on financial data that insurers are required to report to the government, as well as information the insurance companies provide directly to the rating agencies. Most financial rating services also post ratings on the Web or publish ratings that are readily accessible to the general public.

It is very important to know what constitutes each agency's high ratings, and stick with insurers that rank highly on a consistant basis. Deciphering the ratings is somewhat confusing, and rating systems can vary quite a bit between each rating service. At first glance all ratings seem equal, like report cards with an "A" as the highest mark and a "C" for average. However, this is not the case. An insurance company touting an "A" rating could have some potential problems paying claims, while one with a "C" rating could be on the fast path to bankruptcy.

The Most Prominent Rating Agencies

• A.M. Best Unlike the other services, A.M. Best rates only insurance companies, and it rates the entire market. Top financial-strength ratings fall in the categories of superior (A++, A+) and excellent (A, A-).

• Standard & Poor's Highest financial-strength ratings are AAA (extremely strong) and AA (very strong). Standard & Poor's also designates certain companies as Security Circle insurers. These companies must rank in the top four categories for financial strength, submit to a comprehensive initial review, and undergo ongoing monitoring.

• Moody's Moody's ratings cover global life, property and casualty, mortgage and title insurers and reinsurers, plus financial guarantors. Look for companies with financial strength ratings of Aaa (exceptional) or Aa (excellent).

• Fitch Fitch Ratings is an international credit rating agency dual-headquartered in New York City and London. It was one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's

• Duff & Phelps This agency specializes in rating small- to medium-size insurers. Companies with a high claims-paying ability get marks of AAA, AA+, AA, and AA-. In addition to its ratings, Duff & Phelps' Solvency Seal identifies companies that have been in operation five years or longer, and show a strong long- and short-term capacity to pay claims.

What to Look For in an Insurer Beyond Just the Ratings

In addition to the ratings, you should also look at how a company ranks across its entire range of services to get a good idea of its overall financial stability. Ratings tell you only how financially sound a company may be on paper. Getting an insurance company to easily pay out a claim is another story. Usually, a personal referral or your insurance agent's advice can help you get a feel for how quickly claims are settled. Another great source for company testimonials is your state insurance department, because it collects complaints from consumers against their insurance carriers.

Still, many insurance companies do go unranked. This isn't necessarily a big cause for concern, but be sure you check with A.M. Best, because its ratings tend to be the most comprehensive. If you see a questionable rating with A.M. Best, and the company you're considering isn't rated with the other services, it's a good idea to obtain a quote from another insurance company as well

____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

Buying Insurance: What You Need To Know

Owning and managing a business has many positives and negatives, requiring the performance of varied responsibilities and wearing of many different hats. Most of my clients typically view the insurance renewal process with a sense of dread. Navigating the minefield of carriers, coverages, exclusions, sub-limits, etc. Contracts can be time consuming and frustrating, filled with technical jargon and terminology that can leave you exhausted. After you manage to finalize your renewal, you may still lay awake at night wondering if there is an uncovered claim lurking out there waiting to strike.

What can you do to make the renewal process easier for you and your staff, while also reducing overall insurance costs and maximizing coverage?

Representation
Having a trusted, knowledgeable professional working to secure your interests can make this process much easier. Well trained, professional insurance brokers take their careers and their clients accounts very seriously. Focus on finding a broker that specializing in working with your type of business, and has appropriate designations, such as CPCU. You can learn more about insurance designations and find lists of qualified brokers at http://www.aicpcu.org. Asking colleagues and competitors for recommendations can also prove valuable. Most people are very willing to make an introduction if they are pleased with their broker. They will carefully review your schedules, limits, coverages and exclusions, making recommendations on the package of coverages that will most benefit your account. There are tools available that will confirm your coverages are adequate, such as buildings limits, http://www.marshallswift.com. A good broker will also closely monitor what is happening in the insurance market, tracking trends and carrier appetites.

Alternate Proposals
After you have found a good broker, allow him to select the markets he would like to approach on your behalf. Your broker will work hard for you every year, but the market is fluid and can change quickly. Allowing a second broker to review your account every 3 to 5 years will ensure that your account is placed with the best carrier for your needs.

Keep clear records*
Use Microsoft Excel or another spreadsheet program to keep clear and current details of your building(s), vehicles, drivers, and other account schedules of information. Retain clear and current records of contracts and certificates of insurance from all sub contractors and third parties you do business with in the event they cause any damage or claims. Ask your broker and attorney to review these documents for proper wording and limits. You should also keep details of past claims if you have any. This will make it easy for a potential carrier to assess your account quickly.
* This item is very important. Most underwriters are overworked. They will eliminate some of their workload by taking all of the accounts that are lacking information or are poorly prepared and instantly decline them. Your broker will play a big role in making your submission as attractive as possible.

Housekeeping
Some carriers prefer to pre-inspect risks prior to offering a quote. The easiest way to clean up your account is to take care of visible debris, make sure handrails are secure, and move items away from burners and boilers. Take a look at past carrier recommendations to see if there are any items suggested that you may not have completed. Typically these things are not expensive and can make a big difference in the way you present to a carrier.

Quote review
Once your broker produces all of the quotes you will be reviewing together, consider all the factors, not just the price. It is easy to produce quotes that are cheap, but you usually get what you pay for. Compare your coverage forms and exclusions; make sure the quotes are basically the same. If there are differences, confirm that they are reflected in the price.

Ask to see the AM Best rating for the quotes your broker provides. AM Best provides financial ratings of all insurance companies, and their indications can help offer some guidance on the strength and longevity of the carrier with whom you are doing business.

Check your deductibles. If you have some frequency in claims, you may want to take a lower deductible to reduce your annualized risk management costs. However, a risk-free insured may be willing to take a higher deductible to reduce insurance costs. This allows you to keep more cash on hand in the event the occasional claim comes along. Again, your broker can help you analyze your claim history and provide some claim scenarios to assist in determining which plan makes the most sense.

Throughout this article, you will note a recurring theme: the assistance provided by your broker. I cannot stress enough how important a knowledgeable broker is to your business, coverage and profitability. There are many insurance professionals who genuinely care about providing the best services to their client. If you don’t feel you have one of these professional working for you, I urge you to find a new broker. They are out there and not hard to find.
____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

Admitted versus Non-admitted insurance companies

Admitted Insurance Companies vs Non-Admitted Insurance Companies

AdmittedAdmitted carriers are licensed and governed by the laws of the state they are in, and their rates and forms (coverages) are reviewed and approved by that state. This is very good because each states insurance department is charged with protecting the interests of the consumer. They review the rating to make sure there is no price gouging, and they review the coverages (forms) to make sure there are no egregious exclusions on the policy being sold.

Also, Admitted carriers are protected by their state guarantee fund (if one exists). Here in NY , the state agrees to back up an admitted carrier in the event that carrier becomes insolvent and is unable to pay claims.

Non admitted
Non-admitted carriers on the other hand are not protected by any state guaranty funds. They also are free of rate and form. They can, in effect charge any price they want, and can provide any coverage or exclusion they want, leaving it to the carrier and insured to negotiate terms of coverage, typically through a broker. This may seem initially very bad on the surface, however non-admitted carriers exist for a very specific purpose.

Example #1
If there is a sudden spike in arson related apartment building fires, insurance companies who write on admitted paper only have two choices: Keep writing policies at a loss, or stop writing the class altogether while they wait for a rate change approval from the State department of insurance, which can take many months. Non-Admitted carriers can step in, increase the pricing to a level that will allow them to continue writing the class profitably. While no one likes higehr insurance premiums, this is certainly better than leaving the building owner uninsured.

Example #2
Your particular set of buildings keeps experiencing water damage claims & all admitted carriers choose not to offer coverage. They can not exclude water damage, and they cannot charge enough rate to operate your policy profitably. A nonadmitted carrier offers you a competitive rate, with a standard deductible of $1,000, and then adds a Water Damage Deductible of $25,000. While you dont like such a high deductible, you can see the sense of the carriers offer, it keeps your premium down, and is this offer is again better than no coverage at all.

The ability to offer a custom made policy is very useful to risks that are hazardous or have experienced a bad claims history. Nonadmitted policies are not designed for the lay person. They exist to address specific needs of special classes of business that are having problems in one form or another.

Solvency Concerns
Some insureds are fearful of doing business with nonadmitted carriers due to insolvency concerns as described above. While this fear is reasonable, it should and can be managed and planned for. In addition to being admitted or non admitted, carriers are also given ratings of their financial strength. There are plenty of carriers that are admitted that have a B (or worse) financial rating. I would probably not reccomend my client buy such a policy. Alterntaively there are many non-admitted companies that can provide financials that position them as A-XV and better. These companies are very strong and the likelihood of their failure is very small.

Find a reputable, knowledgable broker who can help you navigate the many types of carrier policies available and you may be suprised at what you find.

____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

What is Risk Transfer?

http://www.investorwords.com/ defines this as: "Shifting risk from one party to another; examples include purchasing insurance coverage or issuing debt."

The whole basis for insurance is risk transfer. You can move known, definable risks from you to a third party who is more capable of surviving the risk, if a negative event occurs.

Insurance companies were formed to pool the risks and the monies charged(premium) so that they can pay for the repairs in the event any of the insured parties suffers a covered claim.

Almost any type of risk can be transferred to another party. This is good and bad. It is good because no matter how exotic the coverage needs to be, it can be purchased. It is bad because the flexibility of the policy structure allows policies that seem similar to provide very different coverages, which may cause confusion for an insured over what is and is not covered.

The cost of risk transfer (insurance policies) is determined by a few things:
1) How common is your risk? Usually, the more of them there are, the more comfort a carrier will have with the risk, leading to reduced pricing.

• Homeowners insurance is very common. It is fairly easy for insurance companies to predict the statistical averages for claims and payments so they can rate their policies pretty tightly. There is also a lot of competition between insurance companies, so this helps keep prices down.
• On the other hand, if your in a business that is a completely new field, finding a carrier willing to provide a quote will become very difficult. This wil llimit competition, and also because there will be many knowns for the insurance company, the pricing they provide may be reflective of their uneasiness with your business.

2) How hazardous is the risk? Typically, the more hazardous your risk is, the more premium you can expect to pay.

• Do you shine shoes for a living? How likely would you to be sued?
• What if you operate a playground, where there are children running around all day long?
• Do you manufacture dynamite? Even if your product is used as its designed, you may still generate claims with this class of business. I would imagine insurance for a dynamite factory will be a touch more expensive than for a shoe shining business.

3) How broad is the coverage? You get what you pay for. The more coverage you want, the more it will cost.

• If you operate a business and are paying a very small amount versus your friends in the same business, I would be very curious to take a look at yur poicy wording and see if there are any substantial restrictions that you should be aware of.
• It would be very bad if your dynamite factory had an exclusion for fire and explosion.

If you have additional questions, please feel free to contact me.

____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

What is E&O Insurance?

Errors and omssions (E&O) is the insurance that covers you in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised result.

For doctors, dentists, chiropractors, etc., it is often called malpractice insurance. For lawyers, accountants, architects or engineers, it may be called professional liability.

This coverage is typically in force where you are providing a professional opinion or some expertise. This type of coverage is typically excluded from your standard GL policy. If you provide any type of service where you are being paid for your opinion, then it would probably be a good idea to have E&O insurance.

If you have additional questions, please feel fre to contact me.

____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

Occurrence versus Claims Made

OCCURRENCE vs. CLAIMS MADE

When a policy is written on a "claims-made" basis, it means that the policy in force at the time a claim against you is made will pay for losses, regardless of when the claim actually occurred in the past. (Assuming no retroactive inception date is applied, which will be explained below).

With an "occurrence" based policy, even though the policy may have expired, provided the policy was in force at the time that the claim occurred, a claim can still be made against that old, expired policy.

Both forms of coverage have advantages and drawbacks, depending on the circumstances. It is difficult to predict whether, in any particular instance, it will be advantageous to insure using one form or the other, but carriers typically offer claims made when the odds of a claim occurring over time is more likely, such as when you sell products, or have environmental exposure.

Advantages of "occurrence" policies

* - "Occurrence" policies are sometimes like "money in the bank," in that you can go back to old policies, years after they have lapsed and put a claim against them for incidents that happened while they were in force. Old policies should never be thrown away. They should be kept in a place of safekeeping.

* - You don't have to worry about canceling an "occurrence" policy and moving to a different insurer. Coverage remains locked in for incidents occurring while the policy was in force, so long as the insurer is in business. In contrast, once a "claims-made" policy is cancelled, it is possible that purchasing insurance for past events will become difficult, expensive or perhaps not possible.

* - Sometimes courts will find occurrences in successive policies if there is continuing harm. This can have the effect of accumulating limits over a period of years. With "claims-made," only one limit applies; the limit in force when the claim is actually made.

Disadvantages of "occurrence" policies

* - Insurance companies who wrote policies in previous years may no longer be around. With "claims-made" policies, the insurer is much more likely to be around when a claim becomes payable. The length of time between an occurrence and resolution in court can be 20 or more years. An insurer in business 20 years ago may not be in business today.

* - De to inflation and other economic factors, the limits on an "occurrence" policy are likely to be inadequate if a claim is made twenty years after a policy has expired. With "claims-made" it is easier to arrange a limit which is adequate for today's exposures.

Advantages of "claims-made" policies* - Limits can be predicated on today's exposures more accurately than with "occurrence" policies, so there is less likelihood of being under insured. Previous inadequate "occurrence" basis limits can be topped up retroactively.

* - Previous inadequate coverage or more restrictive terms exceptions and conditions can be broadened out retroactively.

* - The above two advantages can be made to apply whether the insured was previously on either "occurrence" or "claims-made" policies.

Disadvantages of "claims-made" policies* - Coverage is triggered by an actual claim for damages, not a notice of an "occurrence" or "incident." However, the date of the occurrence or incident must be more recent than the retroactive date of the policy. This retroactive date determines the cut-off date for claims: if the incident occurred before the retroactive date, the insurer has no obligation and the insured no coverage. While the claim has to be made during the policy period, the occurrence which gave rise to the claim has to fall after the retroactive date of the policy. A "claims-made" policy can have no retroactive date (the broadest coverage). On the plus side, a retroactive date can pre-date the policy inception date (this may range from days to years). Ideally, it should go back at least to the expiration date of your last "occurrence" policy. If it goes back further it can be designed to provide top-up cover in the case of different limits. Ideally, you want no retroactive date or one that includes the entire period that you have had "claims-made" coverage. Anything less makes you self-insured for any claims for injuries or damage that occurred during prior claims-made policy periods which you have not reported to your insurer at the time of the occurrence (unless such claims are covered by supplemental "tail" coverage).

* - The first claim for damages determines which policy applies. If a person first makes a claim for medical payments in 1986, then files for additional damages in 1988, both claims activate the 1986 claims-made policy.
With "claims-made" basis of coverage, should the policy ever be allowed to lapse or be cancelled, the insured is generally given the option of purchasing coverage, (extended reporting period or "Tail") With "occurrence" policies you don't have to worry about past incidents when lapsing coverage or changing insurers.

* - If coverage terms ever become more restrictive on subsequent renewal of a "claims-made" policy, the new terms apply retroactively to the original retroactive or inception date.
Limits of Liability and need to project into the future

* - Once an Insured is hooked on a "claims-made" policy it is difficult to get off. The Insured can purchase a "tail" coverage extension which can sometimes be extended for years, but even this is at the option of the Insurer, and is not under the control of the Insured.

There are many more complex differences to consider between these two policy types. For the sake of brevity, I have stopped short of continuing, but would be happy to continue this dialog with anyone who has more specific questions.
____________________________________

Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

What is EPLI?

Employment Practices Liability Insurance (EPLI) covers businesses against claims made by workers who allege that their legal rights as employees of the company have been violated.

While most suits are filed against large corporations, no company is immune to such lawsuits.

EPLI provides protection against many kinds of employee lawsuits, including claims of:
* Sexual harassment
* Discrimination
* Wrongful termination
* Breach of employment contract
* Negligent evaluation
* Failure to employ or promote
* Wrongful discipline
* Deprivation of career opportunity
* Wrongful infliction of emotional distress
* Mismanagement of employee benefit plans

The policies will reimburse your company against the costs of defending a lawsuit in court and for judgments and settlements. The policy covers legal costs, whether your company wins or loses the suit, with liabilities covered by other insurance policies such as workers compensation excluded from EPLI policies. These policies typically do not pay for punitive damages or civil or criminal fines.

To prevent employee lawsuits, educate your managers and employees so that you minimize problems in the first place:
* Create effective hiring and screening programs to avoid discrimination in hiring.
* Post corporate policies throughout the workplace and place them in employee handbooks so policies are clear to everyone.
* Show employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor. Make sure supervisors know where the company stands on what behaviors are not permissible.
* Document everything that occurs and the steps your company is taking to prevent and solve employee disputes.

____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

What is Gap insurance?

When you buy or lease a new car, and have a claim, the insurance company will only pay what the car is worth. As you drive the car, its value reduces signifigantly, espescially in the first year or so. If the car were to be damaged or stolen, it would be very likely that you would owe more to the bank than the car is actually worth.

So as an example, if you bought a $25,000 car, and had an accident 6 months later, the insurance company might pay for the car, at about $16,000. But you had only made a few payments, so the bank is still owed lets say, another $7,000. The insurance company won't pay them that money. You are responsible for this "gap" in coverage.

A gap policy will pay this difference for you, so you wont lose anything on the back end.

____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

Whats is a Deductible? What is an SIR?

Deductibles and Self-Insured Retentions (SIR) in liability insurance serve the same purpose: They can offer a cost savings to an insured who anticipates small and infrequent losses, and they can reduce an insurer’s reluctance to write an account with a loss frequency problem.
The fundamental difference between a deductible and a SIR is how the claims are adjusted. With a deductible approach, the insurer adjusts all claims, and then bills the insured for his deductible amount. Wtih an SIR approach, the insured is responsible himself for adjusting claims up to his SIR, which means that the insured will probably require the services of a third-party administrator (TPA). After the SIR is consumed, then the inurance carrier is brought in to handle the remaining amounts of the claim.
Not only do deductibles and SIRs differ in claims adjustment approach, there are usually other differences, so making an "apples-to-apples" comparison can require soem additonal research.
Here are some key factors to be aware of:
1. Loss Adjustment Expense (LAE). Some insurers using deductibles or SIRs apply the deductible or SIR amount only to the actual claim itself (BI/PD), while others also include LAE. This is often noted in the quote as "LAE inside" or "LAE outside." This is the same concept as "defense inside" or "defense outside."
2. Per Claim/Per Occurrence. Another variable is whether the deductible or SIR apply per claim, or per occurrence. Obviously, this could make a huge difference to the insured, depending on the circumstances of a particular loss. A per claim deductible or SIR would produce a lower premium quote, since the insured has assumed more of the potential loss, but the insured could face a considerable amount of up-front expenses.
3. Third Party Administrator (TPA). If an SIR is used, the insured will need a TPA to assist with the claims adjustment process. The insurer will usually provide an approved list of TPAs that the insured can use. The TPA will review the insured’s loss runs, as well as consider the nature of the insured’s business, and provide a cost per claim pricing. In some cases, the TPA will also require a deposit at policy inception.
4. Appeal of deductible vs. SIR. As you noted in your question, some insurers prefer a deductible approach, some prefer the SIR, some offer both, and some don’t offer either. One difference between the two that insurers often like is that with an SIR, the insured "has some skin in the game." That is, there is an incentive for good loss control, since the insured must pay up front for claims (and often LAE also) which are below the SIR. With a deductible, the insurer pays the money first, but has to bill the insured for their contribution, which can produce a delay in the insurer receiving reimbursement from the insured.
Feel free to hit me with any other questions as well.
____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

What is Third Party Over?

Also known as "Labor Law" or "Action Over"

An injured employee, after collecting workers compensation benefits from the employer, sues a third party for contributing to the employee's injury, such as the General Contractor that hired his employer top perform a task.

Then, because of some type of contractual relationship between the third party and the employer, the liability is passed back to the employer by that prior agreement. This causes the employer to pay both the Workers Comp claim, and the General Liability Claim.
This type of claim is very common in NY, and many carriers specifically exclude this type of claim.

____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

Basic, Broad, Special

Property insurance provides three levels of coverage. Basic, Broad & Special. Basic is the cheapest to purchase, and Special is the most expensive, with Broad form in the middle.

Basic & Broad form only provide coverage for the perils that are listed. Special provides coverage for anything and everything, unless that peril is specifically excluded. See below for more information.

Basic
fire; lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, or volcanic action.

BroadBasic + falling objects, weight of ice, sleet or snow, and accidental water damage.

Special
When a property policy is written on a special form, the insurance company has a duty to specifically exclude coverage. Simply put, if the insurance company does not exclude coverage in writing, the damage to your property will be paid for. There are tons of common exclusions, for example: government action, nuclear hazard, war and military action, water damage (ie. flood), fungus, and pollution. At the end of the day, however, the special form gives you much more comprehensive insurance protection than the basic or broad forms.

____________________________________
Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

Replacement Cost (RC) versus Actual Cash Value (ACV)

When purchasing a property policy, one decision you will need to make, is whether or not to buy your coverage with "Replacement Cost" (RC) or "Actual Cash Value" (ACV)

Replacement Cost means, "the cost to replace an item or structure to its pre-loss condition"

Actual Cash Value means, "replacement Cost less depreciation.

In simple terms, assume you had a TV that was 5 years old, and it was damaged in a fire. Under Replacement Cost, the insurance company would give you enough money to buy a NEW television. Under Actual Cash Value, they would give you the money your old, used TV was worth, and it probably wouldn't be enough to but a new one.

Sometimes insurance companies will only offer ACV if they feel there is a greater risk of a loss, such as on a building that has not been updated in some time.

This is definitely a coverage that you should pay attention to on your policies, as a policy with ACV will usually be far cheaper than a policy with RC, and for good reason.

____________________________________

Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

What is coinsurance?

Coinsurance is a penalty imposed on the insured by the insurance carrier for under reporting/declaring/insuring the value of tangible property or business income. The penalty is based on a percentage stated within the policy and the amount under reported.

As an example:
A building actually valued at $1,000,000 has an 80% coinsurance clause but is insured for only $750,000. Since its insured value is less than 80% of its actual value, when it suffers a loss, the insurance payout will be subject to the underreporting penalty. For example: It suffers a $200,000 loss. The insured would recover $750,000 ÷ (.80 × 1,000,000) × 200,000 = $187,500 (less any deductible).
In this example the underreporting penalty would be $12,500.

The most commonly issued coinsurance percentage would be 80% but can be as high as 100%. The latter [100%] would impose the greatest penalty for under reporting. For this reason, it is vital that values of property are accurately reported and updated annually to reflect inflation and other increases in cost.

CArriers may also choose to offer "Agreed Amount". This effectively eliminates the coinsurance clause of an insurance policy. Most carriers wil require a minimum amount per sq ft in order to offer Agreed Amount.

____________________________________

Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681

What is Insurance?

Taken from Wiki, http://en.wikipedia.org/wiki/Insurance
"Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. An insurer is a company selling the insurance. The insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice."

What does this mean in plain English? Insurance companies are providing you with a promise. They promise to pay damages you may suffer up to an agreed upon amount, for an agreed amount of time, for a smaller payment in advance. Most insurance policies will have a list of exclusions you should be aware of, so you should have a trusted professional review your coverages with you.

____________________________________

Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681