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Last Post 09/24/2010 8:34 AM by  Ray Hall
Coinsurance on ACV basis even if the insured has RCV
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Leland
Advanced Member
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Posts:741


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09/23/2010 5:21 PM

    I mentioned this on another topic but I did not give an example. I think I was misunderstood. So here is the the full explanation with an example.

    Coinsurance can be calculated on an ACV basis even if the insured has RCV coverage. If an ACV coinsurance calculation pays more to the insured than an RCV coinsurance calculation, settlement can be made using the ACV coinsurance calculation. (If the carrier agrees)

     

    Here's how it works:

    The insured has 4 very old printing presses and one brand new one.

    The old ones have an RCV of $400,000.00. The new one was bought last year for $100,000. Total RCV is therefore $500,000.00.

    Insurance in force is $200,000.00 with 80% coinsurance.

    On an RCV basis, the coinsurance percentage compensable is 50%

    (200,000 /(500,000 x .8))

    The new press burns up completely. With 10% depreciation, the ACV of the new machine is $90,000.00

    On an RCV basis the insured would be paid $50,000.00

    But to be fair to the insured the carrier asks the adjuster to calculate coinsurance on an ACV basis. (This has happened to me three times)

    The adjuster learns that the old machines are from 1962. A new comparable machine, doing the same printing, would cost $100,000.00 each. But the old machines have a much lower market value. Based on used machine market prices the ACV is $30,000.00 each.

     The total ACV value of all the machines combined is therefore $210,000.00.($30,000 x 4, + 90,000)

     So coinsurance percentage compensable on an ACV basis would be 100% (no penalty applied)

    (Insurance required is (210,000 x .8), or $168,000.00. Since the insurance in force is $200,000, no coinsurance applies on an ACV basis)

     So in conclusion, calculating coinsurance on an ACV basis will result in a larger payment to the insured, in this hypothetical example. Using this method the insured can be paid $90,000.00 instead of $50,000.00. (Note that the insured is paid ACV- you can't have it both ways...)

     Many insurance companies are willing to calculate coinsurance and make settlements on an ACV basis when it benefits the insured. This is often done on the CP99 commercial form. Not all companies will do this, but some will actually tell the adjuster to do it. The policy doesn't specifically address it but it is done all the time.

    (Note that this scenario works when the ACV valuation of the total property is relatively low due to higher depreciation and the ACV of the damage is relatively high. If the undamaged machines were new, and the damaged machine was old, the scenario would be reversed- an ACV coinsurance calculation would result in lower payment to the insured. In that case payment would be made on an RCV basis like normal.)

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    Ray Hall
    Senior Member
    Senior Member
    Posts:2443


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    09/23/2010 8:39 PM

    This guy is cutting his adjusting throat with ever Underwriter in London. Which underwriters allow  a rate reduction if you comply with the % on property on three basis? market value- less land value, ACV and RCC and then leave it up to idiot,s in the states compute any penalties. I have never met one and I been to London and Italy twice.

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    Leland
    Advanced Member
    Advanced Member
    Posts:741


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    09/23/2010 9:05 PM
    No, Ray, your revealing what you don't know. Top executives of insurance companies have told me to do what I explained above. It's quite normal. I haven't researched the case law, but I'm sure there is precedent for it or else the carrier wouldn't do it. And the reason I didn't post it the other day when you thought I was confusing RCC residential requirements with coinsurance, is that I wanted to check with a very experienced adjuster who also has a law degree. He verified everything I posted, and told me he also has been told to do the coinsurance the way I described.

    If some London underwriters don't want it done that way on a CP99 I'm fine with it. We all work for the carrier or underwriter.

    But Ray, I knew you would criticize what I posted because I know that you aren't as knowledgeable as you like to think. You do a lot of yelling and posturing but a lot of your posts are factually incorrect.

    I noticed that you didn't respond the other day when I asked you to prove me wrong when I explained that a total loss on an underinsured line of coverage never has coinsurance penalty.

    Because you couldn't prove me wrong. Maybe you ran the math and realized I was right.

    And what was this about saying "coinsurance penalty" is incorrect terminology? "penalty" is the word found in many (not all) policies.

    You seem like you have something personal against me. Always picking apart my posts, telling me I need to go to business law class.

    Ray, you may have more years of experience than I do but you say a lot of things that are just flat out wrong.

    And you are arrogant about it too.

    I feel like not even participating in this website anymore.

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    Ray Hall
    Senior Member
    Senior Member
    Posts:2443


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    09/23/2010 9:48 PM

    Well you are the very first one who has ever called me out. I got into it with Jim Flynet about 6-7 years ago on grave markers. He was right. I have tried to post good information for new adjusters and  some post on match,working with butter fly wings, not the way I was trained, thats the way I have always done it. the 49 states understands CA. is differant, and I don,t get into that topic, but lets just let all the people who waste their time reading our post decide. I will never read read enough of you bad post. No more for me. Please give me the name of any insurance carrier in TX. that flys by the seat of their pants . It will get to TDI, I promise.

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    CatAdjusterX
    Veteran Member
    Veteran Member
    Posts:964


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    09/24/2010 12:52 AM

    Come on fellas,

    This sounds more like Animal Planet where one bull is challenging another for leadership of the clan.

     

    Leland, I enjoy reading your posts, so don't leave the site

    Ray, I have long enjoyed your posts and have come to you with Xactimate sample reports when one of my members actually listens and follows your advice and writes up their own homes with fictitious damage.

    I also have great respect for you as when someone points out something you said was factually inaccurate, which isn't often, but when it does happen, you gracefully accept that you were wrong and you learn from it.

    I hope to see both of you colleagues continuing to post here on CADO for a long time to come.

     

    Robby Robinson

     

    "A good leader leads..... ..... but a great leader is followed !!" CatAdjusterX@gmail.com
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    ALANJ
    Member
    Member
    Posts:142


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    09/24/2010 8:17 AM
    Ray speaking of Jim F, Have you heard from him or know what happened to him?
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    Ray Hall
    Senior Member
    Senior Member
    Posts:2443


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    09/24/2010 8:34 AM

    Morning Alan, no contact with Jim in several years.

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