| 10/30/2008 11:33 PM |
|
I know that many insured can negotiate removal of coinsurance penalties from their contracts, but their ability to do this is a function of their size and the market conditions (which can change rapidly and market shift is starting). I also know enforcing the coinsurance penalty is difficult for a variety of reasons.
Rather than rely on contract weaknesses or attorneys' skills, I'd rather avoid the potential problem by aligning the data used for underwriting with the data used for adjustment. To that end, I'm trying to help my clients put together specific questions to ask underwriters during the submission process in order to reduce potential for disconnect with adjusters post-loss.
Is a coinsurance calculation done on every loss, only over $X, at the carrier's request, or are they done back in the office by the carrier?
If they're done in the field, how does the adjuster decide what cost guide and settings to use? Would guidance come from each carrier for the adjusters to follow to increase consistent coinsurance calculations? I know how the math for the coinsurance calculation works, but I haven't seen the real-world explanation of how the base cost (replacement cost at time and place of loss) is generated.
Example: Carrier X has the policy holder submit an "insurance appraisal" with the application, and they'll accept "appraisals" done with either Means or M&S, no guidance provided on settings. Between inherent differences between the cost guides, new construction vs reconstruction basis, real-estate appraisers applying inappropriate exclusions (foundations, permits, architects fees, contractor profit & overhead), generic errors, etc. the range for the estimated insurable replacement cost would vary substantially. Is there this level of flexibility in the post-loss analysis?
Thanks.
John Nixon
|
|
| 0 |
|
| 03/25/2009 12:20 PM |
|
|
It's an adjustment. So there is flexibility. Each carrier has varying degrees of wiggle room. Biggest cause to get coinsurance thrown out is "who picked the limit?"
insured picked? coinsurance sticks.
Agent/underwriter picked it? coinsurance goes.
We use MSB or Exact to do the valuation for the cost to COMPLETELY rebuild the risk if it were COMPLETELY wiped out.
If there is a disagreement, I ask the insured to show me. I advise a realestate appraisal is not acceptable as it is an appraisal for the market conditions of buying and selling property.
If my evaluation is within 5% I typically recommend no coinsurance be applied due to variances in labor, materials and the estimating systems in theory, are to evaluate the average cost. Most carriers don't fight on this and when I worked Allstate Commercial we would typicall waive coinsurance in this instance.
I tend to stick to my guns though on the evaluation and i DON"T take the tax appraisal a county has recorded. I get that all the time.
SCLA, Multi-line Adjuster specializing in Commercial and Multifamily Dwellings. (I prefer the "P" of P&C)
|
|
| 0 |
|
MedulusModerator  Veteran Member Posts:786  
| 03/26/2009 9:53 AM |
|
|
What each carrier requires is highly variable. Some commercial cariers require a square foot valuation with every claim, and apply co-insurance devoutly. Others never require it. The most common instruction seems to be: Comment on inusrance to value. This, of course, leaves a great deal of room for interpretation of what is required. All four major estimating software packages include a valuation module. Xactimate requires that you set up a separate file to do a valuation. The others allow you to do the valuation within the claim you have already set up, which avoids duplication of effort. These programs give general guidelines within the program as to what constitutes which class of construction. They also have filters by which you can print out more or less detail on the valuation report.
My thinking has always been that most adjusters are not also licensed to appraise buildings. Therefore, the square foot valuations provided by these adjusters could easily be challenged by using a licensed appraiser. In reality, I don't think I have seen anyone use this. Having a licensed appraiser provide a value up front, possibly as part of the application process would likely trump the valuation provided by an adjuster and avoid any co-insurance penalty.
Steve Ebner CPCU AIC AMIM
"With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
|
|
| 0 |
|
| 03/26/2009 5:13 PM |
|
|
Real estate appraisers too often use the the wrong tools when asked to do insurance work.
They'll use M&S Swiftestimator or CE despite license restriction agaisnt their use for insurance purposes.
Their day-to-day work is focused on market value, not replacement, and in most cases they have no engineering/construction knowledge.
Based on what I've seen, a loss adjuster is far more qualified to fill out an insurable value estimate than a real estate appraiser.
The scenario you outlined - someone incorrectly using the value shown under the "cost approach" from the market value appraisal for the insurance limit, is one of the drivers of underinsurance. The "cost approach" is new construction, not reconstruction. That starts the game 15% in the hole. throw in an inappropriate exclusion, miss some pertinent details and you're low by 25%. Don't update the number at all or use an inadequate inflation adjustment over a few renewals and you're down 30-40% pretty easily.
What I'm hearing is that the carriers aren't telling the adjsuters what standards to use to calculate coinsurance.
John Nixon
|
|
| 0 |
|
HuskerCatVeteran Member Posts:762
| 03/30/2009 2:43 PM |
|
It has been my experience that there can be a pretty stout wall between the underwriting dept & the claims dept when it come to determining ITV. There have been times that it was very apparent a commercial property was undervalued by more than 50%, and the underwriters would either disregard it or stonewall us long enough that we had to go ahead and pay the claim without co-ins penalty. I think it is safe to say that in those cases, the underwriter and/or agent failed to document the application in the first place. The times that a co-ins penalty was enforced, there was documentation with the original app which when compared to the loss documentation showed huge discrepancies in the risk involved. Another famous "oops" is the agent that writes a HO policy for just the remaining mortgage balance to save the client a few bucks. That is a commonly accepted practice on repo's, but on owner-occupied the agent better have good E&O. |
|
| 0 |
|
Ray Hall Senior Member Posts:2443
| 03/30/2009 11:24 PM |
|
i disagree with all the post. You are talking about three fruits hanging on the single roots and branchs of the the insurance tree.
1. Commercial co-insurance clause on a commercial property building or contents.
2Homeowners or dwelling policys (DP.s) not eligable for co-insurace in any of the 50 states. ( a reduction in premium at the time the risk is insured, only applicable on commercial insurance., not HO or DP.
3. The non compliance penalty in a Homewners or replacement cost policy that is being called "the co-insurance penalty" in error.
Now lets discuss the three fruits from this tree by the numbers in any order. |
|
| 0 |
|
BobHVeteran Member Posts:759 
| 03/31/2009 6:34 PM |
|
Posted By Ray Hall on 30 Mar 2009 11:24 PM
2. Homeowners or dwelling policys (DP.s) not eligable for co-insurace in any of the 50 states. ( a reduction in premium at the time the risk is insured...
Huh?
Let's take point #2. If they are UNDER-INSURED (intentionally or otherwise) they will be paying lower premium for less coverage.
Here's the HO-3 2000 edition:
This is a topic that "some" carriers are very, very focused on. I have done homeowner claims for some carriers that need an "Insurance to Value" on every little claim.
I do claims for one carrier that ONLY asks for ITV on rental policies (DP-3) which of course also allows for Replacement Cost on the structure damage, but not if they are Under-insured.
3. The non compliance penalty in a Homewners or replacement cost policy that is being called "the co-insurance penalty" in error.
That term, Co-Insurance, is not specifically found in the HO-3 or DP-3. But the process of determining 80% value, and determining the proportion of coverage to what was needed is the same. It walks like a duck. The issues Mike talks about are relevant to residential insurance.
You are right, there are differences in commercial policies. A car dealership may intentionally insure 1/2 the number of cars on the lot (when you get those assignments, they make you count the inventory) and there are scenario's where the Insured, his agent, everyone knows they are under-insured, and "insuring themselves" for the part that they aren't paying a premium for. (thus the term "co" insurance) Bob H
|
|
| 0 |
|
steve sanders Guest Posts:15
| 03/31/2009 7:52 PM |
|
I agree with both Ray & Bob. The process of determining the valuation of a structure, residential, commercial, industrial etc.. is essentially the same. However the H0-3 requirement for an 80% to value is for the replacement cost provision. Even if the homeowner is way underinsured at any amount, they are still entitled to the actual cash value of the loss or the proportion of the replacement cost loss as it relates to the itv, whichever is greater. This is very different from most commercial polices as the losses that are underinsured do not provide for the greater of the co-insured loss or actual cash value. Most, but not all, commercial polices are written at actual cash value. Thus the co-insurance would be applied to the acv loss and after application of the co-insurance penalty the deductible would be applied.
As always, read the policy every time don't just assume you know the answer.
As a side note to both Bob & Ray I for one really appreciate your posts and the information that you are both willing to share with the adjusting community. |
|
| 0 |
|
BobHVeteran Member Posts:759
| 03/31/2009 8:06 PM |
|
Posted By steve sanders on 31 Mar 2009 07:52 PM
Even if the homeowner is way underinsured at any amount, they are still entitled to the actual cash value of the loss or the proportion of the replacement cost loss as it relates to the itv, whichever is greater. This is very different from most commercial polices as the losses that are underinsured do not provide for the greater of the co-insured loss or actual cash value.
Exactly. I started to mention that - but deleted it 'cuz I talk too much anyway...
Out in the wild, people get sloppy and use the term Co-Ins as it relates to "hey we need an Ins to Value on this one". Technically Ray is right, you wouldn't call it Co-Ins for homeowner claims. People do use the term loosely, including claims managers, so you have to read between the lines and get it done.
The prior threads do focus on where the rubber meets the road in working claims.
Bob H
|
|
| 0 |
|
ChuckDeatonLife Member Senior Member Posts:1110 
| 03/31/2009 8:30 PM |
|
|
There is no "co-insurance" wording in a home owners policy or a flood form. These policies have a "replacement cost provision. To paraphrase wording, the homeowners and the flood forms require the Risk to be insured to 80% of Replacement Cost, not market value, not purchase price, not appraised value, to have Replacement Cost Coverage. There are several systems for determining Replacement Cost, Marshall Swift is the one I learned on, but all of the estimating programs have a computerized method.
"Co-insurance" is found in some commercial coverages, Insurance Carried, over Insurance Required times the loss minus the deductible. Co-insurance can be an agreed percentage. Also, the coverage can be written on an Actual Cash Value (ACV) basis or a Replacement Cost Value (RCV) basis and have Co-Insurance in the coverage.
"Prattling on and on about being an ass with experience doesn't make someone experienced. It just makes you an ass." Rod Buvens, Pilot grunt
|
|
| 0 |
|
HuskerCatVeteran Member Posts:762
| 04/01/2009 12:35 AM |
|
A rose by any other name, is still a rose. But I'll have to admit that my former staff backgrounds probably don't carry a lot of familiarity with most of you. The commercial & HO forms were mutant ISO's with lots of bells & whistles added, optional or negated co-insurance provisions, and waived deductibles in certain circumstances.
Whatever you want to call it, Ray...glad to see you back in the mix and being feisty again! |
|
| 0 |
|
Ray HallSenior Member Posts:2443
| 04/03/2009 6:06 PM |
|
|
The co insurance amount is the amount you selected to carry for a reduction in premium on a commercial policy if you comply at the time of a loss.
I agree with all five following post 100%.Now if you are aprofessional adjuster never say a non-compliance clause in a Homewoners is a co-insurance clause. I have never seen this clause used in thousands of Homeowners claims. Most are overinsured to value and often the RCC. All the carriers I have worked for in the last 25 years state. "if we insure it for that amount it complies" the i2v is just free work.
Now I will give an example of a young adjuster in hot water just below my nose dealing with a very good PA from Cleveland, Ohio. This was a large factory fire in Texas. The broker was the largest in Texas(independant agent) my employer was the leader and I worked the loss. The factory had building coverage, 80 % furniture and fixtures $10,000 no-co , Stock $400,000. 80% and machinery $400,000 80%. A PA from Ohio had the loss. It was agree on with no penalty until we came to the machinery with a verified RC - with LKQ of about 1.1 million. We locked up and wnt to appraisal on the machinery only and in 3 weeks the whole penalty on machinery was thrown out when the umpire found the presentation by the PA was more accurate than our RC (newLKQ) with depreciation. This guy had bids from Hamburg, Tokio and Copenhagen and Cleveland Ohio(non from Houston, Dallas or SA.)for paletized replacements to be shipped COD. Live and learn is what I learned and it takes weeks to settle the hard ones.
|
|
| 0 |
|
HuskerCatVeteran Member Posts:762
| 04/03/2009 9:00 PM |
|
 I would like to phone a friend. |
|
| 0 |
|
steve sandersGuest Posts:15
| 04/03/2009 9:21 PM |
|
Ray brings up a very good point for discussion. There have been a number of losses that were worked in machinery and fixtures where the value, actual cash value for co-insurance purposes, has been set at replacing the item with a used similar functioning item. This is a practice that can be utilized with restaurant fixtures, store fixtures and machinery. The point being there is more than a single way to determine the actual cash value of the item in question. This is a very subjective portion of the insurance contract.
Any one else have some interesting scenarios to add for the application of the co-insurance clause? |
|
| 0 |
|