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JimF
USA
1014 Posts |
 Posted - 12/26/2002 : 21:08:02
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Ok, since everyone around here seems to like the basic beginner's level insurance coverage questions, here's an easy one:
(1) Can the ACV (actual cash value) ever exceed the RCV (replacement cost value)?
(2) If so, under what scenarios or circumstances?
(3) What policy provision(s) might come into play if/when that situation occurs?
(4) Why/when is it important that an adjuster know the answers to the questions above? |
Edited by - JimF on 12/26/2002 22:10:46 |
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CCarr
Canada
1200 Posts |
Posted - 12/26/2002 : 23:33:53
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I cann't resist these types of questions, even after a long time in the industry, I won't be right every time but they always tweek my interest, and I don't mind the critique whenever it is necessary. I don't know why, maybe just my childish attachment to claims, but I'm still surprised that 5 others haven't jumped in ahead of me. Yes we learn by reading, but these forums are not meant to be a 'text book' in my view, yes after a forum develops there is often good reference material for review; but formulating your own answers to be critiqued or added to might peak the learning curve quicker or the understanding of the issue when you have to dig into the policy yourself to find the item to support your answers.
Anyway "Merlin", me thinks you did present a bit of a 'tricky question', at least with parts #1&2 - that may take it past 'basic beginner's level'. However, in hindsight, no one should 'hit the road' unless or before they have a clear understanding of questions #3&4. But, I guess in reality, it is at the 'kitchen table' that we are faced with question #1, and have to know question #3 to recognize it.
1. Yes, in pure measurement of value only, i.e. without regard for any indemnity payment. I think the 'electronics' class of contents is susceptible to that anomoly today, with their generally decreasing costs for the same product (i.e. LKQ) than that of just a year ago. In a mathematical sense, if I bought product 'A' on 12/26/01 for $1000 and that was recognized then as a fair market price point for the item (i.e. not on sale etc), and that product 'A' has a generally accepted industry depreciation rate of 10% for the first year (and other depreciation factors i.e. wear / tear did not adversely affect the product); then the ACV for product 'A' on 12/26/02 could fairly be said to be $900. However, I could go to a retailer today (one year later, with the same conditions of sale) and purchase the same LKQ product 'A" for $850.. In an example such as this, the ACV ($900) can exceed the RCV ($850).
2. I guess I answered that within #1. But look at Gale's post tonight in the 'Hardware Forum', you can see the concept of my example there of what I am trying to say.
3. Staying with my stated example, when this situation occurs, the "Loss Settlement" clause of an HO3 brings back the principal of indemnity. "Covered property losses are settled as follows: .... at ACV at the time of loss but not more than the amount required to repair or replace". So, I am back down to my RCV of $850.
4. Why - because an adjuster must be familiar with and be able to read and interpret the policy that is applicable to the claim.
When - before anyone sits down at the 'kitchen table' as an adjuster. |
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JimF
USA
1014 Posts |
Posted - 12/27/2002 : 05:43:06
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Clayton, you get an "A+" for answering all 4 questions correctly.
You are correct, that parts of the question are in fact further along the educational and learning continuum than I tongue in cheek suggested was a basic beginner's .
The advantages of a question like this, is that it should encourage one to think about the 'possibilities' and to think with a more creatively unlimited logic set.
Thinking outside of the box, to me at least, is a wonderful attribute for any adjuster, as so many of the claims we encounter in insurance life certainly are 'off the wall' or 'outside the box' type claims beyond some very simple peril related claim. When we ask these type of hypothetical questions to ourselves in advance, we are more likely to have a greater understanding not only of policy but of how to handle the unusual unique claims when they come our way. It's one of the aspects which make this such a fascinating 'science' or 'art' (depending on your point of view)!
Clayton, the example as used in your answer, is a very real one which every adjuster will face in handling claims, to wit, the adjustment of electronics and computer claims.
But, aren't there other scenarios where ACV can exceed RCV?
And what about those situations where the insured DEMANDS or elects to be paid ACV rather than RCV?
Why would an insured WANT to do that?
What are you going to tell that insured while sitting across from his kitchen table about his 'policy rights' to do THAT?
What about some other scenarios of ACV exceeding RCV and other policy provisions coming into play other than the excellent ones Clayton has shared? |
Edited by - JimF on 12/27/2002 06:03:10 |
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Newt
USA
657 Posts |
Posted - 12/28/2002 : 19:04:58
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Obsolesence compared to Depreciation: The market value of some items are regarded as classics or antiques even though you could buy a like item as a replacement. I am not sure this applies but I ran across this in some of my reading. In this case the depreciation is overshadowed by the market value and demand.
Someone may have input in the area of commercial insurance, I can think of some that would apply but I am not sure it would be permitted under the policy.
Claims are settled at ACV in many cases and the RCV is paid upon completion of the repairs or replacement. I can't find other options in my policies that specifies what authority the insured would use to select the type of settlement he wanted. |
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JimF
USA
1014 Posts |
Posted - 12/28/2002 : 19:56:34
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Newt, check your HO policy under
Section I - CONDITIONS
3. Loss Settlement
b. (5)
Then re-post and share your findings with everyone here. |
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JWill
USA
28 Posts |
Posted - 12/28/2002 : 20:54:05
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Since I'm new to this site and forum. I will attempt to answer your question Mr. Flint with the following;
The ideal and least complicated application of replacement cost coverage is possible when the amount of insurance at the time of loss is at least 80% of the full replacement cost of the damaged building In this case, the loss is paid up to the amount of coverage without deduction of depreciation. If, however, the amount of insurance is less than 80% of the replacement cost of the damaged building, recovery (up to the amount of insurance) is limited to the larger of the two figures:
1. the actual cash value of that part of the building damaged or destroyed; or
2. that proportion of the cost of repair or replacement of the damaged or destroyed part of the building that the whole amount of insurance applicable to the building structure bears to 80% of it’s full replacement cost.
In a real sense, the insured cannot be ''harmed'' by the presence of the replacement cost coverage; it is an improvement over basic protection. Unlike the coinsurance provision in forms for commercial property that has affected insureds adversely in the past, the homeowners or dwellings forms provide that the insured cannot collect less than would have been available on the loss without the replacement cost provision.
To illustrate, suppose that a dwelling insured under a homeowners policy written for $70,000 has an actual cash value of $80,000 and that its full replacement cost is $100,000. There is a fire and it is agreed that the actual cash value of the damaged part is $40,000. The repairs will cost $50,000.
The amount of insurance is adequate to cover the cost of repair. The question therefore is may the insured recover more than actual cash value on the repairs? The recovery will be the larger of the actual cash value of the damaged part ($40,000) or that proportion of the replacement cost of the damaged part ($50,000) that the amount of insurance ($70,000) bears to 80% of the full replacement cost of the building (80% of $100,000, or $80,000). The latter works out to $43,750 - 70,000/80,000 x $50,000 - so the insured collects $3,750 above and beyond the $40,000 actual cash value of the damaged part.
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J. Williams |
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JimF
USA
1014 Posts |
Posted - 12/28/2002 : 21:36:30
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J.Williams, Thanks for your response and welcome to the CADO 'clubhouse'! We hope you'll jump right in with questions, answers or your opinion as the spirit moves you.
The questions I was really driving at in earlier posts to this thread were:
(1) Are there scenarios where an insured might actually prefer (and be better served by) an Actual Cash Value (ACV) settlement over a Replacement Cost Value (RCV) settlement?
(2) As it relates to Question One: Why?
(3) If an insured prefers an ACV settlement can he make a demand for such under policy provisions, and if so, what is that provision?
Your response might be better served under a topic thread discussion of Coinsurance and some of the problems which might be encountered there. I will toss out the challenge to our noted insurance scholar/practictioner from the dreary cold icy realms of NC (Northern Canada) to open and lead such a discussion on Coinsurance under another thread!
How about it CCARR? Ready to throw another log on your hearth and fire up a discussion on the obvious and not so obvious aspects of Coinsurance? |
Edited by - JimF on 12/28/2002 21:48:53 |
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CCarr
Canada
1200 Posts |
Posted - 12/28/2002 : 23:31:03
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James, you were only half right with your 'toss' today.
I am not an insurance scholar, but yes I am a devoted and caring practictioner of insurance; and in that context I ask that you and everyone understand my comments. With some humility, I had to look up in my dictionary to see just what a 'scholar' actually was; and I know I lack the requisites.
Dreary, cold and icy, it truly is, especially today, but fortunately not likely as bad as it is in northern Canada; as I am only an hour so so from Buffalo.
I know this is not the thread for me to ramble about this kind of thing, and before I go any further, I did enjoy the challenge of trying to create a useful picture in the 'Fire Scene' thread; however I've come out with a couple or three threads in the last month or so (not including my 'charity' thread) asking questions, seeking input, and was quite disappointed with the lack of response. Maybe it is because others don't feel those issues were important, maybe because they were not pure technical issues, and / or at times I wonder if I have worn out my 'voice' on CADO.
Co-insurance certainly is a broad and at times misunderstood topic. On the commercial side, I don't know if there is much of an audience among 'us' for the topic.
You mention 'open and lead a discussion', which is how I tried to fashion the "Fire' thread, but it would have died quickly if I had waited for discussion after the first few segments.
Just what is it that people want? It's not abundantly clear to me that even 20% of our 2194 members 'want' to learn, measured only by the limited core of people that participate. It may come as a surprise, but I would 'feel better' if even 20 people took exception to that statement. If people just want 'textbook' type reference material, I suppose it is free on CADO instead of having to buy an institute type reference text.
When I first got into 'teaching' beyond inhouse training, it was for our Insurance Institute. In hindsight, it happened as a 'fortunate' accident. Some of the younger folks in the office taking courses towards their AIIC, were 'bitching' they were going to quit because all the 'teacher' was doing was reading from the text. I didn't tell them, but I got on the phone with the director of the course programs that I knew, and I relayed the sentiments of my younger office mates. He said he would try and turn that around, but that I also should 'put my time where my mouth was'. So how do you say no to that? The institute sent me off to 'school' to learn how to teach seminar type environments; and the rest has been a rewarding chapter to my career.
But, you can tell after a 1/2 hour of the first class, who is there because they want to be (about 60%), who is there because they have to be (about 20%), and who is there to get the text and maybe write the exam (the other 20%). Relating or comparing that to our 'virtual CADO audience', there seems to be only a small core that wants to advance or enhance their insurance knowledge, to challenge or get to the core of what is said or meant. While alternatively, a lot more seem to know that this is the place they can get reference material if they ever need it or recognize they need it.
No 'sour grapes' Jim, or to anyone else, but is there an audience for this type of thing? I do enjoy the challenge and preparation for it, and in my silly way, do derive a sense of personal satisfaction from what I refer to as 'pay it forward' at this point in my life cycle within insurance.
I'm sorry I've rambled in your thread Jim, it is a good one like the other one you set up tonight. Get it back on topic, this is the place for this sort of thing, not the 'kitchen table' where without this we are not in a position to act as professionals. We'll see if anyone has anything to say about my 'grumpy' and / or impatient thoughts. |
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fivedaily
USA
258 Posts |
Posted - 12/29/2002 : 00:39:28
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Clayton... I think you might be overestimating the skills of the readers here. I have spoken out on other subjects but remained somewhat silent in these recent policy forums, and I will at least offer an explanation.
1 - I have a pending of 60 claims and don't have much time.
2 - I have only handled losses related to catastrophes, so anything auto or commercial is beyond my scope of knowledge.
3 - I am sometimes not sure of the answer, and have seen plenty of people ripped up for not getting it "right" and don't feel like subjecting myself to a public flogging (even if it is only with a wet noodle). :-)
Trust me on this though... I have learned from watching those with a broader range of experience post their thoughts and seeing the give and take between adjusting professionals.
Jennifer |
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JimF
USA
1014 Posts |
Posted - 12/29/2002 : 00:46:09
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Clayton, first of all, you ARE a SCHOLAR of insurance, BECAUSE, you are first of all a STUDENT of insurance.
You understand that concept. I understand that premise (as both a scholar and student) and like you, at times, I wonder how often others here 'get it'?
I'll comment later on the remainder of your comments, which I agree with as well.
Perhaps we both need to lead a thread: "The Insurance Policy: Fiddle or Stradivarius?" (Depending on the Maestro)
P.S.: Clayton, as you well know, no one has EVER accused ME of being 'grumpy' or 'impatient' around here in the CADO-Ghostbuster clubhouse. (LOL).
But then again, everyone is entitled to a bad hair day: even those of us who are follicularly challenged!
Other times, I think that perhaps you, Newt, Ghostbuster and I should just have a regular insurance coffee hour on a separate chat line channel, without boring everyone here. |
Edited by - JimF on 12/29/2002 01:41:18 |
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Newt
USA
657 Posts |
Posted - 12/29/2002 : 10:09:40
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HO HO, I had my book open to this very page and failed to read the Loss settlement under SecI conditions, C. Loss settlement, 2e My policy HO3 HO 00 03 10 00 does not have a par 3.
par 2e is the last one in a seperate column.
It says you may disregard the replacement cost and make claim under this policy on an ACV basis. It further states,you may then make claim for any aditional liability according to the provisions of this C..Loss settlement, provided you notify the carrier with in 180 days after the loss.
I know what happened now, I had company just as I was comming to the end of this section. I get interupted at least four times a day, not that I mind, kids need someone to talk to, and believe me they tell me everything. The school has not seen fit to give these kids any guidance, this girl was going to drop out, I talked her into going back, and she just graduated. She will start nursing school soon. Her sights were set a lot lower. I don't have any respect for the education system or the way parents treat their little people. Sorry to get off on a tangent, this upsets me.
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Newt
USA
657 Posts |
Posted - 12/29/2002 : 11:19:37
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HO2 reads the same as HO3 ,HO4&6 are settled at ACV, at not more than that required to repair or replace, at the time of the loss. Does not pay any OL unless that coverage is purchased seperately.
The Business Owners Special Property Coverage form 6. Loss payment par(1) (c) You may make claim for loss by ACV instead of replacement cost basis (same as homeowner 3.) w/in 180 days of loss you may still change to replacement cost loss. |
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CCarr
Canada
1200 Posts |
Posted - 12/29/2002 : 11:36:55
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Jenn, thanks for your thoughts.
I don't think I am consciously overestimating the skills of CADO 'readers'. The root of my thoughts on that is that I don't know how many of our soon to be 2200 'members' are even exposed to the insurance industry in their working lives, let alone to adjustment of claims. If for example, only 1000 were exposed to the 'claims world of insurance', then the actual demographics are quite different.
Now Jenn, I have read each post you have made, and there is a 'link' from your early posts right to your last on this thread. That 'link' has allowed me to form a 'picture of Jennifer'. Isn't that something we all do with different people who catch our eye, with their written words? So, I have this picture of a young lady who has 'street smarts', cares about what she does, is confident and strong in spirit - that's all a compliment by the way.
However, with that 'vision', and considering your latest comments, I am a bit disappointed in them, but mostly frustrated and irritated that this venue has caused yet another person to echo the sentiments that you have with your 3rd point. I feel more and more that this is what has held people back from more open participation. All I can do is police myself, verbally continue to try and draw more participants, and ask that all those who have the same feeling as you have expressed with your 3rd point to email the administrator and / or the moderators to express that sentiment; in the hope that more 'real time' scrutiny will reduce those instances.
Another type of 'distance' training I have been involved with was 100% via email, where sessions were presented with required 'homework', sent by email for individual scrutiny and private comments and discussion. I suppose CADO could be the 'classroom chalkboard', and participant's 'notebooks' could be email. |
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fivedaily
USA
258 Posts |
Posted - 12/29/2002 : 20:04:04
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Thanks Clayton... in my humble opinion, I think you have a pretty good idea of who I am.
I did try to take a stab at this question when it was first posted, but found that I couldn't get it the way I wanted in writing and needed to do some more thinking on the subject.
The one point I think I was most unsure of is this: when would acv be more than frc?
Now, I think the computer example already given by yourself is probably the best example in homeowners losses. And then JWill came along and impressed me with the depth and breath of his very first post on CADO. (see there is hope for us all yet!) In my own mind I had gone more towards an "antique" position, and was trying to work through how the replacement value of something might be affected in terms of intrinsic worth as opposed to actually replacing w/ LKQ.
So, as you can see from my quick ramble, I just didn't feel confident enough to post a reply. And still haven't decided if the "antique" status of an item might play into the answer of this question by JimF. I may have gotten way off track here.
I am currently working on my AIC and am studying Liability Claim Practices. Talk about a pain in the butt! Basically, everything changes regularly, so everything in this text will be different where you live and then different again next year. I don't have much interest for liablity claims after getting only 1/2 way through the text.
Jennifer |
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CCarr
Canada
1200 Posts |
Posted - 12/29/2002 : 20:37:12
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| Jenn, work hard at your Liability Claims Practices course. It may not be your chosen field, and yes there is an osmosis of judicial opinion always in progress. However, the theory and fundamental principals you will acquire from a course such as the LCP will serve you well in your years ahead in claims. To recognize negligence and subrogation potential, and using the principals in the course; will give you an edge. You may find commercial property claims a worthy and interesting challenge as your career evolves, and if so I can tell you with certainty, that the LCP course will be a necessary and valuable notch in your 'professional tool belt'. |
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Adjusting 101 Coverage Question
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