CPCU 551 - Addressing Commercial Property Risk Review Questions with Answers 4 elements to property loss exposures ✅-assets exposed to property loss -the causes of loss -the potential financial consequences of loss -the parties that can be affected by loss - (Property Owners, Secured Lenders, and Property Holders) Property Loss Exposure ✅A condition that presents the possibility that a person or an organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to property in which that person or organization has a financial interest. Real property (realty) ✅Tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land. Personal Property ✅All tangible or intangible property that is not real property. Fixture ✅Any personal property affixed to real property in such a way as to become part of the real property. Boilers and machinery constitute a special class of property Money ✅Currency, coins, bank notes, and sometimes traveler's checks, credit card slips, and money orders held for sale to the public. Securities ✅Written instruments representing either money or other property, such as stocks and bonds. auto ✅a vehicle. Trucks, Trailers, busses, fire engines, ambulances. Mobile Equipment ✅Various types of vehicles designed for use principally off public roads, such as bulldozers and cranes. recreational vehicle ✅A vehicle used for sports and recreational activities, such as a dune buggy, all -terrain vehicle, or dirt bike. peril ✅cause of loss replacment cost ✅Replace with new or like kind materials ACV (Actual Cash Value) ✅replacement cost - depreciation Agreed value method ✅A method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss. Business Income Agreed Value coverage option Suspends the coinsurance clause as long as the insured carries an amount of business income insurance that is equal to the value agreed on by the policyholder and the insurer Most risk management professionals regard the combination of the Agreed Value option with blanket insurance as the preferred method to provide property insurance. The Agreed Value option avoids any coinsurance penalty, and if separate locations are involve d that are not subject to the same loss, the danger of underinsurance is greatly reduced. Bailee ✅The party temporarily possessing the personal property in a bailment. 4 dimensions of loss exposure ✅-Loss frequency - Loss frequency is the number of losses that occur during a specific period. Relative loss frequency is the number of losses that occur within a given period relative to the number of exposure units (such as the number of buildings or cars exposed to loss). -loss severity - The purpose of analyzing loss severity is to determine how serious a loss might be -total dollar losses - The third dimension to consider in analyzing loss exposures is total dollar losses for all occurrences during a specific period, calculated by multiplying loss frequency by loss severity -timing of losses (FSDT) - Money held in reserve to pay for a loss can earn interest until the actual payment is made. This analysis requires considering when losses are likely to occur and when payment for those losses will likely be made Internet of Things ✅the network of physical objects embedded with software or sensors that allow them to gather and distribute data Causes of property loss ✅-Fire- Heat sources may be electrical, chemical, mechanical, or nuclear. The source of oxygen for most fires is air. As more oxygen is supplied, the fire burns more rapidly. Fuel includes both contents and construction materials used for the building. As m ore fuel burns, the amount of heat present usually increases. Strong fires create their own air drafts, bringing more oxygen and allowing the fire to spread. As a result, different types of construction affect the way fire spreads. -Explosion - Many explosions are the result of extremely rapid combustion. Examples include explosions of flammable liquids, vapors, or gases; explosions caused by excessive dust (such as that in grain elevators); and the detonation of commercial explosives . Explosion suppressors can activate the instant an explosion begins. They detect a sudden abnormal increase in pressure and automatically flood the incipient (initial) explosion with a suppressing agent. -Windstorm - The energy source in windstorms, such as hurricanes and tornados, cannot be controlled. Although an organization can build facilities away from areas that are prone to severe storms, doing so may be impractical, and no location above ground avoids windstorms entirely. Generally, most well -engineered and properly maintained structures won't incur damage from winds below 50 miles per hour -Water - Water losses are most commonly associated with flooding. But there are numerous other types of water losses that can result in significant damage, and the risk control techniques used for them are often vastly different from those used for flooding . -Earthquake - When an organization is located in a geographic area with a history of earthquakes, most risk control attention is diverted to minimizing damage caused by earthquakes. The effects of an earthquake can be reduced by designing liquid assets ✅Property that can be quickly and easily converted into cash. Discounting ✅Calculating the present value of a future amount The process of finding the present value of a cash flow or a series of cash flows; discounting is the reverse of compounding. time value of money ✅Money's potential to grow in value over time. The relationship between time, money, a rate of return, and earnings growth. The cost of risks includes: ✅Administrative Expenses, Loss Control Expenses, Retained Losses, and Transfer Costs. Layers of Insurance ✅Primary Layer, Umbrella Policy, Excess Layer 1, Excess Layer 2, Excess Layer 3. Alternative Risk Transfer (ART) ✅Those risk financing measures that do not fall into the category of guaranteed cost insurance. Guaranteed cost insurance transfers the financial consequences of loss exposures from the insured to an insurer. Guaranteed cost insurance policies are those in which the premium, deductible, and limits are specified (that is, guaranteed) in advance. In exchange for the premium, the insurer agrees to pay for all of the insured's losses that are covered by the insurance policy, up to the policy's limits. The insurer also agrees to provide necessary services, such as claims handling and legal defense against liability claims. Buffer Layer ✅A level of excess insurance coverage between a primary layer and an umbrella policy. pool ✅A group of organizations that band together to insure each other's loss exposures. Indemnitor ✅Party in a hold -harmless agreement who assumes the other party's liability Indemnitee ✅Party in a hold -harmless agreement whose legal liability is assumed by the indemnitor agent ✅In the agency relationship, the party that is authorized by the principal to act on the principal's behalf. Trustee ✅Someone who has the legal title to a property but is responsible that it be used, handled, and transferred solely for the benefit of the beneficiary. Bailor ✅a person who delivers personal property to another as a bailment Business Personal Property form covers 3 types of property/ Territory ✅Under the BPP, the insured property is covered only while it is located within the United States (including its territories and possessions) or Canada. Loss Payment condition of the Building and Personal Property - The condition states that regardless of the value of the loss, the insurer will pay no more than the insured's financial interest in the covered property Replacement cost - must the insurer be notified within 180 days after the occurrence of loss that a claim will be made under the terms of the optional coverage Almost all property items excluded in the BPP can be insured. Subject to certain exceptions, insured property is valued at its actual cash value (ACV) Insureds who have selected the replacement cost option may also elect to have the personal property of others valued at replacement cost Building Your business personal property Personal property of Others
