Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
A company is formed under the laws of a state and under the direction of the insurance commissioner of that state to provide property insurance. There is a great deal that could be said about that process but the company is basically formed because there are many people who want protection should something untoward happen to their home.
If these people knew each other they could form an association and provide for the losses of members of the association on either a pre-payment or as losses are incurred basis. This is the basis of fraternal insurance. These types of associations are getting a new life in the health insurance field. However, most of these people who want coverage don’t know each other and it is therefore the function of the company to “pool these risks.”
In the practical world there is an organization known as Insurance Services Office (ISO) that provides forms that a company can either use or modify. These forms comprise the coverages that the insurance company extends to the risk pool. The basic coverage is fire with wind and hail damage being the next most popular coverage. Since there are many things that are beyond the control of the homeowner and there is measurable information about potential loss, the company will add coverages that are desired. Using the ISO forms allows them to add coverages quickly and easily.
There are some losses that the pooled risk doesn’t want to accept. These are then made into exclusions by the insurance company. The most common exclusions are for earth movement (earthquake) and flood. Even though each year there are major losses to these risks, companies generally only provide that coverage if required. The flood risk is so great that a governmental program is available.
These coverages are bound together with liability coverages and other coverages to form a package policy which the company normally calls a homeowner’s policy. The package is then made available to licensed and appointed agents and brokers in the state where you live. The insurance commissioner supervises the operations of these companies for the sole purpose of making sure that the companies can keep their promises.
The brokers and agents then offer the policy to a prospective homeowner. Often there are optional coverages available. With these optional coverages the broker or agent can put together a plan that meets your needs and remains within your budget.
The most important aspect of this process from the agent or broker’s perspective is the selection of limits. Most insurance companies require an independent evaluation of the cost of rebuilding the residence. That figure is the limit of coverage that the company is likely to accept. This limit may have very little to do with the sale price.
Because the policy is a package the limit on the residence determines other coverages on the basis of a formula. The personal property for example is a percentage of the residence coverage as are other coverages. If the personal property of the customer is greater than the limit stated in the normal policy additional coverage can be purchased from the insurance company. Most policies have internal limits on specific types of property, jewelry, furs, art, weapons etc. Additional coverage for these items is normally available at an increased charge. This happens frequently with guns. Jewelry coverage is often available only when there is an appraised value available.
The application for insurance is then underwritten. In this process the company reviews the property and determines if the property falls within the standards that were used when the rates were developed. Usually they are looking for things that would disqualify the residence such as aggressive animals, unfenced swimming pools, poor condition of the property, trampolines etc.
After the policy is underwritten it is then issued and paid. Then the company is obliged to pay for damage to the property from any of the perils mentioned up to the limits of the policy.
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If these people knew each other they could form an association and provide for the losses of members of the association on either a pre-payment or as losses are incurred basis. This is the basis of fraternal insurance. These types of associations are getting a new life in the health insurance field. However, most of these people who want coverage don’t know each other and it is therefore the function of the company to “pool these risks.”
In the practical world there is an organization known as Insurance Services Office (ISO) that provides forms that a company can either use or modify. These forms comprise the coverages that the insurance company extends to the risk pool. The basic coverage is fire with wind and hail damage being the next most popular coverage. Since there are many things that are beyond the control of the homeowner and there is measurable information about potential loss, the company will add coverages that are desired. Using the ISO forms allows them to add coverages quickly and easily.
There are some losses that the pooled risk doesn’t want to accept. These are then made into exclusions by the insurance company. The most common exclusions are for earth movement (earthquake) and flood. Even though each year there are major losses to these risks, companies generally only provide that coverage if required. The flood risk is so great that a governmental program is available.
These coverages are bound together with liability coverages and other coverages to form a package policy which the company normally calls a homeowner’s policy. The package is then made available to licensed and appointed agents and brokers in the state where you live. The insurance commissioner supervises the operations of these companies for the sole purpose of making sure that the companies can keep their promises.
The brokers and agents then offer the policy to a prospective homeowner. Often there are optional coverages available. With these optional coverages the broker or agent can put together a plan that meets your needs and remains within your budget.
The most important aspect of this process from the agent or broker’s perspective is the selection of limits. Most insurance companies require an independent evaluation of the cost of rebuilding the residence. That figure is the limit of coverage that the company is likely to accept. This limit may have very little to do with the sale price.
Because the policy is a package the limit on the residence determines other coverages on the basis of a formula. The personal property for example is a percentage of the residence coverage as are other coverages. If the personal property of the customer is greater than the limit stated in the normal policy additional coverage can be purchased from the insurance company. Most policies have internal limits on specific types of property, jewelry, furs, art, weapons etc. Additional coverage for these items is normally available at an increased charge. This happens frequently with guns. Jewelry coverage is often available only when there is an appraised value available.
The application for insurance is then underwritten. In this process the company reviews the property and determines if the property falls within the standards that were used when the rates were developed. Usually they are looking for things that would disqualify the residence such as aggressive animals, unfenced swimming pools, poor condition of the property, trampolines etc.
After the policy is underwritten it is then issued and paid. Then the company is obliged to pay for damage to the property from any of the perils mentioned up to the limits of the policy.