07/24/2018
Top 10 Misconceptions About Placing California Earthquake Insurance Coverage
One of the biggest misconceptions regarding California Earthquake coverage is the widely held view that it is a straightforward and elective coverage. With the lowest frequency in the CAT space, this peril is the least tested and, as a result, often misunderstood. While frequency is minimal, one large event with subsequent aftershocks would have brokers and insureds taking a closer look at what is truly being offered.
The amount of capacity, alternative capital, and the number of carriers and MGAs continues to grow. This increased number of choices creates competition and flexibility in coverage. However, this competition also makes it easy to place coverage without fully understanding what is provided.
Below are the top 10 misconceptions about placing CA Earthquake coverage.
- Only the basic data is needed to generate accurate CA Earthquake modeling results. If you input basic data without asking about missing information regarding construction, year built, engineering, etc., your results will reflect this. Scrubbing your data and taking the time to obtain more detailed information, along with identifiable secondary characteristics, could produce a much better result. Simply using the most basic information often results in the model “defaulting” and advising an inaccurate, worst-case scenario. Additional information provides underwriters with a better comfort level and, often, more room to negotiate.
- A CA Earthquake policy fills the gap in an All Risk policy excluding Earthquake. Many times, the two policies will have a different definition of Earthquake. There may be gaps in coverage if the excluded definition in the All Risk is not the same as what the Earthquake carrier is offering.
- CA Earth Movement coverage is basically the same thing as CA Earthquake. CA Earthquake typically limits coverage to a tectonic event, while some Earth Movement definitions can be as broad as to include ANY Earth Movement, including a tsunami. When an insured requests Earth Movement coverage, a broker should clarify intent and make recommendations based on the nature of their exposure.
- CA Earthquake application of deductibles are always clearly defined and outlined. It is important for clients to understand how the deductible applies on their risk, as the application will differ based on the carrier’s definition. Deductibles may be applied in various ways, including but not limited to on a per inured unit, per building, per location or per TIV basis. Clients often mistakenly believe that the percentage deductible applies to the loss amount, when in fact it applies to the values at risk at time of loss. Clients also should be aware that the values at risk at the time of loss may be different than the values originally reported at the inception. For example, an insured that has inventory fluctuations may be surprised to learn that while their original values were reported at $50,000,000, the values increased within the policy year to $100,000,000 during their peak season. The increase in values would essentially double their deductible if the loss occurred during this time.
- A copy of the Primary All Risk Form is not needed when placing Excess CA Earthquake. Many Excess CA Earthquake carriers utilize their own company form sitting above the All Risk policy for the peril they are covering, without concurrency or consistency. Without manuscripting to clearly outline how the CA Earthquake coverage would respond should the All Risk policy be affected in the event of a loss, gaps in coverage can exist.
- CA Earthquake Recommendation reports are the same as Seismic CA Earthquake Engineering reports. Many times, Loss Assessment reports are provided, advising steps to be taken to implement from a life safety perspective. These are different than an Engineering Report, which provides exact details of Loss Control implementation, with firm dates and measures taken to stabilize. Carriers can better review and credit risks when they have an Engineering report.
- All carriers use the same CA Earthquake model. Most carriers utilize RMS, while others use AIR, along with proprietary modeling. Knowing the model that each carrier utilizes will allow a broker to structure a competitive placement and provide different layering options.
- All CA Earthquake carriers quota sharing a placement offer the same coverage. Many carriers have different definitions of Earthquake, occurrence, deductible, and stepdown/dropdown provisions, which can create inconsistencies in the event of a loss. This is especially true of shared and layered placements. It is imperative that brokers achieve concurrency in wordings, as coverage gaps caused by different definitions will ultimately fall on the placing broker.
- Business Income/Extra Expense values will not have a significant impact in the event of a claim. A failure to understand these values could have the greatest impact in the event of a loss. It is important to know if there are locations that are contingent upon others and whether the reported values represent 6-month, 12- month, or 24-month values.
- Sample policy forms are not necessary when issuing a CA Earthquake quotation. Brokers may believe that they can explain the coverage over the phone or in email, if there are questions. While there may be a general understanding of the coverage provided, without referring to the policy itself, details can get lost in translation. It important to deliver a fully executed policy with respective forms outlined – not merely a three-to-four-page quote –for client review. At a minimum, the underwriter and broker must agree on the Earthquake or Earth Movement definition in advance.
About the Author
This article was written by Greg DeFuria, property broker with AmWINS Brokerage in Woodland Hills, CA.
To learn more about how AmWINS can help you place coverage for your clients, reach out to your local AmWINS broker. If you do not have a contact at AmWINS, please click here.
Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
(c) 2017 AmWINS Group, Inc.
Most Popular Insights
5 Strategies for Successful Small Business Renewals During COVID
07/16/20
In the current economic climate, many small businesses are struggling and some may even fail. Despite these challenges and the continued hardening market, there is opportunity for retailers to write and retain business. This article provides guidance on navigating the complex small business marketplace and helps retailers fine tune their understanding of what insurable risks will look like over the next 12 to 24 months.
What Product Recall Insurance and Risk Mitigation Plan Is Right for Your Clients?
07/16/20
Product recalls are one of the most damaging events a business may encounter. In order to effectively respond to an incident, companies must be prepared with proper risk management strategies. As policy wording varies, it's also critical to ensure your clients have the right policy type in place to appropriately address their first- and third-party exposures.
State of the Market - Q2 2020
06/15/20
Our Q2 2020 State of the Market report provides a holistic view of highly impacted industry segments as well as overall market trends. This report is designed to help our retailers gain the knowledge they need to retain accounts, write new business, overcome challenges and capitalize on opportunities that do exist.
10 Catastrophe Claim Tips for Severe Weather Season
05/27/20
Severe weather can be unpredictable and strike at any time. Help your clients be prepared in the event their property is damaged by a hurricane, tornado, hailstorm or similar disaster with these 10 catastrophe claim tips.
On-Demand Webinar: COVID-19 Economic Impact and Future Outlook
05/15/20
As a result of the COVID-19 crisis, our industry is facing a broad array of challenges that impact insureds of every size and in every industry. In the first of a series of webinars, we hear from an economist on the financial impacts of COVID-19 and what we can expect in the future. This webinar is intended to complement your conversations with clients about how to plan for the next 12 to 24 months.
Lloyd's CEO and Property Underwriters Share COVID-19 Response and Market Update
05/11/20
This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Property underwriters on how they view the pandemic's impact both the Property sector and their syndicate's business.
Lloyd's CEO and Casualty Underwriters Share COVID-19 Response and Market Update
05/11/20
This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Casualty underwriters on how they view the pandemic's impact both the Casualty sector and their syndicate's business.
Lloyd's CEO and Professional Underwriters Share COVID-19 Response and Market Update
05/11/20
This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Professional Lines underwriters on how they view the pandemic's impact both the Professional Lines sector and their syndicate's business.
Flood 101: What to Know About Standard Flood Insurance
04/28/20
Ninety-eight percent of all United States counties were impacted by a flood event in 2018, yet many property owners remain unaware of their true risk of flood or what their existing policies cover. This article highlights key statistics about flood risk and outlines the differences between the National Flood Insurance Program and private market flood insurance.
Professional Lines Challenges and Market Response During the COVID-19 Crisis
04/28/20
The COVID-19 crisis has created a rapidly changing environment for the Professional Lines market. With the uncertainty of how claims will develop and the potential for increased exposure, retailers must be proactive. In this article, AmWINS specialists share their insights on why this is more important now than ever, including reactionary underwriting trends, D&O policy exclusions and impacts to EPLI, as well as the threat for increased cyber attacks and crime losses.
Small Business and Personal Lines During the COVID Crisis
04/22/20
Loss of revenue caused by stay-at-home orders due to the coronavirus pandemic has affected small businesses and the insurance industry serving them significantly. As retailers and carriers prioritize their focus to adapt to the “new normal” of daily transactions, underlying market dynamics remain unchanged. In this article, our experts share their insight on the current changes that we are seeing the small business and personal lines market, and how to navigate the market a this time of uncertainty.
Mind the Gap: COVID-19's Impact on the Logistics Industry
04/15/20
The disruptive impact of the COVID-19 outbreak on supply chains is already having a pronounced effect on the world of logistics and logistics insurance. Port closures, demand surges and production shifts are requiring nimble response to keep up with change. This article arms insurance brokers with the information needed to understand the changes taking place and plan for what is likely to occur in the months ahead.
Navigating the Casualty Market’s Response to COVID-19
04/15/20
The Casualty market’s response to COVID-19 is continuously evolving. With a wide array of factors already impacting this sector pre-crisis, segments of the Casualty marketplace are responding to the pandemic differently. In this article, our industry specialists share overall themes in the Casualty market and take a closer look at how various segments are being impacted.
Top COVID-19 Issues Impacting Builder’s Risk Insurance
04/15/20
The COVID-19 pandemic is causing historical disruption to the construction industry. These changes mean that risk mitigation strategies need to be implemented or revisited, policy language should be reviewed, and carriers should be apprised of all changes at the work-site. In this article, AmWINS specialists examine the major areas of concern for Builder’s Risk insureds, including government-mandated shutdowns, supply chain-driven slowdowns and policy wording that could limit coverage, and provide guidance for retailers to achieve the best results for their clients.
State of the U.S. Logistics Insurance Market
04/10/20
For decades, the logistics insurance market has been considered a sub-market of the cargo or ocean marine market. However, the continual rise of e-commerce and its effect on the global supply chain has carved out a complex and expansive industry niche. This article provides insight into the various lines of coverage, the specialized underwriting approach, and rate surges within the U.S. logistics insurance market.
Lloyd’s & the London Market’s Response to COVID-19
04/06/20
During the COVID-19 pandemic, Lloyd’s remains open for business and syndicates have successfully transitioned to working from home. However, there are notable changes in how the London market is approaching business. In this article, specialists from THB, AmWINS’ London broker, share their insight on consistent themes across the London Market as well as updates on various lines of business.
COVID-19 Claims Advice
04/02/20
There have been a lot of questions regarding COVID-19, in particular about coverage and claims handling. This claims advice is intended to offer guidance to help our retail clients through these difficult times.
Insurance Impacts of COVID-19 on the Healthcare and Senior Living Industry
03/30/20
As the healthcare industry remains on the front lines of battling the COVID-19 pandemic, staying abreast of the changing landscape and how the insurance market is adapting is critical to ensure new exposures are covered and renewals are successfully placed. In this article, our specialists share what they are seeing in the Healthcare and Senior Care markets, tips for risk control and mitigation, and how to get the best results for insureds.
Statute of Limitations Changes Cast a Shadow on Public Entities
03/19/20
Public entities are facing a climate of change as the market continues to harden and insureds are faced with double-digit rate increases in property and liability. Contributing to this disruption are statute of limitation changes for sexual abuse victims, which have extended or removed the time limit for which a victim can file a claim. This article examines the impact of increased claim activity and discusses considerations that need to be made to better manage costs during this time of uncertainty.
COVID-19 – Are Your Clients Covered?
03/19/20
The disruption to business and everyday life caused by the coronavirus (COVID-19) pandemic is resulting in an economic impact for insureds. Much of this disruption is likely not covered by insurance. We have consulted with several AmWINS insurance specialists across the Property, Casualty and Professional Lines sectors and offer a COVID-19 update.