TWFG Commercial Business School – Commercial 101 1 Commercial 102

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Commercial 102

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TWFG Commercial Business SchoolCommercial 102

Commercial 101 – 104Commercial 101

Overview

Commercial Insurance Basic TermsCommercial Insurance Polices: OverviewImportant Auxiliary CoveragesACORD Forms OverviewCommercial Lines Workflow ProcessSubmission ChecklistPost-Binding Checklist

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How Does the Underwriting Process Operate?Commercial Insurance Policy Coverages: First Level DetailSilverplume Overview (Live Demo)

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Commercial Lines Basics Property: COPECommercial Lines Basics Property: BuildingCommercial Lines Basics Property: Business Personal Property (BPP)Commercial General Liability (CGL)Module 3 Case Study

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Commercial AutoMulti-Line Policy TypesWorkers Compensation OverviewEndorsements Common to Most Policies

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Agenda

The Underwriting Process Silverplume DemoPolicies OverviewDetail Dive on GL (Including Dec Page)Second Level Detail on All Other Policies

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Learning Objectives

How to navigate Silverplume/VRC and use information to help you sell

To understand the Underwriting process functions when evaluation the major exposures of a CL risk

Become more familiar with the individual coverages provided by the major CL policy types

To understand the workflow process for submissions to the CBU

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What is Underwriting?

Underwriting is the process of evaluating the characteristics of a risk that affect the likelihood of a loss.

For example, a buildings construction type and contents have a major effect on how quickly a fire might spread. In determining what characteristics to evaluate, it helps to understand a particular risk’s exposure to loss.

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How does the Underwriting function operate?

Let’s look at an electrical contactor as an example, and list the exposures to loss by line of coverage:

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How Does the Underwriting function operate?

General LiabilityPremises:

Customers do not usually come to an electrical contractor’s place of business. Customers usually call the contractor and ask them to come to their location to bid on a job. As such, there is very minor exposure to a liability loss on an electrical contractor’s premises. Compare this to a retail hardware store, where customers are on the premises constantly

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General LiabilityOperations: The contractor might injure another contractor while working on a project. The contractor might wire a generator incorrectly while working on a building and damage the generator

Things to evaluate:Years in business$ amount of average contractPresence of a formal Safety programHiring requirements (journeyman or higher)Loss Runs

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General Liability

Products:

Since electrical contractors do not manufacture a product, there is virtually no products exposure. Their “work product” is considered either operations (while in progress) or completed operations (once completed)

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General LiabilityCompleted Operations:

Any damage or injury caused by the insured’s work after operations have been complete. An example might be a fire that starts two weeks after a job is completed, and it is caused by improper wiring done by the contractor

Things to evaluate:Same as operations

The primary GL exposures for this type of contractor are Operations and Complete Operations

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How Does the Underwriting function operate?Commercial Property & Inland Marine

Typically warehouse operation

Tools & Supplies stored on premises

May have a “Yard”, typically fenced & that may house vehicles, mobile equipment, spools of underground electrical cable

If insured owns building, then building coverage neededAll building contents covered under BPP

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Mobile equipment, ex., cherry pickers, would be covered on IM as might tools

Supplies kept on job site covered on Installation Floater form of the

Inland Marine. Would cover fixtures, wiring, outlets, etc

Installation floater typically covers transit and is in effect until the building owner accepts work as complete

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Things to evaluate:

Security at job siteOverall value of itemsAttractiveness to theft/convertibility

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Business Auto

All vehicles owned and registered to the business would need to be covered. If the insured’s employees use their personal trucks for business purposes, then a special endorsement would be needed

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Business AutoThings to evaluate:

Number of UnitsTypes of UnitsRadius of OperationsDriver Requirement Program

Minimum number of years experienceAcceptable driving record (max # of

tickets/accidents)

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Business AutoThings to evaluate (continued):

Driver Requirement Program (continued)Formal accident review programRequired to train w/ experienced driver on larger

unitsRegular MVR program

Do employees take units homeAre vehicles stored in a locked and secure areaFormal maintenance program

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How Does the Underwriting function operate?Workers Compensation

All of the insured’s employees should be covered for injuries sustained while in the course of doing their jobs. Coverage would also apply for injuries suffered in an auto accident while operating a company truck

Things to evaluate:Formal safety programFrequency of safety meetingsFormal lockout-tag programEnforced use of safety equipmentFormal accident investigation programBack – to – work program offering light duty

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How Does the Underwriting function operate?Professional Liability

Sub-Contractors normally do not need to obtain Professional Liability

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Commercial 102 Glossary

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Bodily Injury:

Physical bodily injury/sickness or disease, up to and including death.

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Property Damage:

Physical damage to tangible property, including loss of use to that property, or loss of use to tangible property that is not damaged. Example: A contractor is doing work to the entrance of a building and has scaffolding erected. The scaffolding collapses and takes 2 days to clean up, during which time customers cannot gain entrance to the building. Although no physical damage has taken place to the building, there is loss of use.

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Note – Bodily injury or Property Damage must take place for coverage to be triggered under the CGL policy

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TWFG Commercial Business School

Commercial 102

Occurrence:

Accident, including repeated exposures to substantially the same conditions.

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Contingent Liability:

When one party is held responsible for the actions of another party.

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TWFG Commercial Business School

Commercial 102

Occurrence Limit:

The most to be paid out for any one occurrence. Each loss paid as an occurrence reduces the associated aggregate limit for the policy term.

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Aggregate Limit:

The most to be out for any one occurrence. Each loss paid as an occurrence reduces the associated aggregate limit for the policy term.

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Premium Base:

The activity that best measures the total exposures associated with a class of business. For sales oriented businesses, the premium base is Gross Sales. For service and contract businesses, the base is payroll. For lessors and building occupancy risks, the premium base is square footage. For some manufacturing businesses, the base may be units. The premium base is what you input on the General Liability ACORD app.

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Premium Audit:

Most General Liability and Workers Compensation policies are subject to audit. The audit is where actual sales/payroll is compared to the estimated sales/payroll reported on the apps at the beginning of the policy period. Any significant difference results in an additional premium due, or a refund.

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Commercial Insurance Policy Coverages – Detail Overview

Commercial General Liability (CGL)

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Commercial General LiabilityCoverage A: Bodily Injury & Property Damage

Definitions:

Bodily Injury – Bodily injury, sickness & disease

Property Damage – Physical injury to tangible property, including loss of use of tangible property that is not damaged

Occurrence – Means accident, including repeated exposures to substantially the same conditions

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Definitions:

Bodily Injury – Bodily injury, sickness & disease

Property Damage – Physical injury to tangible property, including loss of use of tangible property that is not damaged

Occurrence – Means accident, including repeated exposures to substantially the same conditions

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Definitions:

Premises – Review

Operations – Review

Completed Operations – Review

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Definitions:

Products – Note that your work and your product are excluded, as are product recalls

Contractual – The assumption or transfer of risk through a contract

Common example would be a lease agreement where the owner of the building transfers the premises risk to

the tenant by contractThe policy excludes contractual liability, but then goes on to make a number of

broad exceptions making most contracts covered

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Commercial General LiabilityCoverage A: Bodily Injury & Property DamageDefinitions:

Contingent – (Responsible for the acts of others)

An example would be a store that hires a contractor to do some renovations and a customer is injured by the contractor’s faulty work. The customer may sue the store as being responsible for the acts of the contractor (through theirresponsibility to select a competent one)

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Definitions:

A Word About Liquor Liability – The liquor liability exclusions is intended to exclude liability for those in the business of manufacturing, selling or distributing alcohol. Host liquor liability is covered. For example, a business throws an office party and serves alcohol. One of the employees drinks too much and gets in a fight and injures someone on the way home. The employer gets sued by the injured party for serving the employee too much alcohol, leading to their injuries. Liability in this case would not be excluded

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Commercial General LiabilityCoverage B: Personal & Advertising Injury Liability

Specifically Listed Offenses – Named PerlisFalse Arrest – Wrongful detention-a big exposure for retail stores that employ security to detain and apprehend suspected shoplifters

Malicious Prosecution – When filing a suit against someone in anger or retaliation and is shown to be baseless of frivolous. The act of filing the suit becomes a tort offense

Wrongful Eviction – Significant exposure for both commercial and residential landlords

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Commercial General LiabilityCoverage B: Personal & Advertising Injury Liability

Specifically Listed Offenses – Named PerlisSlander/Liable – False public statements,

either verbal or written

Violation of Privacy Rights – Copyright Infringement –

Separate Limit Under the Policy

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Commercial General LiabilityCoverage C: Medical Payments

No-fault or goodwill coverageSeparate limit under the policy, usually $5000 or

$10,000No Bodily Injury only

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Commercial General LiabilitySupplementary Payments

Defense CostsThese cost are outside the policy limit, meaning

that they do not reduce the policy limit

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Commercial General LiabilityPolicy Limits (See sample Dec page)

Occurrence LimitMax paid out on any one occurrence for

Coverage A or C (not including Products/Completed Operations)

Each loss diminishes the associated Aggregate limit

Aggregate limit replenishes if the policy renews

Separate LimitsPremises Rented to You, Personal &

Advertising Injury and Medical expenses have separate limits

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Commercial General LiabilityPolicy Limits (See sample Dec page)

Aggregate Limit

Max paid out during a policy period for all losses associated with the aggregate

The aggregate can be exhausted, leaving the insured without coverage limits for the remainder of the policy term

General Aggregate applies to all Premises, Operations, Personal & Advertising, Medical Expense, and Premises Rented to You losses

Products/Completed Operations has a separate Aggregate Limit. These losses do not reduce the General Aggregate

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Commercial General LiabilityExposure Classifications

Premium Base

For each type of business, the GL rate is based on a particular Premium Base. This base must be something that is easily counted, and it should be the best measure of the businesses activity (payroll or gross sales, for example)

Business ClassificationAll business risks are broken down into 5 major

business classifications. The businesses in each classification share the common exposure and risk factors, and usually are measured by the same premium base

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Commercial General LiabilityPutting it Together

Here are 5 business classes and the associated Premium Bases

Manufacturing or ProcessingPremium Base: Gross Sales or Total

Units (250M tons of iron)Common Exposures: Products

Contracting or ServicingPremium Base: Payroll, Total cost of

subsCommon Exposures:

Operations/Completed Operations

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Mercantile (Stores, Wholesalers, Distributors

Premium Base: Gross Sales or UnitsCommon Exposures: Premises

Building or Premises (LRO, OfficesPremium Base: Area (square

footage)Common Exposures: Premises

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MiscellaneousPremium Base: VariesCommon Exposures: Varies

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Commercial General LiabilityPremium Audit

Often times you will hear that the GL premium is auditable. What does that mean?

The premium charged for CGL is based on premium exposure units (area, total units, payroll, and sales).

With the exception of area, these exposure units are estimated at the policy inception, and will likely be different at the end of the year from the estimated amount. In order for the premium charged to be accurate and fair, the final amount charged needs to be based on the actual sales, payroll, etc. Therefore, at the end of the policy period (one year later) the insurance company audits the actual payroll or sales figures and adjusts the premium charged accordingly. This usually results in a returned premium (RP) or an additional premium (AP).

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Commercial General LiabilityPremium Audit

Often times you will hear that the GL premium is auditable. What does that mean?

Therefore, it is very important that the estimated figures have some basis in reality, and not be “estimated” in order to achieve a lower initial premium. You can bet that the

insured will not the surprise of a large AP at the end of the policy period.

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Silverplume/VRC Demonstration

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Commercial Insurance Policy Coverages: Intermediate ViewCommercial Property Policy (CPP)

BuildingIncluding permanently attached equipment and machinery

Business Personal PropertyImprovements and Betterments

Additional Coverages Examples: debris removal, increased cost of construction, fire department chargeEach with a separate sub-limit, usually a nominal amountSub-limits are within the policy limit

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Commercial Insurance Policy Coverages: Intermediate ViewCommercial Property Policy (CPP)Coverage Extensions

Newly acquired structures—usually $250,000/$100,000Property off-Premises--$10,000Each has a separate limitAdditional insurance beyond the policy limit.Additional Coverage and Coverage Extensions typically

have their limits increased under carrier’s enhancement forms.

Enhancement Forms: Collections of GL and Property coverages that are given higher limits

and/or broadened coverage. Addresses in one form the types of increases typically requested. These become more specialized, depending on the industry segment.

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Optional Related Coverages

EDP—Data is not tangible property

Business Income—For lost income due to a temporary business shutdown

Builder’s Risk—For new and remodeling construction –note that additions are

covered under the CPP form

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Optional Related Coverages

Inland Marine—For scheduled items Crime—Theft, robbery, burglary

Equipment Breakdown— for losses resulting from mechanical breakdown or electrical arcing affecting building components, both excluded under the property form. Now commonly included with enhancements.

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Commercial Insurance Policy Coverages: Intermediate ViewBusiness Auto Policy (BAP)

LiabilityOwnedHired and Non-owned

Physical DamageOptional Coverages

UM/UIMPIP & Med Pay – No Fault

TowingA host of endorsements to address various coverage

issues

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Commercial Insurance Policy Coverages: Intermediate ViewWorkers Compensation and Employers Liability (WC)

Non-Fault coverage for injured employees (WC)Third-Party action over liability claims involving

employees (EL)Dual Capacity claims brought by employees (EL)

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Commercial Insurance Policy Coverages: Intermediate ViewCommercial Umbrella or Excess Liability

Provides limits above underlying policiesMay provide coverages not found in underlying

policies (expanded Territory definition, property in the insured’s CC&C)

Replenishes limits on underlying polices when reduced by claims payments (drop-down feature)

Meeting Underlying Limits requirements and avoiding Impaired Limits

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Commercial Insurance Policy Coverages: Intermediate ViewProfessional Liability

Errors and omissions, negligence, in the performance of professional duties

Not based on BI/PDEconomic Damages

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Commercial Insurance Policy Coverages: Intermediate ViewManagement Liability

Errors and omissions, negligence in the administration of a business (excluded under the CGL)

Employment Practices Liability (EPLI) – discrimination, sexual harassment, wrongful termination, retaliation

Fiduciary Liability – errors and omissions, negligence in the administration of company sponsored pensions, retirement savings plans, health plans

Directors & Officers Liability (D&O) – failure to perform due diligence, careless management strategies resulting in business failure, conflicts of interest, misrepresentation in financial reporting

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QUIZ

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1. Where do you find the detailed information about class of business exposures in Silverplume?

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1. Where do you find the detailed information about class of business exposures in Silverplume?

Answer:Under Risk Profiles.

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2. What type of property must be damaged under the CGL policy for coverage to apply?

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2. What type of property must be damaged under the CGL policy for coverage to apply?

Answer:Tangible property.

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3. If a shop welder is exposed to noxious fumes from welding rods over a period of 5 years, how many “occurrences” would this be under the CGL policy?

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3. If a shop welder is exposed to noxious fumes from welding rods over a period of 5 years, how many “occurrences” would this be under the CGL policy?

Answer: One.

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4. What type of liability exists when one party is held responsible for the acts of another?

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4. What type of liability exists when one party is held responsible for the acts of another?

Answer:Contingent Liability

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5. What type of negligence must an injured party show in order to be paid under the Medical Payments portion of the CGL?

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5. What type of negligence must an injured party show in order to be paid under the Medical Payments portion of the CGL?

Answer:

None. Medical Payments is a no-fault coverage.

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6. Bob’s Appliance Store is sued for false advertising. The insurance carrier spends $50,000 on defense costs. What affect will this have on the General Aggregate limit of the CGL?

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6. Bob’s Appliance Store is sued for false advertising. The insurance carrier spends $50,000 on defense costs. What affect will this have on the General Aggregate limit of the CGL?

Answer:None. Defense costs are Supplementary Payments, and those payments lie outside the policy limits.

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7. Bob’s Appliance Store has an Occurrence Limit of $1,000,000 and a General Aggregate Limit of $2,000,000. During the year, Bob’s has 2 claims. A property damage claim for a water leak resulting from a faulty washing machine installation that cost $50,000 to repair, and a slip and fall claim in the store, where the claimant broke his hip. Total surgery and medical costs were $100,000.

What happens to the Occurrence Limit after each claim? What happens to the General Aggregate Limit after each claim?

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7. Bob’s Appliance Store has an Occurrence Limit of $1,000,000 and a General Aggregate Limit of $2,000,000. During the year, Bob’s has 2 claims. A property damage claim for a water leak resulting from a faulty washing machine installation that cost $50,000 to repair, and a slip and fall claim in the store, where the claimant broke his hip. Total surgery and medical costs were $100,000.

a. What happens to the Occurrence Limit after each claim? b. What happens to the General Aggregate Limit after each claim?

Answer:a. It replenishes to $1Mb. It is reduced by the amount of each claim

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8. What is the proper exposure base for a plumbing contractor?

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8. What is the proper exposure base for a plumbing contractor?

Answer:

Payroll

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9. What is the proper premium base for a retail clothing store?

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9. What is the proper premium base for a retail clothing store?

Answer:Gross Sales

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10. What two types of policies are subject to Premium Audit?

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10.What two types of policies are subject to Premium Audit?

Answer:CGL and Workers Compensation

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Future Classes

February 14th Commercial 103February 21st Commercial 104

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Industry Segment Classes (Beginning in March)

Retail & Service Farm/RanchArtisan Contractor Excess & SurplusCommercial Auto Professional LiabilityWorkers Compensation UmbrellaCommercial Real Estate BondsRestaurant Financial InstitutionsManufacturing Hotels/MotelsAgriculture Medical Technology

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Questions???

Documents

TWFG Commercial Business School – Commercial 101 1 Commercial 102