2/21/2012. Commercial 104. Commercial Commercial 101. Commercial Commercial 102. TWFG Commercial Business School Commercial 104

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1 1 Commercial 101 Commercial Overview Commercial Insurance Basic Terms Commercial Insurance Polices: Overview Important Auxiliary Coverages ACORD Forms Overview Commercial Lines Workflow Process Submission Checklist Post-Binding Checklist 2 Commercial 102 Commercial How Does the Underwriting Process Operate? Commercial Insurance Policy Coverages: First Level Detail Silverplume Overview (Live Demo) 3 1

2 Commercial 103 Commercial Commercial Lines Basics Property: COPE Commercial Lines Basics Property: Building Commercial Lines Basics Property: Business Personal Property (BPP) Module 3 Case Study 4 Commercial Multi-Line Policy Types Workers Compensation Overview Endorsements Common to Most Policies 5 Learning Objectives Understand what exposures are covered under the Policy Understand the difference between a Business Owners Policy (BOP) and a Commercial Lines Package Policy and when using each is the best choice To gain a basic understanding of what coverages are provided the basics of rate classification under the Workers Compensation Policy 6 2

3 Most businesses use some type of auto in their operations. For some the use is incidental, such as a contractor driving to and from a job site. For others, the use is essential, such as furniture delivery. Obviously, the more an auto is on the road, the greater the exposure, or chance of loss, and therefore the greater the premium 7 This class is designed to help you become more familiar with auto coverages, how commercial autos are rated, and the exposures that an underwriter evaluates 8 Definition: A land motor vehicle or trailer designed for use on public roads Any other land vehicle subject to a compulsory insurance law For a vehicle to be properly insured on a Policy, it must be registered in the company s name (or individual for a sole proprietor) 9 3

4 Definition: Mobile equipment is NOT a commercial auto: Farm equipment, forklifts, bobcats, bulldozers and other vehicles not designed for use over public roads. Also included are mobile chassis with permanently attached pieces of heavy equipment designed specifically for movement of that equipment. Exempted are vehicles with snow plows attached and street cleaning vehicles. These are considered autos 10 Definition of Insured: You, meaning the corporation, partnership or sole proprietor listed as the name insured Anyone else using a covered auto with your permission. There are some exceptions for family members and employees if they own the vehicle in question. These situations can be addressed by specific endorsements 11 Coverages: UM/UIM: Uninsured and underinsured motorist coverage is similar to the same coverages found in the Personal Auto Policy, as are PIP, Med Pay and Towing. UM/UIM is mandatory in most states. In others, it may be rejected, but must be done so by signing a specific form, and the form normally must be signed with each renewal. (Key Concept) This is an area where enormous E&O exposures exist. It is vital that each agent maintain an auto checklist both for new business and renewals, which includes verification of the acceptance/rejection and collection of the signed rejection form 12 4

5 Coverages: BI/PD: The definitions for bodily injury, property damage and accident match those of the CGL The bodily injury or property damage must result from the ownership, maintenance or use of a covered auto We will discuss what a covered auto is in a later section 13 Physical Damage Coverages: Comprehensive, Collision, and Specified Causes of Loss apply similarly as they do with Personal Auto Policies 14 Rating & Classification: Several factors used to determine classification and rating Understanding needed to be able to apply these factors to properly write commercial auto 15 5

6 Rating & Classification: Weight and Vehicle Type: Private passenger Form of commercial truck including vans Weights classified as, and based on GVW: Light Medium Heavy Extra Heavy 16 Rating & Classification: Private Passenger: Sedan/SUV/Coupe/Non-Commercial Van Light Trucks: Pick-up Trucks/Commercial Vans up to 10,000lbs Medium Trucks: Box Trucks/Commercial Vans up to 20,000lbs Heavy Trucks: Large box and Non-Semi up to 45,000lbs Extra Heavy Trucks: Large box and Non-Semi over 45,000lbs Service or Utility Trailers: Load capacity up to 2000lbs Trailers: Load capacity over 2000lbs Semi-Trailers 17 Rating & Classification: Use of Vehicle: Classifications based on the degree of Over-The- Road exposure according to how the vehicle is normally used Service Use: Vehicles used to transport workers/supplies to and from job sites. Parked most of the time. Ex.: Electrical Contractor s truck Retail Use: Vehicles used for deliveries to residences, such flower/furniture delivery. Frequently changing routes Commercial Use: All other vehicles, such delivery trucks (to businesses) 18 6

7 Rating & Classification: Radius of Operation: Distance normally traveled from the place of business Local: miles Intermediate: miles Long Distance: Over 200 miles 19 Rating & Classification: Special Industry Classifications: The last classification and rating factor applies to special classes, such as dump trucks and trailers, concrete trucks, and food delivery Garaging Address: Determines the rating territory for each unit. For large fleet schedules, units may be garaged at multiple addresses 20 Symbol Values: For each coverage selected the insured will select a Symbol, which determines which vehicles are included for that coverage. Symbo1 1 Symbol 2 Any Auto: Any owned, non-owned, or hired auto. Typically only allowed for liability coverages Owned auto only: Used for liability, UM/UIM and other coverages. 21 7

8 Symbol Values: Symbol 3 Symbol 4 Symbols 5/6 Owned Private Passenger Autos: Used by entities which strictly use private passenger autos, such mobile computer repair service. Need to include symbols 8 and 9 Owned Autos other than Private Passenger: Could be used by commercial trucking outfit. Need to include symbols 8 and 9 Apply to UM/UIM, PIP, and Med Pay 22 Symbol Values: Symbol 7 Symbol 8 Symbols 9 Specifically Described Autos: Typically used for Physical Damage coverage when some units will not have the coverage, such as older units Hired Autos: Extends selected coverages to autos the insured leases, hires, rents, or borrows but NOT those belonging to employees for partners Non-Owned Autos: Extends coverage to autos which ARE owned by employees or partners. Typically only liability coverage is extended to Hired and Non-Owned autos 23 Symbol Values: Other Items: Need to supply complete list of drivers with DL number Driving records and experience will be evaluated by UW You must determine if insured has a formal Fleet Safety Program 24 8

9 Who is an Insured? The named insured for a covered auto A permissive user of a covered auto (employees) Who is not an Insured? The owner of a Hired Auto An employee in their own auto A partner/member in an auto they own 25 Important Endorsements: CA Individual Named Insured Designed for sole proprietors, partners and LLC members when the car they drive (covered auto under the BAP) is their personal car CA Drive Other Car Coverage Designed for officers, partners, or employees who are furnished a company car and it s the only vehicle available to that individual (does not own a personal auto) 26 Important Endorsements: CA Hired Auto Specified as Covered Auto You Own This extends liability and/or physical damage to autos owned by owners or employees and used in the business. Specific autos are scheduled. CA should also be used CA Employees as Insureds Extends liability coverage to all employees whose autos are listed on the CA

10 Important Endorsements: CA Lessor-Additional Insured and Loss Payee Effectively turns a leased auto into a covered auto rather than a hired auto. This makes the insured s auto coverage primary CA Employee as Lessor Adds the scheduled auto (which is owned by an employee and leased to the business) as a covered auto and the employee who leases it as an insured 28 Underwriting Auto Exposures Use of Vehicles How vehicles are used is a major component in underwriting Service vehicles presents the lowest exposures Retail vehicles presents the highest exposures 29 Underwriting Auto Exposures Age and Condition of Vehicles While older, well maintained vehicles are acceptable, newer units are preferred Older units have more maintenance issues Newer units indicates financial success, and a planned budgetary commitment to vehicle safety and quality 30 10

11 Underwriting Auto Exposures Formal Safety Program For fleets of 5 or more units a formal safety program is preferred and should include: Designated Safety Officer Daily Vehicle Inspections Regular Safety Meetings Accident Investigation Process Driver Safety Training Classes 31 Underwriting Auto Exposures Driver Selection Program Does the insured have procedures for selecting drivers? Components would include: Minimum number of years driving experience Driver training program where appropriate Acceptable driving record Regular check of MVRs 32 Underwriting Auto Exposures Vehicle Maintenance Program Regular scheduled vehicle maintenance documented Regular oil changes Perform manufacturer s recommended maintenance Replacement of tires, etc. all done on a regular basis 33 11

12 Underwriting Auto Exposures Overnight Garaging/Protection Are vehicles taken home at night? Parked on the street, access by other family members? Proper endorsements in place? Parked inside a secured area? Left at job sites overnight (larger units)- properly secured/use of anti-theft devises? 34 Underwriting Auto Exposures Loss History For fleets of 5 or more units a formal safety program is preferred and should include: Severity vs. Frequency Frequency indicates an ineffective loss control program. Severity may be a one-off issue, but where there preventable factors 35 Multi-Policy Types Business Owner s Policy (BOP) Designed for small and medium sized businesses Combines basic property and general liability coverages into one packaged policy Less expensive than purchasing separately Most carriers include enhancement endorsements for a nominal fee Can be endorsed to include coverages such as EPL and Cyber Liability, and an Umbrella 36 12

13 Multi-Policy Types Commercial Package Policy (CPP) Designed for more complicated medium sized accounts and most all large accounts Combines property and general liability but has more flexibility in the extend of coverage options available Allows more in-depth analysis of exposures and a more tailored approach to coverages These are risks where knowing the business is essential for the agency and where credibility is a must both win and retain the account 37 Background Began in 1911 due to burden on society from injured employees without health insurance Employer to bear the cost of work-related injuries and illness without regard to negligence Workers covered regardless of fault, and employers could not be sued by employees Workers Compensation became the sole remedy for occupational injuries 38 Coverages Provided Workers Compensation policies provide two different coverages Workers Compensation Employers Liability 39 13

14 Workers Compensation Provides no-fault coverage to employees for work related injuries and illness When purchased, WC is the sole remedy for injured workers Payments are partial and periodic, with emphasis on returning employee to work No limit on reasonable and necessary medical coverage 40 Employers Liability Provides coverage to employer for injury-related claims made by employees for things not covered by WC statutes Legal Liability to Employees Not Covered by WC: Gross Negligence Intentional Injury Dual Capacity Claims 41 Employers Liability Legal Liability to Others: Loss of Services by Family Members Third-Party (action-over) Claims Consequential Bodily Injury Claims 42 14

15 Coverage by State WC is mandatory in all states except Texas and New Jersey, where it is elective A sole proprietor with no employees in not eligible for WC 4 states have Monopolistic State Funds- no private insurers: ND, OH, WA and WY 43 Premium Basis Payroll is the basis for WC premium. If payroll reaches min premium threshold the risk qualifies for experience rating Experience rating worksheet calculates the Experience Mod which applies a debit or credit the rating process Carries have option to apply a Schedule Rating based on peculiarities of a specific risk 44 Stop Gap Coverage A form of stand alone Employers Liability coverage used in Monopolistic Fund states which do not combine EL with WC. Usually added to the CGL 45 15

16 Underwriting Workers Compensation Management Attitude Toward WC Is the employer involved in minimizing hazards/reducing costs? Are safety programs mandatory and enforced? Are accidents investigated and results incorporated in an ongoing program of loss improvement? Does employer provide back-to-work programs? Are employees involved in safety process? Evidence of good housekeeping/maintenance of building, machinery, and processes 46 Underwriting Workers Compensation Independent Contractors: Contracting risks are impacted by how an Independent Contractor is defined If sub-contractor does not meet the definition of an independent contractor, then the subs payroll must be included in the hiring contractors WC exposures Most definitions include reference regarding who controls the work, and the relationship between the contractor and the sub 47 Underwriting Workers Compensation Descriptions of Coverages: Items 3A, 3B, and 3C The information page (Dec Page) for the typical WC and EL policy has three important fields listed as 3A, 3B, and 3C 48 16

17 Underwriting Workers Compensation Item 3A: States with Active Operations List all states where insured has known operations Activates WC laws for those states Cannot list Monopolistic States. Must separately purchase the Monopolistic Fund policies in those states (add Stop Gap Coverage) Note that there are no occurrence or aggregate limits for WC 49 Underwriting Workers Compensation Item 3B: Employers Liability Limits This is the EL limits, which apply to all states listed under 3A Consider limits carefully, especially if an Umbrella is purchased. $1M/$1M/$1M is recommended There is no policy aggregate for BI by accident, only per accident limit BI by disease has a per employee and policy limit 50 Underwriting Workers Compensation Item 3C: Other States Coverage Activates WC laws for listed states in which work begins in those states after the effective date Insured must notify the company when work begins in any state listed in 3C. Activated states must be moved to 3A at renewal 51 17

18 Underwriting Workers Compensation What determines which States WC laws apply? (Any may apply) State in which the employee was hired State of the employee s residency State where the Primary Employer is located State in which the employee is paid State where the injury occurred 52 Endorsements Common to Most Policies There are three classes of endorsements that are common to most Commercial Lines policies Additional Insureds Loss Payee Waiver of Subrogation 53 Endorsements Common to Most Policies Additional Insured Usually requested when a business operates on property owned by others, or is doing work at another s property Purpose of endorsement is to protect the property owner Numerous types of Additional Insured endorsements Included automatically on. Not used on property or WC 54 18

19 Endorsements Common to Most Policies Loss Payee Can be either lenders of lessors Have a financial interest in specifically described property Protects interest by requiring that the Loss Payee be named on any loss check Usually combined with an Additional Insured endorsement Can be used on any policy that insures property 55 Endorsements Common to Most Policies Waiver of Subrogation Commonly requested in conjunction with the Additional Insured endorsement Transfers all responsibility to the insured for losses, even if the Additional Insured contributed to loss Waives insured s right to subrogate (go after portion of the loss that was Additional Insured s fault) Common on Auto, GL, and WC

20 58 QUIZ 59 You are presented the opportunity to write auto coverage for an industrial electrical contractor. They have a fleet of 15 pick-ups driven by their employees to job sites. They also have 7 heavy trucks used to carry supplies and 6 utility trailers pulled by the pick-ups. 9 of the pick-ups are over 7 years old, and the insured does not want to carry comp and collision on these units. The same applies to 5 of the 7 heavy trucks. The pick-up trucks are used for local jobs, but 5 of the heavy trucks are used for jobs within 200 miles of the insured s shop. The insured wants PIP and UM/UIM 60 20

21 What symbols would you use for the following Coverages? Liability PIP UM UIM Comp Coll Trailers 61 What symbols would you use for the following Coverages? Liability (1) PIP (2) UM (2) UIM (2) Comp (7) Coll (7,8) Trailers (none needed) 62 What radius of operations apply to: The Pick-ups The Trailers The Heavy Trucks 63 21

22 What radius of operations apply to: The Pick-ups (local) The Trailers (local) The Heavy Trucks (intermediate) 64 What use and weight classifications are applied to: The Pick-ups The Trailers The Heavy Trucks 65 What use and weight classifications are applied to: The Pick-ups (service, light) The Trailers (service, utility) The Heavy Trucks (service, heavy) 66 22

23 What are two main types of combination policies issued to businesses? 67 What are two main types of combination policies issued to businesses? BOP and Commercial Package Policies 68 What are two coverages provided in a Workers Compensation Policy? 69 23

24 What are two coverages provided in a Workers Compensation Policy? Workers Compensation and Employer s Liability 70 If an employee sustains a routine injury on the job, can he/she sue the employer? Why or why not? 71 If an employee sustains a routine injury on the job, can he/she sue the employer? Why or why not? 1. No 2. WC is the sole remedy unless gross negligence is present 72 24

25 If an employee sustains an injury on the job and believes the employer s gross negligence caused the injury, can the employee sue the employer? If so, would the employer s WC policy respond? If so, in what manner? 73 If an employee sustains an injury on the job and believes the employer s gross negligence caused the injury, can the employee sue the employer? If so, would the employer s WC policy respond? If so, in what manner? 1. Yes 2. Yes 3. The EL coverage would respond 74 Is Workers Compensation mandatory in Texas? 75 25

26 Is Workers Compensation mandatory in Texas? No 76 What two types of rating plans can be applied to a large workers compensation risk? 77 What two types of rating plans can be applied to a large workers compensation risk? Experience rating and Schedule rating 78 26

27 Future Classes February 28 th Commercial 101 March 6 th Commercial 102 March 13 th Commercial 103 March 20 th 79 Industry Segment Classes (Beginning in March) Retail & Service Artisan Contractor Workers Compensation Commercial Real Estate Restaurant Manufacturing Agriculture Farm/Ranch Excess & Surplus Professional Liability Umbrella Bonds Financial Institutions Hotels/Motels Medical Technology 80 Questions??? 81 27