|Property�Underwriting�Manual
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| |  | Property Underwriting Manual
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| | Click here for updates | 
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| | General | 
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| | Information regarding the content of this infobase (manual) should be directed to your Insurance Director. | 
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| | Introduction | 
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| | There are multiple purposes for the release of this manual.� They are as follows: | 
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| | �To combine current multiple reference sources into a single comprehensive manual covering all aspects of monoline and package underwriting. | 
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| | �To set forth the policy, procedures, and practices to be used in the selection and pricing of our property/package business. | 
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| | This manual is not intended as a substitute for individual judgment.� It is intended to provide parameters within which "normal" operations are conducted. | 
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| | It is recognized that it is impossible to conceive of every situation that may possibly arise and provide for it within this manual.� Such situations can be handled only by common sense judgments, based on an intelligent analysis of the facts.� This manual makes no attempt to eliminate the need for individual judgment but rather attempts to provide which point out potential problems or pitfalls. | 
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| | Coverage�s | 
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| | Agreed Amount Coverage | 
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| | This optional coverage suspends the coinsurance clause of the policy.� It is permissible to provide Agreed Amount on both buildings and business personal property and business income.� Reporting form and Builders Risk Coverage are not eligible for Agreed Amount Coverage. | 
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| | Insurance to value becomes extremely important when using the Agreed Amount Form.� A new statement of values should be submitted annually, signed by the insured.� A statement of values is not sufficient for valuation purposes as there is no penalty to the Insured for underestimating or misrepresenting values. | 
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| | Arson Underwriting | 
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| | Whenever there is the slightest suspicion of arson potential, the risk must be underwritten cautiously or avoided.� Most arson losses are the result of vandals, burglars, or disgruntled employees. | 
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| | In many cases, the "potential arson risk" cannot be detected regardless of the thoroughness of the underwriting process. | 
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| | Lessor's risks present a special problem in respect to arson.� Often coverage is extended to vacent property that can be used as a dumping ground or for vacent buildings. | 
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| | Finally, it is not the responsibility of the insurance company to determine when leases should be terminated.� If an undesirable, uncooperative and hazardous tenant situation exists, it must be the Insured's choice to terminate the lease, not the company's stipulation or recommendation.� At all times, we should avoid such risks. | 
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| | If, due to our relationship with the insured, we find that we must extend our policy to provide this coverage, a copy of an engineering report on each location being provided coverage is required annually as well as a full review of company finances. A review of the Loss Control criteria can be viewed here underAudio/Visual Alarms. | 
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| | Most arson underwriting losses occur when a company's financial health is flagging. | 
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| | Also refer to:Sprinkler LeakageAutomatic Sprinklers | 
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| | Blanket Insurance | 
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| | A policy which provides coverage on two or more subjects of property under a single aggregate amount is called Blanket Insurance. | 
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| | As most commonly written, provisions of the blanket form of insurance are such as to provide the Insured with complete flexibility in the application and distribution of values.� Values may be transferred from one location to another, one building to another, or one subject of insurance to another.� This flexibility is ideally suited for those risks where there is frequent movement of property between locations. | 
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| | Since this coverage does have inherent dangers, precautions must be taken each time blanket coverage is provided. | 
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| | Building Construction | 
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| | Types of Construction | 
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| | Class of construction is one of the most important factors to be considered by the Property Underwriter. | 
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| | The traditional construction classes around which insurance experience was built were brick, frame, and fire resistive.� Today, with the great variety of construction types and materials available, there still is a tendency on the part of Underwriters to relate fire resistance or risk qualities to these same three classes. | 
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| | Approaching the subject strictly from a Loss Control perspective, a systematic approach of defining building construction has been published and copyrighted by the Insurance Services Office (ISO).� It defines six major construction classifications based on construction types resistance to fire damage and fuel contribution potential.� There are basically six types of construction classifications which include: | 
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|Construction Class VI  | Fire Resistive         
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|Construction Class V   | Modified Fire Resistive
|Construction Class IV  | Masonry Noncombustible 
|Construction Class III | Noncombustible         
|Construction Class II  | Joisted and Masonry    
|Construction ClassI    | Frame                  

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| | Definitions | 
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| | It is evident that the Underwriter must be informed regarding the characteristics of various types of building construction materials and assemblies of materials in mixed construction units, so that he can identify and classify various types of construction into one of the six basic categories.� A consideration, therefore, of some of the basic features of the six construction classes in their relation to fire exposure is necessary. | 
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| | Before each of the construction classifications can be discussed in detail, some common terms need to be defined. | 
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| | Fire Resistance Rating | 
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| | The length of time, in hours or minutes, that a given construction can withstand exposure to a standardized fire test and retain its load carrying capacity. | 
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| | Masonry Materials | 
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| | These materials include, but are not limited to, brick, hollow concrete block, concrete, stone tile, cement, gypsum block, and adobe. | 
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| | Noncombustible | 
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| | Materials or composite materials that will not burn or ignite when subject to fire, or materials with a listed flame spread rating of zero, regardless of material surface exposed.� Examples include cement, common metals, glass, gypsum, wallboard, and plaster. | 
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| | Slow Burning | 
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| | Materials or composite materials have a listed flame spread greater than zero but not greater than 25.� Treated lumber products can be classed as slow burning if they meet the flame spread requirements, do not show evidence of progressive combustion, and the treatment is permanent. | 
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| | Special Damage Materials | 
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| | Materials that are usually susceptible to fire.� Examples include foam plastic insulating materials, straw, and foam rubber. | 
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| | 1.Construction Class VI - Fire Resistive ConstructionThe class of building construction frequently referred to as "fireproof" but more correctly identified as "fire resistive" includes a number of types having varying degrees of resistance to fire exposure.� Steel, concrete, and other fire resistant and noncombustible materials have replaced wood in the construction of all buildings for industrial and commercial uses. | 
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| | There are two basic types of fire resistive construction as follows: | 
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| | a. Reinforced Concrete | 
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| | b. Protected Steel | 
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| | 2.Construction Class V - Modified Fire ResistiveA building meeting this classification has exterior walls, floors and a roof all with fire-resistance ratings of more than one hour but less than two hours.� It is very difficult to determine whether a building is of fire resistive or modified fire resistive construction and requires a detailed analysis of the structure with the thickness of materials or the design of the assemblies protecting the building's frame being particularly important. | 
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| | 3.Construction Class IV - Masonry NoncombustibleTo be classified as a masonry noncombustible building, a building must have exterior walls constructed of masonry or of fire resistive construction with a minimum rating of one hour.� The floors and roof of the building may be of� noncombustible or slow-burning construction, supported by construction using similar materials. | 
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| | 4.Construction Class III - Noncombustible (Metal)A building with this classification must have exterior walls, floors, and roof of noncombustible or slow-burning materials supported by noncombustible or slow-burning materials.� This building usually employs a system of prefabricated steel framing members.� Light noncombustible construction is sometimes referred to as pre-engineered. | 
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| | 5.Construction Class II - Joisted MasonryA building of this type consists of exterior walls constructed of masonry materials such as brick, concrete, gypsum block, hollow or solid concrete block, stone, tile, or similar materials.� The structural floors and roof are wholly or partly wood or other combustible material.� Buildings in this class are vulnerable to extensive fire spread and heavy damage. | 
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| | 6.Construction Class I - FrameA building of frame construction has exterior walls, floors, and a roof all of combustible construction.� Included in this new classification are buildings with noncombustible or slow burning walls or roofs on combustible supports which are sometimes called "pole" buildings. | 
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| | Construction Features Affecting Underwriting | 
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| | All classes of construction are affected by certain building features which need to be analyzed and evaluated properly.� These include the following: | 
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| | �Number of stories | 
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| | �Height of stories (distance floor to ceiling) | 
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| | �Size of open areas Cutoffs (vertical and horizontal) | 
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| | �Windows and roof openings | 
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| | �Concealed spaces and plenums | 
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| | �Ductwork | 
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| | �Windstorm design | 
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| | �Windstorm protection (stacks, towers, etc.) | 
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| | Depreciation - Remodeled Buildings | 
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| | When a building is updated by remodeling or renovation, a change usually occurs in the amount of depreciation that is used in calculating the actual cash value of that building.� How much change in depreciation is ordinarily arrived at on a very subjective basis with each Underwriter using his or her own system to arrive at a new depreciation factor. | 
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| | Since this new factor is imperative for the determination of Insurance to Value (ITV) in ACV situations as to whether replacement cost is a desirable coverage, it is essential that a system" be developed that produces underwriting uniformity and consistency. | 
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| | The following procedure uses E. H. Boeckh's Building Valuation Manual as a base and then applies a formula which recognizes: | 
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| | �Extent of remodeling/renovation | 
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| | �Number of years since original construction | 
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| | �Number of years since renovation | 
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| | �Type of construction involved | 
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| | Insurance to Value (ITV) | 
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| | Insurance to Value (ITV) is a basic and fundamental part of property insurance underwriting.� It represents the relationship that the value of the insured property bears to the amount of insurance carried on such property. | 
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| | As the quality of fire protection and building construction improves, the likelihood grows that losses will be partial rather than total.� In recognition of this fact, the tendency on the part of the Insured is to buy insurance for the anticipated partial loss.� It is obvious under such conditions that premium distortion becomes increasingly more pronounced. | 
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| | It should be noted that Agreed Amount, Blanket Insurance and Replacement Cost Coverage are all greatly affected by values and are discussed as separate subjects. | 
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