麻豆原创

This column is written primarily for insurance professionals, though I hope that the information I include is helpful to practitioners when communicating with prospects and insureds. In this month’s column, I’d like to discuss a topic addressed specifically to insurance buyers.

One issue I have written about regularly is the inarguable fact that insurance is not a commodity differentiated solely by price. If you search the Insurance Journal website for “bill wilson commodity,” you’ll find over a dozen columns that have, at least in part, discussed this issue with numerous coverage or claim examples.

One of the aspects of property insurance policies that support the contention that insurance is not a commodity deals with causes of loss that are or are not covered. Not only are there often dramatic differences between policies among insurance companies as to what perils are or are not covered, within a particular insurer there are usually variations in policy form options.

Broad Named vs. Open Perils

For example, using ISO forms to illustrate, an ISO HO 00 02 homeowners forms covers damage to property only if caused by certain listed broad named perils. The ISO HO 00 03 covers damage to dwellings and certain other structures on an open perils basis, but only broad named perils for personal property. The ISO HO 00 05 can be used to extend open perils to both real and personal property.

For the benefit of consumers, “open” perils means that virtually all damage to property insured on an open perils basis is covered, usually after the application of a deductible, unless specifically excluded.

Sometimes this coverage is referred to as “named exclusions,” though all policies, open or named perils, have some exclusions. A “named” perils policy means only the causes of loss listed are covered if they result in damage to property.

The same is true for commercial exposures. Again, using ISO forms, the three main types of perils covered by the most common ISO causes of loss forms are the ISO CP 10 10, which covers a limited number of basic perils; the CP 10 20, which covers an expanded list of broader perils; and the CP 10 30, which is an open perils form. These forms can be mixed so that, for example, building damage is governed by a CP 10 30 but business contents are covered by a CP 10 20.

So, why would an insurance buyer want to insure property on an open perils basis versus a named perils basis? In other words, what more do you get for the added cost of the open perils coverage?

We can probably agree that open perils coverage should almost always be offered to a customer. The question is, what do you tell the customer when they ask for examples of claims that are covered by open perils forms but not named perils forms?

The rest of this article is devoted to specific illustrations that you may use when addressing these questions. But first, here’s an important caveat. Be sure to get the prospect or insured to confirm that they understand that these are just generalizations and that the specific policy form they are buying will determine which, if any, of these examples are covered by that form. This list, again, is just a “big picture” generalization to give the customer a feel for what a small increase in premium often gets them.

So, without further ado, below is a partial list of losses that often are covered by open perils policies but not named perils policies.

• You leave on a two-week vacation and inadvertently leave a window open, resulting in damage to carpet, furniture, and your black velvet Elvis painting collection from one or more rainstorms. Some policies require that the windstorm damage the dwelling before interior damage is covered.
• A diamond ring you left near the sink disappears. Even though you’re convinced your daughter’s worthless boyfriend stole it, you can’t prove it and it’s just as likely that the ring fell down the sink drain or was mistakenly discarded into the trash. Most named perils forms only cover theft, not mysterious disappearance.
• A large diamond vanishes from a ring and the loss is certainly not from theft.
• A chandelier falls from the ceiling and breaks a glass table set with expensive and fragile dinnerware. Most named perils policies only cover interior damage caused by a falling object that originates outside the dwelling and most don’t cover damage to the falling object itself.
• Similar to the previous example, you drop your $1,500 laptop on the tiled kitchen floor. Again, most broad named perils forms that include a “falling object” peril don’t cover damage to the falling object itself.
• At a party, your arctic white carpet is damaged by someone who spills wine. This is not a named peril under most named perils policies.
• Someone dies in a house and their remains are not discovered for several days or longer. Absent an applicable exclusion, the resulting property damage may be covered by an open perils policy but likely not by a named perils policy and the clean-up cost of such an event can easily be five figures.
• A very large aquarium breaks and results in water damage. Most broad named perils policies cover plumbing breaks, but not a loss due to water damage from aquariums, waterbeds, or other non-plumbing appliances.
• An airline loses your luggage, which contains some expensive items whose value far exceeds any recovery you may get from the airline. Again, most broad named perils cover theft of personal property but only if it’s “likely” that theft occurred … whatever that means.
• You mail an expensive item that you did not specifically insure to someone and they never receive it. Once again, theft is not necessarily likely to have occurred.
• On a cruise, your $1,500 iPhone falls overboard. Good luck finding a listed peril under a named perils policy that covers this.

Again, consider the caveat that these loss examples are general in nature and not necessarily specific to the policy forms you are selling. Some open perils policies will cover these types of claims but others won’t. Also, many open perils forms cover far more examples than those in this abbreviated list.

Do you have other illustrations, especially those involving actual claims?