When making a property insurance purchase decision, the most critical factor is the balance between insured risk and risk retention. Risk retention is usually measured in the amount of exposure to the fund balance in the event of a major property claim.
Key to being able to measure the exposure to the fund balance is understanding how the various types of property coverage respond when you have a major claim.
1. Scheduled Coverage
Scheduled coverage typically responds by paying up to the value of a specific building or structure listed on the property schedule. This benefits insurance carriers by the fact that no matter how much it costs to replace a building, the insurer is only required to pay up to the amount of the individual building or structure listed on the property schedule – regardless of your total property limit. If the values listed on your property schedule are not current, you could be significantly underinsured in the event of a major claim.
Some insurers offer a bit of value leeway by offering a coinsurance clause. An example would be if you had scheduled coverage with an 80% coinsurance clause, the insurer would pay to replace the building as long as the value of building on the property schedule was at least 80% of the total replacement cost. A simplified way of looking at this is that a policy with an 80% coinsurance clause means the insurer would pay up to 125% of the scheduled building value. Still, the burden is on the school to ensure values are as accurate as possible to reduce fund balance exposure.
3. Blanket Coverage
Blanket coverage provides a total limit for covered properties. A Blanket coverage limit is typically applied to the entire schedule or on a per-location basis. Blanket coverage is designed to ensure that even when reconstruction costs exceed the listed value of one or more buildings, the insurer will pay the total reconstruction cost up to the policy limit. Many factors can cause unexpected increases in reconstruction costs following a catastrophic event. Blanket coverage can help eliminate the potential fund balance exposure of self-funded reconstruction costs.
4. Property Valuations
The foundation of property risk management is accurate documentation and valuation of all buildings and structures. A professional property valuation will ensure all property is valued at Replacement Cost Value. Do not confuse an appraisal (market value) with a valuation. Whether choosing Scheduled or Blanket coverage, accurate valuation can provide the guidance to help ensure you purchase sufficient coverage to rebuild or replace damaged property.
For more Education-related insurance solutions, contact INSURICA today.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.