SIC

AND

NAICS -

Both Standard Industrial Classification (SIC) and North American Industrial

Classification System (NAICS) codes identify a firm's primary business
activity.
Every registered Washington firm is assigned a SIC or NAICS code. SIC codes
can be up to four digits and NAICS codes can be up to six digits. The
Quarterly Business Review (QBR) and the other Create a Report functions (i.e.
Gross Business Income report, Statewide Taxable Retail Sales report, Local
Sales/Use report) use these codes to group firms together to create
informative and useful information.
Because the national standard changed from the use of SIC codes to the use
of NAICS codes, in November 2004 the Department stopped assigning SIC
codes and now only assigns NAICS codes.
NAICS codes give a little more detailed information about the
business/industry than SIC codes

Class Codes

WHAT

IS A

POLICY ?

The term policy means a complete insurance contract. A typical policy consists of
the declarations and an assortment of preprinted forms and endorsements.
Generally, a form contains major policy provisions. For example, the Business Auto
Coverage Form is the backbone of the ISO commercial auto policy. An
endorsement amends the policy in some manner. For instance, a state cancellation
endorsement amends the policy cancellation provision so that it complies with state
law.
A policy may also contain one or more schedules (lists), such as a schedule of
locations or a schedule of covered autos. In some insurance contracts, such as
directors and officers policies, the application is incorporated into the policy.

Monoline or Package Policies

Many commercial insurance policies are package policies. A package contains two
or more types of coverage in a single insurance contract. A business owners policy
(BOP) is a package policy that contains both general liability and commercial
property coverages. Some insurance policies provide only one type of coverage.
These are called monoline policies. An example is a policy that affords only
commercial auto coverage.

Parts of an Insurance Policy

Most insurance policies contain the sections listed below.

Declarations - The declarations usually appears on the first page of the policy. It
provides a summary of important information, such as your company's name and
address and your insurance agent's name and address. Also included are the policy
number, the policy effective dates, and a list of the coverages provided by your
insurance contract. If the policy includes more than one type of coverage, it may
contain a general declarations plus a separate declarations for each type of
coverage. For example, a policy that affords both liability and property coverages
will likely contain a general declarations, a liability declarations and a property
declarations.

Insuring Agreement - The insuring agreement is a brief statement outlining the

payments the insurer promises to make to you (or on your behalf) in the event of a
covered loss. It often begins with the words "We will pay." The insuring agreement is
the basis of the policy.
Exclusions - The exclusions section describes the risks that are not covered under
the policy. There are three types of hazards that are typically the subject of
exclusions:
Risks that are covered under another type of policy. For instance, a
commercial auto policy excludes obligations for which you may be liable
under a workers compensation law. Such obligations are insured under
a workers compensation policy, so they are excluded by your commercial
auto policy.
Risks that may be covered for an additional premium. For instance, your
commercial auto policy does not cover (as insureds) your employees while
driving autos owned by them. However, you may elect to have an
endorsement added to your policy that covers employees while using their
personal vehicles.
Risks that are not insurable. An example is losses caused by war. War is a
catastrophic hazard so it is excluded under many types of polices.
If a policy provides more than one coverage, each coverage section may contain a
separate set of exclusions. Some policies also contain a list of common exclusions,
which apply to all coverages.
Conditions - The Conditions section describes the stipulations that apply to you
and other parties covered by the policy. You must fulfill the policy conditions in order
to obtain compensation for a loss. For instance, the policy may state that you must
report losses to the insurer as soon as possible.
The Conditions section also describes rules and procedures the insurer promises to
follow while the policy is in effect. For example, under a commercial property policy
the insurer may specify how it will determine the value of a certain type of property
if that property is damaged.
Definitions - Most policies contain words that have special meanings under the
contract. Defined terms are usually highlighted in bold or italicized text. Some
policies contain only a few defined terms while others contain many of them.
Definitions can broaden or narrow the scope of coverage provided by the policy.
For example, suppose that the term bodily injury, as defined in your liability policy
includes both mental anguish and mental injury. Because these types of injuries are
not included in the definition of bodily injury found in the standard ISO liability
policy, your policy affords broader coverage.
Definitions can also serve as exclusions. For instance, the definition of employee in
the ISO commercial auto policy states that the word employee does not mean a
temporary worker. Temporary workers are not addressed in the policy exclusions.
Unless you read the definition of employee, you would not be aware that temporary
workers are not insureds under the policy.

EXCESS/UMBRELLA POLICIES

If you own a business, you have probably purchased a general liability policy. If a
lawsuit is filed against you that is covered by the policy, your coverage should apply
immediately. That is, once you have filed a claim your insurer won't wait for any
other insurer to respond to the loss first. Your liability policy applies on
a primary basis.
An excess policy is designed to serve as a secondary layer of coverage. It pays
claims only after the limits of the primary policy have been used up. An excess
policy may also cover claims that are not covered under the primary policy.
An excess policy may provide virtually any type of coverage. You can purchase
excess liability, excess property, excess auto liability or excess workers
compensation coverage. Excess errors and omissions (professional liability) policies
are also available.
Excess General Liability, Auto Liability, and Employers Liability
The most common type of excess policy is an excess liability policy. Any
business that has the potential to sustain a very large liability claim should
consider purchasing an excess policy. For example, suppose you own a small
inn that contains ten rooms, each designed for double occupancy. If a fire
breaks out one night when you inn is full, twenty people could be injured at
once. Twenty lawsuits could quickly deplete the "each occurrence" limit on
your general liability policy. To protect yourself, you could obtain additional
coverage by purchasing an excess liability policy.
There are two main types of excess liability policies. One is a straight
excess policy (also called a follow-form excess) policy. It provides the same
scope of coverage as your primary general liability policy. This type of excess
policy is usually no broader than your primary policy. It provides excess limits
only. The second type of excess liability policy is an umbrella. An
umbrella policy affords broader coverage than your primary liability
policy. For example, suppose that your basic liability policy defines bodily
injury in the same manner as the ISO liability policy. However, the definition
in your umbrella policy is broader; it includes mental anguish and mental
injury. If your are sued by a third party who claims he has suffered mental
injury as a result of an occurrence caused by your negligence, the claim
should be covered by your umbrella. If your general liability coverage does

not apply to the claim, your umbrella will "drop down" to apply as primary
coverage.
Besides providing broader coverage, an umbrella also provides excess limits.
Suppose that your umbrella policy contains the same coverage for personal and
advertising injury as your basic policy. Your primary policy contains a $1 million
personal and advertising injury limit for each person. The personal and advertising
injury limit on your umbrella policy is also $1 million. If a $2 million slander suit is
filed against you by one individual, your primary policy will pay the first $1 million in
damages. Once your primary limit has been exhausted, your umbrella insurer will
pay the remaining $1 million.
Excess auto liability coverage is important if, say, your company operates a fleet of
large trucks. If involved in an accident, large vehicles can cause serious injuries.
Excess Errors and Omissions Coverage
Small business owners who are professionals may need both primary and excess
errors and omissions coverage. Examples are lawyers, physician, real estate agents
and accountants. An excess policy will protect you against a large claim that
exceeds the limits on your primary policy. An excess E&O policy typically affords the
same scope of coverage as your primary coverage. It is intended to provide extra
limits only. .

WHAT'S COVERED UNDER PERSONAL

AND

ADVERTISING INJURY LIABILITY?

Most small business owners who have purchased general liability coverage know
that the policy covers Bodily Injury and Property Damage Liability. In the standard
liability policy, this coverage is called Coverage A. Yet, some policyholders may not
be aware that the policy affords another important coverage, namely Coverage B,
Personal and Advertising Injury Coverage.
Coverage B is Limited in Scope
There are two major differences between Coverage B and Coverage A. First,
Coverage B is much narrower in scope than Coverage A. The latter is quite broad. It
covers virtually any claim for bodily injury or property damage caused by an
occurrence, as long as the claim is not subject to an exclusion. Coverage B applies
only to claims that result from the specific offenses included in the definition of
personal and advertising injury. If a claim does not arise from one of these offenses,
it is not covered.
Covers Intentional Acts, Not Intentional Injury
Another difference between Coverage B and Coverage A has to do with the types of
acts that are covered. Coverage A applies to bodily injury or property damage
caused by an occurrence that results from your negligence. Negligence is a type of
tort (civil wrong) that is committed unintentionally. Suppose that you own a grocery
store. Due to your negligence, you don't notice a puddle of water on the floor in the
produce aisle. A customer slips on the wet floor and falls, sustaining a back injury.
The accident occurred because of you failed to exercise reasonable care, not
because of something you did intentionally. Thus, negligence is referred to as an
unintentional tort.

Coverage B, on the other hand, covers intentional torts. Intentional torts include
acts like libel, slander and false arrest. They are called intentional torts because
they arise out of intentional acts.
Suppose you own an apartment building. Tim, one of your tenants, has been acting
suspiciously and you fear he may be conducting a drug-making operation. One day
while Tim is out you enter his apartment (an intentional act) to look for drugs. Tim
learns that you were in his apartment without his permission and sues you for
wrongful entry. Wrongful entry is an intentional tort that is covered under Coverage
B. For an explanation of the specific offenses that are included in the definition
of personal and advertising injury, refer to this glossary document.
In the past, liability policies divided Coverage B offenses into two categories: (1)
those that were committed in the course of advertising activities, and (2) other
offenses. The offenses in the first group were called advertising injury while those in
the second group were called personal injury. (In most liability policies, personal
injury does not include bodily injury.) Since the mid-1990s, most policies (including
the ISO policy) have combined all Coverage B offenses into a single category called
personal and advertising injury.
Coverage B applies to intentional acts that result in unintentional injury. It does
not cover injury that you inflict on someone deliberately.
Requirements for Coverage
To be covered under Coverage B, a claim must seek damages for personal and
advertising injury caused by an offense that arises out of your business. The offense
must be committed in the coverage territory and during the policy period. Moreover,
no coverage is afforded for an offense that arises from material you published prior
to the policy period.
Media and Internet Companies Not Covered
Coverage B is intended to cover advertising and publishing activities that your
company performs on its own behalf. It does not cover such activities you perform
for another company. If you are in the advertising, publishing, telecasting or
broadcasting business, you need specialized coverage called media liability
insurance.
In addition to media companies, Coverage B also excludes companies involved in
certain Internet-related activities. These include Internet search companies, Internet
service providers and companies that provide Internet content. If your company
performs these functions, you need specialized errors and omissions coverage.
Exclusions
Coverage B excludes claims arising from any of the following:
Knowing Violation of Rights Injury you inflict on someone intentionally. No
coverage is provided for an offense if you knew, when you committed it, that it
would violate someones rights and cause injury.
Publication With Knowledge of Falsity False statements you published verbally
or in writing if you knew they were false when you published them.
Contractual Liability Liability for personal and advertising injury that you assume
on behalf of someone else under a contract.
Breach of Contract Your failure to adhere to the terms of a
contract. Coverageis afforded for breach of an implied contract to use someone
else's advertising idea in your advertisement.
Statements About Price or Quality False statements you make in an
advertisement about the price or quality of your product or service. For instance,
suppose you publish an ad stating that your business, Best Buns, uses 100%

organic ingredients in all of its products. If a customer sues you because the muffin
she bought from you contains no organic ingredients, the claim will not be covered.
Intellectual Property Your breach of someone else's copyright, patent, trademark
or trade secret. An exception to this exclusion is an infringement (in your
advertisement) of someone else's copyright, trade dress of slogan. Such
infringement is included in the definition of personal and advertising injury.
Chatrooms, Bulletin Boards, Unauthorized Use Your Internet chatrooms or
bulletin boards, or your unauthorized use of someone's email address or domain
name.
War, Pollution, Certain Laws War, pollution and violations of the Telephone
Consumer Protection Act and the CAN-SPAM Act. The TCPA prohibits certain
marketing solicitations via telephone or fax. The CAN-SPAM Act applies to
unsolicited emails.
Your policy may contain other exclusions besides the ones listed above.
Limits
Personal and advertising injury is subject to a limit that applies to "each person or
organization". This limit is the most the insurer will pay for all damages assessed
against any one person or company. Damages or settlements paid under Coverage
B are also subject to the General Aggregate limit in the policy.
If you are sued for an offense that is covered under personal and advertising injury
liability, your insurer will defend you. The costs related to your defense will not
reduce the limits cited above. In other words, your defense costs will be paid in
addition to the limits.

COMMERCIAL PROPERTY INSURANCE

Most insurers that offer commercial property coverage utilize either the
standard ISO property policy or a policy they have developed themselves. Insurers'
policies are usually variations of the standard ISO property policy. Thus, a majority
of property policies follow the same general format. This article describes how a
typical commercial property policy is structured.
COVERAGES
The first section of a policy is often entitled Coverage. It describes the property
that qualifies for coverage under the policy, as well as the property that is typically
excluded. The Coverage section also explains the coverages that are included as
Additional Coverages and Coverage Extensions.
Covered Property
Property policies cover two basic categories of property: Buildings (also called real
property) and Business Personal Property (BPP). If you own the building in which
your business operates, then your policy should cover both the building and the BPP
it contains. If you rent or lease your building, then your policy will likely cover only
your BPP.
Building coverage normally includes machines and equipment that are permanently
installed, such as a furnace, boiler and air conditioning equipment. Also covered are
fixtures, meaning property that is permanently attached to the building, such as a
built-in bookcase or cabinet. Floor coverings, appliances (like refrigerators and
dishwashers), fire extinguishers, and outdoor furniture are also normally considered
Building property.

Business Personal Property consists of property you own that does not qualify as
Building property and that is not otherwise excluded. It includes office furniture,
machines and equipment (if not attached to the building), raw materials, goods-inprocess and finished goods. Improvements you make to a leased building are
covered if you paid for them and they cannot be legally removed. Two types of
property you dont own are also covered:
Property you lease that you are obligated under a contract to insure; and
Property in your care that is located inside the building (or outside within a specified
distance)
Excluded Property
The following types of property are excluded under virtually all property policies:
Money, securities, accounts, bills and food stamps
Animals other than stock
Vehicles, aircraft or watercraft (with some exceptions)
Land, piers, wharves, docks
Crops, grain or hay located outside
The cost of excavations, grading or backfilling
Many (but not all) property policies also exclude building foundations, paved
surfaces (like walkways and roads), electronic data, and the cost to restore
information on valuable records (both electronic and hard copy versions).
Additional Coverages
Most property policies list a number of coverages that are automatically added.
These are coverages that would otherwise be excluded. They are typically covered
subject to a sublimit, meaning a limit that is less than the policy limit. For example,
virtually all policies add coverage for Debris Removal, meaning the cost of removing
debris of covered property that has been destroyed by a covered peril. However,
the insurer may pay no more than a specified amount. Other coverages that are
commonly included as Additional Coverages are Pollutant Cleanup, Electronic Data,
Fire Department Service Charge, and Increased Cost of Construction.
Coverage Extensions
Coverage extension means a coverage that is already provided by the policy but
that is extended in some way. For example, most policies extend Building and
Personal Property coverages to include property you acquire during the policy
period. Your Building coverage is extended to include new buildings constructed at
your existing location as well as new buildings acquired at a different location. Your
BPP limit is extended to cover new personal property at new locations or at the
existing one. A sublimit usually applies to each of these extensions.
The coverage extensions that are included can vary widely from one policy to
another. Most policies include, at a minimum, the extensions provided by the ISO
form. In addition to Newly Acquired Property, these include Personal Effects and
Property of Others, Valuable Papers, Property Off-premises, Outdoor Property, and
Non-owned Detached Trailers.
CAUSES OF LOSS (PERILS)
Causes of loss or perils may be addressed in a separate section of the "building
and personal property" form, or contained in a separate policy form. Most
commercial property policies are written on all-risk forms. An all-risk form covers all
perils that are not specifically excluded. It does not cover every risk. The "causes of
loss" section of an all-risk policy lists the perils that are excluded.

An alternative to an all-risk policy is a named perils policy. The latter covers only
the perils that are listed in the policy.
Most all-risk forms contain two main categories of exclusions: those that are subject
to anti-concurrent causation language, and those that are not. The exclusions that
subject to anti-concurrent causation language are usually listed first. Examples are
the Water (Flood), Ordinance or Law, and Earth Movement exclusions. The anticoncurrent causation wording states that these exclusions apply regardless of any
other cause or event that contributes to the loss at the same time or in any
sequence to it. That is, these perils exclude a loss even if another (covered) peril
contributes to it.
LIMITS
The Limits section explains the limits that apply under your policy. These are listed
in the declarations. A single limit may apply to all buildings and BPP combined.
Alternatively, separate limits may apply to buildings and to BPP. Smaller limits
(sublimits) may apply to the coverages listed as Additional Coverages and Coverage
Extensions.
DEDUCTIBLES
The Deductibles section explains the deductibles that apply under your policy. Any
loss covered under your Building or BPP coverage is typically subject to a deductible
that applies to each occurrence. Additional deductibles may apply to specific
coverages such as Business Income (Interruption) Coverage.
CONDITIONS
Your property policy is likely to contain two sets of Conditions. The first consists of
Loss Conditions. These conditions explain how your losses are calculated and paid.
Other conditions may apply to issues such as coinsurance, mortgagees, and nonrenewal of your policy.
OPTIONAL COVERAGES
If replacement cost coverage is not included in your policy automatically, it may be
available as an Optional Coverage. If replacement cost is covered automatically,
then Actual Cash Value coverage may be offered as a coverage option. Other
coverage options that may be included in this section are Inflation Guard and
Agreed Value coverages.
DEFINITIONS
The last section of your policy is likely to contain the Definitions. The Definitions
Section outlines the meanings of defined terms. In some policies, the Definitions
may come earlier in the policy or may appear in a separate form.

BLANKET LIMIT/COVERAGE

A single limit of insurance that applies over more than one location or more
than one category of property coverage, or both. This is in contrast to specific
or scheduled limits of insurance, which are separate limits that apply to each
type of property at each location.
Blanket insurance is one limit of insurance that applies to multiple insured
items. When you have a blanket limit on your insurance policy the total
blanket amount is available to pay for claims regardless of what type of
property or what location is involved.

Example - Lets say that you own three apartment buildings at

three separate locations. Each building has a value of $1,000,000. On a regular
policy you would insure each property separately and give each building its own
limits of insurance using what is called a schedule. Using a blanket policy you can
write one policy with a $3,000,000 blanket limit that would be available to cover
losses at any of the three properties.

TYPES

OF

BLANKET INSURANCE

There are several different blanket insurance applications in several different areas
of insurance, including the following.
Home and personal property:
A homeowners policy is one of the most common forms of blanket insurance.
Since it not only provides coverage for your home, but also for other
detached structures and your personal property, its essentially blanketing
your possessions with protection.
Various personal property items may qualify for a blanket insurance policy,
such as artwork, antiques and collectibles.
Business:
Commercial enterprises can purchase this type of coverage if multiple office
buildings or warehouses need to be covered. Insuring each building with an
individual policy would be costly and time consuming, by comparison.
Condo homeowners associations typically use this to provide coverage not
only for the structure of units, but shared spaces as well. The advantage to
insuring properties like this with blanket insurance is that no matter how
much the value of the property shifts, coverage remains the same.
Landlords can cover all of their individual properties with one single-limit
blanket policy.
Restaurant owners can use a blanket insurance policy to cover items such as
specialty equipment that needs to be transported among locations on a
frequent basis.
What is Rescission
If you have sent out a notice of cancellation for non-payment and then the insured
pays money within the notice period, you will have to rescind the notice and keep
the policy in-force. This is called Rescission
AUDITABLE VS NON-AUDITABLE P OLICIES
Non-Auditable policies Premium is actually final premium
Auditable policies Premium is usually an estimated premium. An audit is
performed at the end of the policy period to determine if premium needs to be
changed. Example can be If rating basis was solely on gross annual revenues and
the GAR stated was $50mln, at end of policy period, if an audit found out the GAR to
be $60mln , then additional premium can be billed to the insured.

REINSURANCE

Purpose of Reinsurance
Reinsurance serves several purposes. First, it helps spread risks across multiple
insurers. By sharing its risks with a reinsurer, an insurance company can protect
itself against catastrophic losses. Reinsurance also helps stabilize the insurance
market. If reinsurance did not exist, insurers would likely have wide swings in
profitability, losing large sums in one year and making big profits in another.
Reinsurance helps minimize large fluctuations in profits and losses.
Another purpose of reinsurance is to increase insurers' capacity, meaning the
maximum dollar amount of risk insurers can assume. For example, if an insurer can
issue a maximum of 1,000 policies, each of which has a $1 million limit, the
insurer's capacity is $1 billion.
For each policy an insurer issues, it must maintain a certain amount of money in
reserves to pay future claims. The amount of reserves an insurer must maintain is
established by state law. If an insurer has not put aside enough money to pay future
claims on behalf of its current policyholders, it cannot issue any more policies.
Because a reinsurer shares an insurer's losses, reinsurance helps an insurer
increase its capacity. If reinsurance did not exist, insurers would issue fewer, more
expensive policies.
An insurer that purchases reinsurance is called the ceding company or cedent. The
insurer cedes (transfers to a reinsurer) a portion of its premiums and losses for a
risk or group of risks. The reinsurer pays a commission to the insurer or to the
reinsurance broker, if a broker is used.
Types of Reinsurance and Sharing
There are two basic types of reinsurance, treaty and facultative. Under both types of
reinsurance, the reinsurer shares the insurer's losses in exchange for a premium.
Loss sharing between insurers and reinsurers typically occurs in either of two
ways. One is on a proportional basis. For example, an insurer negotiates with a
reinsurer. The insurer agrees to retain 70% of the premiums and to pay 70% of the
losses on all homeowners policies the insurer issues. The reinsurer agrees to
assume 30% of the premiums and to pay 30% of the losses. Proportional sharing is
often used in commercial property insurance.
Another option is for the insurer and the reinsurer to share any losses that exceed a
specified amount. For example, suppose that an insurer has issued liability policies
with a $1 million limit. The insurer agrees to retain the first $750,000 of any loss
that occurs. In exchange for a premium, the reinsurer agrees to pay any remaining
amount that exceeds $750,000, up to an additional $250,000.
This excess of loss sharing method is often used in general liability insurance.
Treaty Reinsurance
Treaty reinsurance covers broad groups of risks, such as all homeowners policies
or all commercial auto and general liability policies. Treaty reinsurance contracts are
typically long-term arrangements that continue for many years. Once the contract
has been finalized, the reinsurer must accept all risks of the type described in the
reinsurance treaty. For instance, if the reinsurer has agreed to reinsure all

homeowners policies issued by the insurer, the reinsurer must accept all
homeowners policies. It cannot pick and choose among policyholders.
Here is an example of how treaty reinsurance protects an insurer. Suppose that the
Elite Insurance Company has issued 25,000 commercial property policies to small
business owners located in 15 states. The total premium for all the policies is
$250,000. Elite has ceded 40% of the premiums and losses to Reliable Reinsurance.
Reliable receives $100,000 for its share of the premium (40% of $250,000). A
devastating tornado sweeps across two states and affects 1000 Elite property
policyholders. The policyholders suffer a total of $25 million in property damage.
Elite pays $15 million (60% of $25 million) and the reinsurer pays the remaining $10
million.
Facultative Reinsurance
Unlike treaty reinsurance, facultative reinsurance applies to an individual risk. That
is, an insurer obtains facultative reinsurance for each insured individually, based on
its own characteristics. For example, suppose you operate a non-profit organization
for disadvantaged children. You have a commercial auto liability policy that has a $1
million limit. A local church has donated a 15-seat bus to your organization. You plan
to use the bus every few months to take a group of children on a field trip. You
notify your commercial auto insurer about the bus and describe how you plan to use
it. At first, your insurer refuses to insure the bus. However, after much negotiation,
it agrees to cover it on the condition that it can obtain facultative reinsurance for
the bus.
The insurer contacts Reliable Reinsurance. Elite agrees that for any accident that
occurs involving the bus, it will pay the first $500,000 in damages. In exchange for a
premium, Reliable agrees to pay any remaining damages, up to $500,000. For
instance, suppose that your bus is involved in a serious auto accident that results in
a $750,000 claim. Elite will pay the first $500,000 and Reliable Reinsurance will pay
the remaining $250,000.
Reinsurers Insure Each Other
Finally, to help spread risks, reinsurers may assume risks on behalf of other
reinsurers. For example, Reliable Reinsurance agrees to reinsure 40% of the Elite
Insurance Company's homeowners policies. Reliable then negotiates with another
reinsurer, which accepts half of the risk that Reliable has assumed on behalf of Elite.
When one reinsurer insures another, the transaction is called a retrocession.

Types of Business Insurance

Insurance coverage is available for every conceivable risk your business might face. Cost and amount of coverage of
policies vary among insurers. You should discuss your specific business risks and the types of insurance available
with your insurance agent or broker. Your agency can advise you on the exact types of insurance you should consider
purchasing.
General Liability Insurance
Business owners purchase general liability insurance to cover legal hassles due to accident, injuries and claims of
negligence. These policies protect against payments as the result of bodily injury, property damage, medical

expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal
procedure.
Product Liability Insurance
Companies that manufacture, wholesale, distribute, and retail a product may be liable for its safety. Product liability
insurance protects against financial loss as a result of a defect product that causes injury or bodily harm. The amount
of insurance you should purchase depends on the products you sell or manufacture. A clothing store would have far
less risk than a small appliance store, for example.
Professional Liability Insurance
Business owners providing services should consider having professional liability insurance (also known as errors and
omissions insurance). This type of liability coverage protects your business against malpractice, errors, and
negligence in provision of services to your customers. Depending on your profession, you may be required by your
state government to carry such a policy. For example, physicians are required to purchase malpractice insurance as a
condition of practicing in certain states.

Commercial Property Insurance

Property insurance covers everything related to the loss and damage of company property due to a wide-variety of
events such as fire, smoke, wind and hail storms, civil disobedience and vandalism. The definition of "property" is
broad, and includes lost income, business interruption, buildings, computers, company papers and money.
Property insurance policies come in two basic forms: (1) all-risk policies covering a wide-range of incidents and
perils except those noted in the policy; (2) peril-specific policies that cover losses from only those perils listed in the
policy. Examples of peril-specific policies include fire, flood, crime and business interruption insurance. All-risk
policies generally cover risks faced by the average small business, while peril-specific policies are usually purchased
when there is high risk of peril in a certain area. Consult your insurance agent or broker about the type of business
property insurance best suited for your small business.
Home-Based Business Insurance
Contrary to popular belief, homeowners' insurance policies do not generally cover home-based business losses.
Depending on risks to your business, you may add riders to your homeowners' policy to cover normal business risks
such as property damage. However, homeowners' policies only go so far in covering home-based businesses and
you may need to purchase additional policies to cover other risks, such as general and professional liability.

DISCOVERY PERIOD
It is the period between the insurance company getting an application for insurance
and it making a decision on accepting/declining the risk. In this period the UW

assess the application from all aspects and decides on moving forward with the
application for insurance
WHAT FACTORS WOULD AN UW CONSIDER WHEN ACCESSING AN APPLICATION ?
Companies Risk spread
Optimal use of existing resources
Arranging Reinsurance
Primary Rating Factors linked to the Proposed Insureds characteristics like
Location of Risk
Potential Hazards
PML or FML
Previous Loss experience
Total Exposure
Perils to be covered
Type of Construction
Adjacent properties
Occupancy
Protection equipments
Estimated Replacement Cost
Liability Exposure

OverallRate =
BaseRate*TerrorismMultiplier*CoInsuranceMultiplier*DeductibleMultiplier*RateModifi
er
Base Rate is calculated by using std ISO manuals based on SIC and Class Code(s)
Rate Modifier is made of things like Package Discount, Exclusions, Loyalty
Discounts, Favourable Prior Loss experiences.
What is Rate It is Price for Insurance per unit of exposure. Eg: Rate can be 37.5 per
10000 of limit. So a 1000000 limit policy premium is 37.5*100 = 3750

TYPES OF RATING:
Class(Manual) Rating

Insureds share similar characteristics with respect to potential loss

severity & frequency

Based upon a state or area

Rates are listed in manuals by class for different LOBs

Premium = Rate X the number of units of insurance

Individual Rating (Merit rating)

Rate reflects unique characteristics of insurance not reflected in the

class rating

Judgment Rating

A type of individual rating used for one-of-a-kind risk

Premiums are established through careful judgment and experience

P RICING C OVERAGE - PREMIUM DETERMINATION..EXAMPLES

Insurance

Rating

Examples of Rating basis

Personal Auto
Insurance

Class

Per auto, territory, driver experience, vehicle usage

Homeowners
Insurance

Class

Dwelling value, territory, type of construction

Commercial Property
Insurance

Class or
Individual

Total value, property type or class, territory

Inland Marine
Insurance

Class or
Judgment

Total value, property type or class, territory

Commercial General
Liability Insurance

Class or
Judgment

Payroll, gross sales, area,

Admissions

Business Auto
Insurance

Class

Per auto, territory, type of vehicle(Gross Vehicle

Weight),type of business operation, radius of vehicle
operation

Workers
Compensation

Class

Payroll(remuneration)

P RICING C OVERAGE - PREMIUM DETERMINATION R ATING PLANS

IRPM is a Property Insurance rating plan that allows underwriters to modify the final
premium to reflect factors that the class rate does not include
Similar to Schedule rating but used specifically for Property Insurance
Debits or credits applied on the basis of insurers experience and insureds loss experience
E.g. Commercial property

Rating plan that awards debits or credits based on specific categories , such as, the care and
condition of the premises or the training & selection of employees
Typically used in general liability where rates can be modified to max 25%
To be eligible, insureds to meet specified minimum premium amount limits
Other characteristics include Equipment(type, condition, care),Medical facilities, Safety
program)
E.g. Commercial auto , Commercial General Liability

Rating plan that increases or reduces the premium for a policy period based on insureds
own loss experience during the same period
Insurer charges a deposit premium at the start of the policy period
At the end of the period, depending on the actual loss experience, final premium is charged
Allows insureds to pay lesser premiums by partially self-insuring losses
E.g. Workers compensation, auto liability, general liability

Rating plan that increases or reduces the premium for a future period based on insureds
own loss experience for a period in the recent past
Loss experience of atleast 3 years and insurers minimum account size requirement
Incentivize insureds to implement loss control measures
E.g. Workers compensation

Individual Risk
Premium
Modification
Schedule Rating
Retrospective
Rating
Experience
Rating