(June, 2013)
INTRODUCTION
The Insurance Services Office (ISO) Property Deductible Plan is divided into two parts. The first part is in Rule 33. It states that the standard deductible is $500 but the insured can buy-back this deductible to $250. The second part of Rule 33 refers to rule 81 which contains additional deductible options. Rule 33 is a "one-size-fits-all" rule. Rule 81 is more complicated and allows for more flexibility.
RULE 81–DEDUCTIBLE INSURANCE PLAN
Plan Analysis
As with any form or rating plan, it is important to understand what it includes and what it does not include. ISO clearly lists properties, coverage forms, and causes of loss that are not eligible. None of the factors in this plan are to be applied to any item that is not eligible. In cases where items that are not eligible are written with ones that are, the declarations must clearly identify the items subject to the deductible and the ones that are not.
The only property schedules that are not eligible are the Rating Plan for Highly Protected or Superior Risks (HPR).
Note: ISO changed eligibility in 11 08 to remove Petroleum Property, Petrochemical Plants, Public Utility Electric Generating Stations, and Public Utility Natural Gas Pumping Station Properties schedules from the list of properties that are not eligible.
Ineligible coverages are:
• Leasehold Interest
• Business Income
• Extra Expense
• Legal Liability
• Mortgageholders Errors and Omissions
Earthquake is the only cause of loss that is not eligible.
Deductible Forms
CP 03 20–Multiple Deductible Form must be attached if a fixed deductible higher than $500 is used.
Note: Situations periodically arise where a percentage deductible that applies only to windstorm or hail is needed. In those cases, Rule 82 applies and can be used in addition to Rule 81. However, it is important to complete the form carefully because not doing so can result in ambiguity. Since ambiguity often results in lawsuits, the form should either be prepared correctly or not be prepared at all.
Variation in Fixed Deductibles by Cause of Loss and Location
It is important to understand the items that can be different as opposed to the ones that must be the same.
• In by-location situations, all coverages must have the same deductible. Different locations can have different deductibles but all coverages at the same location must have the same deductible.
• The deductible can vary by the causes of loss. The deductible for theft and windstorm/hail can be different than the deductible for other causes of loss. However, the causes of loss deductible selected must apply to all coverages.
• This endorsement can include locations with both blanket and specific coverages. However, all coverages at a specific location must have the same deductible, whether written on a blanket or specific basis.
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Example: Mavis Music has four locations. Location one is the warehouse and office. Locations two, three, and four are its retail locations. Personal property coverage is written on a blanket basis over all locations but the warehouse is the only owned building and it is written on a scheduled basis. Mavis schedules the deductibles as follows:
• Location one has a $1,000 deductible for all covered causes of loss except windstorm and hail. A 5% deductible on windstorm and hail is used, according to Rule 82.
• Location two has a $1,000 deductible for all covered causes of loss.
• Location three has a $1,000 deductible for all covered causes of loss.
• Location four has a $1,000 deductible for all covered causes of loss except theft, which is subject to a $5,000 deductible.
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Rate Modifications
As with most property rating, the factors are determined by location.
• Add all covered property values together by cause of loss and location. If a specific cause of loss has a different limit than the others, that limit is used for that specific cause of loss.
• Select the deductible amount for the location from the deductible credit factor table. Find the item for total location values within that table and select the factor that applies to the cause of loss. Factors for Basic Group I, Basic Group II, and Other Causes of Loss are available.
• Select the appropriate factor and multiply each causes of loss rate by its own deductible factor.
This process is relatively simple as long as the same deductible applies to all covered causes of loss. However, certain additional information is needed when using different covered causes of loss deductibles.
When the Windstorm/Hail deductible is different, the Basic Group II rate is handled separately from the Basic Group I rate and the Other Causes of Loss rates. In this case, only the Basic Group II rate is multiplied by the deductible factor for the Windstorm/Hail deductible.
When the Theft deductible is different, the Other Causes of Loss rate is handled separately from the Basic Group I rate and the Basic Group II rate. In that case, while only the Other Causes of Loss rate is subject to the deductible factor for Theft, there is an additional twist. If there is a rate for only Other Causes of Loss (such as Building and Apartment and Condominium Contents), the theft factor is multiplied by the Other Causes of Loss rate. However, when a theft increment is used in addition to the Other Causes of Loss rate (such as Office and all other Personal Property), only the theft increment is multiplied by the theft deductible factor, while the deductible factor for the Other Causes of Loss deductible is applied to the rate.
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Example: Continuing with Mavis Music above, the following information applies to each location.
Values are:
• Location 1: Building $1,000,000 and Personal Property $250,000
• Location 2: Personal Property $150,000
• Location 3: Personal Property $95,000
• Location 4: Personal Property $175,000
Rates are:
• Location 1: Building: Group I is 1.00, Group II is .52, and Other Causes of Loss is .01.
• Location 1: Personal Property Group I is 1.32, Group II is. 52, and Other Causes of Loss is .10 plus $568.
• Location 2: Personal Property Group I is 2.40, Group II is .25, and Other Causes of Loss is .10 plus $367.
• Location 3: Personal Property Group I is 1.75, Group II is .32, and Other Causes of Loss is .10 plus $430.
• Location 4: Personal Property Group I is 1.15, Group II is .25, and Other Causes of Loss is .10 plus $965.
Deductible factors are:
• Location 1: Group I is .98, Group II is .50 (from Rule 82), and Other Causes of Loss is .92.
• Location 2: Group I is .96, Group II is .87, and Other Causes of Loss is .84.
• Location 3: Group I is .95, Group II is .82, and Other Causes of Loss is .79.
• Location 4: Group I is .96, Group II is .87, Other Causes of Loss is .84, and Theft is .53.
The calculations are as follows: (Note that deductibles are applied to rates and not to loss costs.)
• Location 1 Building:
ºGroup I: 1.00 X .98 = .98 x $1,000,000 = $9,800
ºGroup II: .52 X .50 = .26 X $1,000,000 = $2,600
º All Other: .01 X .92 = .009 X $1,000,000 = $90
• Location 1 Personal Property:
ºGroup I: 1.32 X .98 = 1.294 X $250,000 = $3,235
ºGroup II: .52 X .50 = .26 X $250,000 = $650
ºAll Other: .10 X .92 = .092 X $250,000 = $230
ºIncrement: $ 568 X .92 = $523
• Location 2 Personal Property:
ºGroup I: 2.40 X .96 = 2.304 X $150,000 = $3,456
ºGroup II: .25 X .87 = .218 X $150,000 = $327
ºAll Other: .10 X .84 = .084 X $150,000 = $126
ºIncrement: $367 X .84 = $308
• Location 3 Personal Property:
ºGroup I: 1.75 X .95 = 1.663 X $95,000 =$1,580
ºGroup II: .32 X .82 = .262 X $95,000 = $249
ºAll Other: 10 X .79 = .079 X $95,000 = $75
ºIncrement: $430 X .79 = 340
• Location 4 Personal Property:
ºGroup I: 1.15 X .96 = 1.104 X $175,000 = $1,932
ºGroup II: .25 X .87 = .218 X $175,000 = $382
ºAll Other: .10 X .84 = .084 X $175,000 = $147
ºIncrement: $965 X .53 = $511
The blanket average rate is calculated after applying the deductible because personal property is rated on a blanket basis. As a result, additional steps are required before finalizing Mavis Music's premiums.
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CP 03 20–MULTIPLE DEDUCTIBLE FORM ANALYSIS
Schedule
This form's schedule may be completed or entries may be made on the declarations. The schedule requires entries for the premises and building numbers that must track with the locations on the declarations. Entries are also required for the Deductible and Covered Causes of Loss. Each Premises/Building may have multiple entries since there are options for five covered causes of loss.
The options are numbered and either the number or the actual wording can be used to describe the option. The options are:
1. All Covered Causes of Loss
This means all causes of loss have the same deductible applied at the specific building or premises.
2. All Covered Causes of Loss except Windstorm or Hail
This means all causes of loss have the same deductible applied at the specific premises or building. However, it does not indicate what to use for Windstorm or Hail. These causes of loss could actually use Rule 82. In that case,
CP 03 21–Windstorm or Hail Percentage Deductible is used.
Note: It is extremely important that either this option or option 4 be selected when CP 03 21 is used.
3. All Covered Causes of Loss except Theft
This means that theft coverage has a unique deductible that is different than the deductible that applies to all other causes of loss at the building or premises.
4. All Covered Causes of Loss except Windstorm or Hail and Theft
This is a combination of options 2 and 3 above.
5. Windstorm or Hail
Either this option must be used or CP 03 21–Windstorm or Hail Percentage Deductible must be attached if option 2 or option 4 above is selected. If neither is selected, windstorm or hail is not subject to a deductible.
6. Theft
This option must be selected and the separate deductible entered if option 2 or option 4 above is selected.
Endorsement
This endorsement states that the deductibles listed are the ones that apply. This modifies the policy's deductible section and states that only one deductible (the highest one) applies per occurrence. It also states that nothing in the endorsement should be construed to apply to any Earthquake Deductible or Windstorm or Hail Percentage Deductible stated elsewhere in the policy.
CP 03 29–DEDUCTIBLES BY LOCATION
This endorsement was introduced with the 10 12 edition. It is similar to CP 03 20 except that it provides additional flexibility. The deductible selections outlined in CP 03 20 apply by location.
The important change in CP 03 29 is that the definition of location can vary from the coverage form's definition of location. Location can mean an entire premises or it can be only certain buildings on that premises. Some buildings on the premises may have one deductible while others have a different one. This flexibility can be very important when certain occupancies may require a higher theft or wind deductible but others on the same premises do not.
