DEDUCTIBLE PLAN
(June 2022)
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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.
This analysis is based on the 04
18 edition of these endorsements. Changes from the prior editions are in bold
print. The only non-formatting
change is the introduction of flood as not being part of the endorsement. When
flood coverage is added, its deductible will be part of the flood schedule.
This is needed to prevent any confusion due to the introduction of CP 10
65–Flood Coverage Endorsement.
Related
Article: CP 10 65–Flood Coverage Endorsement
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).
Ineligible coverages are:
- Leasehold Interest
- Business Income
- Extra Expense
- Legal Liability
- Mortgageholders Errors and Omissions
Earthquake and flood are the only causes of loss that are 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 concert with Rule 81. When both rules apply, the applicable forms used with each rule must be carefully completed to avoid ambiguities.
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 at a location 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 differ from 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 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:
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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 differs, 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 differs, the Other Causes of Loss rate is handled separately from the Basic Group I rate and the Basic Group II rate. In such a situation, 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:
Rates are:
Deductible factors are:
The calculations are as follows: (Note that deductibles are applied to rates and not to loss costs.)
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. |
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 because 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 explain what deductible applies to Windstorm or Hail.
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 differs from 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.
Note: Failure to take appropriate steps could leave windstorm or hail not subject to any deductible.
6.
Theft
This option must be selected, and the separate deductible entered if option 2 or option 4 above is selected.
Note: Failure to take appropriate steps could leave theft not subject to any deductible.
Endorsement
This following wording in this endorsement is considered an addition to the Deductible Section in all coverage forms on the policy.
A. When a covered loss occurs at multiple building locations only one deductible (the highest one) applies for that occurrence.
B. Nothing in this endorsement applies to Windstorm or Hail Percentage Deductible endorsements that are also attached to the policy.
C. If flood and/or earthquake is added to this policy as a covered cause of loss, this deductible endorsement does not apply to either of them. The added flood and/or earthquake cause of loss is subject to the deductible described in its respective endorsement.
CP
03 29–DEDUCTIBLES BY LOCATION
This endorsement 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 part of 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 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.