It All Adds Up

August 4th, 2016

By Kim Stufflet

I have seen a significant increase in requests to blanket property coverage when more than one location is insured.  My first question to the broker is always “why?”   If you go back to the historical development of blanket coverage it was created for the following situations:

  • The insured owns several buildings or a number of location where the Business Personal Property (BPP) values fluctuate or move between the building or locations
  • The insured owns machinery and equipment that is difficult to categorize as building or BPP (Large machinery that is not actually made a permanent part of the building but cannot be moved easily)
  • The insured is looking for a hedge in the event of extreme inflation or improper valuations.

Unless you have BPP with fluctuating values or problems in distinguishing complicated machinery that could qualify as building coverage there is no need to write blanket coverage.  Experienced underwriters are going to require that adequate Insurance to Value (ITV) is met for either coinsurance or agreed amount valuations so using blanket to hedge against improper valuations can prove to be costly with a 5% surcharge on the base rate.

There are alternative insurance methods that provide the insured with varying levels of protection against improper valuation or extreme inflation.  We like to use the Margin Clause endorsement which provides up to 15% of “additional coverage” with no premium charge.  The form is pretty straightforward and simply states “the company will pay the actual adjusted amount of loss, less applicable deductible(s) but in no event more than the total stated value for all covered property including business interruption and related time element coverages plus 15% of such value.”

Keep this endorsement in mind if true blanket coverage is not needed.  On a significant property schedule a 5% surcharge can be significant in addition to state loss cost multipliers and Group II loadings….it all adds up.