Topic 8 Homeowners Insurance BUS 200 Introduction to Risk Management and Insurance Fall 2008 Jin Park

Overview  Risks faced by homeowners  Types of Homeowners Policy  Structure of Homeowners Policy  Coverage Property Coverage Liability Coverage Medical Coverage

Risks Faced by Homeowners  Damage to or destruction of the home  Damage to or loss of personal property  Loss of use of the home  Liability Injury to others Damage to property of others  Defective title

Types of Homeowners Policy  Homeowner’s policy is a package policy! Property coverage Liability coverage Limited health coverage  Homeowner’s Insurance policies are For Owner-Occupant For Tenants For Condominium unit owners  cf: condominium commercial-unit owners.

Structure of Homeowners Policy

Section I – Property Coverages  Coverage A – Dwelling  Coverage B – Other Structures  Coverage C – Personal Property Anywhere in the world Personal property at other residences  10% of the limit of insurance on Coverage C or $1,000, whichever is greater Special limits on certain types of personal property  Coverage D – Loss of Use Additional living expenses, Fair rental value  Coverage E – Additional Coverages Debris Removal Reasonable Repairs Trees, Shrubs, and Other Plants And more…

Section II – Liability Coverages  Coverage E – Personal Liability Legal (defense) costs Bodily injury, Property damage of others  Coverage F – Medical Payments to Others Medical expenses No-Fault basis

Factors Affecting HO Premium  Property characteristics  Property location  HO policy type  Deductible  Insurance score  Claim history

Where the Revenue Dollar Goes Premium Earned $100 Property Damage $ 47 Liability $ 3 Costs to Settle $ 8 Expenses Commissions $ 22 Others $ 6 S. Taxes, Fees $ 3 Total Paid $ 89 Investment Gain$ 7 Federal Taxes $ 6 Net Income $ 12 Source: iii.org

Average Premiums for HO & Renter YearHO% ChangeRenter% Change 1998$4815.7%$1700.6% Source: NAIC

Some Stats  In 2005, The most expensive states for HO: ___ ($1,372), ___ ($1,114), ___ ($1,083), OK, DC, … Renter: TX (269), CA (257), MS (253), LO, OK, …  In 2005, The least expensive states for HO: … DE, WI, ___ (491), ___ (477), ___ (457) Renter: … UT, IA, ND (128), WI (126), SD (124) Average HO’s & Renter’s Premium for IL is $660 (30), $174 (26), respectively.  In 2006, 96% of homeowners had HO’s insurance while 43% of renters had renters insurance. (Insurance Research Council)  The percentage of homes that are underinsured ranges from 73% in 2002 to 66% in (Marshall & Swift/Boechk)  About 5% of insured homes had a claim in (ISO)

HO Insurance Losses Source: iii.org

Leading Writers of HO Insurance, by DPW 2007 ($000) Source: iii.org

Insurance-to-Value source: iii.org