The Big I Virginia Winter 2022-23

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• Building 3: $100,000 The blanket limit is $550,000. Applying traditional blanket limits, this total is available for any covered loss to any one of these three buildings. If Building 1 suffered a total loss and the actual replacement cost was $300,000, the entire loss would be covered by the blanket limit. However, if a margin clause is attached that applies the 120% option, the maximum available to any one building is: • Building 1: $240,000 • Building 2: $300,000 • Building 3: $120,000 (Obviously, if all three are destroyed in the same event, the maximum paid is the policy limit.) Because of the margin clause, if Building 1 suffered a total loss requiring $300,000 to replace, the maximum the policy would pay is $240,000. The insured would be out of pocket $60,000 due to the margin clause. If the carrier requires attachment of a margin clause, the highest allowable percentage should be used. Interestingly, use of a margin clause does lower the premium attributable to blanket coverage. INFLATION GUARD OPTION Unexpected events can increase the cost of reconstruction during the policy period. Higher than expected building costs, a natural disaster, a disruption in the construction material supply chain, an increase in labor costs, etc. are all possible. Such events increase the cost of reconstruction. Within the CPP is the option to apply a hedge against these unexpected increases known as Inflation Guard. This coverage option increases the amount of coverage on a daily, pro-rata basis throughout the policy term. For example, assume a building valued at $100,000 has the 6% inflation guard option added to the policy. Six months into the policy term the insured has $103,000 available if needed (1/2 of 6%). The amount of coverage increases a small amount each day. Applying the inflation guard option is one more step in hitting or getting as close to possible to a structure’s reconstruction cost. The available inflation guard percentages begin at 2%. According to ISO rules, the percentage is in 2% increments and can be as high as the carrier will allow (thus the maximum percentage varies Reconstruction Cost Ordinance or Law Blanket Limits Inflation Guard 100% Insurance to Value Replacement Cost from carrier to carrier). Each 2% increment adds about 1% to the property premium. BUILDING TO RECONSTRUCTION COST Developing and building to reconstruction cost requires the use of many different options and endorsements available within the commercial property program. Given the information provided in this report, following is a chart demonstrating how these parts build to reconstruction cost. COVID AND RECONSTRUCTION COST COVID has created conditions no one (well, maybe a few) ever anticipated. The cost of building materials has skyrocketed during the shutdowns and subsequent movements towards reopening. Supply chains have been disrupted, delaying delivery of materials; individuals and businesses have undertaken renovations and additions due to time (and boredom), causing increased demand. Contractors are booked solid, causing labor and timing issues. Because of COVID and the resulting issues, insurance professionals must address the realities of reconstruction costs with their clients. Even if an inflation guard endorsement is attached, the percentage is likely too low in wake of the current situation. Mid-term limit adjustments may be necessary. At the very least, notify insureds via a letter or other communication of the current construction cost reality and document the notification in the client’s file. 30 THE BIG I VIRGINIA WINTER 2022-23
Employees are essential to a Employees are essential to a business’s productivity and business’s productivity and success, so it makes sense to have success, so it makes sense to have coverage that protects them. coverage that protects them. Summit is here—not only to Summit is here—not only to provide premier workers’ comp provide premier workers’ comp coverage—but to offer resources coverage—but to offer resources to help educate your clients on to help educate your clients on safe work practices and to aid in safe work practices and to aid in injury prevention. injury prevention. summitholdings.com Policies are underwritten by Bridgefield Casualty Insurance Company and and Bridgefield Employers Insurance Company, authorized insurers in AL, in AL, AR, AR, FL, FL, GA, GA, IN, IN, KY, KY, LA, LA, MS, MS, NC, NC, OK, OK, SC, SC, TN, TN, TX and TX and VA; VA; BusinessFirst Insurance Company, authorized in FL, GA, IN, KY, NC, SC, TN TN and VA; VA; ©2022 Summit Consulting LLC LLC (DBA (DBA Summit, the the people people who who know know workers’ comp comp LLC), LLC), PO PO Box Box 988, 988, Lakeland, Lakeland, FL 33802. FL 33802. All rights All rights reserved. reserved. WINTER 2022-23 THE BIG I VIRGINIA 31
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The Big I Virginia Winter 2022-23

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