It's past time for property insurance enhancements

“Because we’ve always done it that way” is a response you have probably heard in the work place more times than you care to count. Most of us, however, hope to hear something more substantial when we ask the age-old question, “Why?”

This thought crosses my mind every time I review our MML Liability and Property Pool coverage document and consider how we might enhance coverage for the benefit of our members. Because we are a self-insurance pool and not an insurance company, we have more freedom than many insurance professionals to structure coverage in ways that traditional commercial insurers would not consider. Our method of providing municipal property insurance is an excellent example.

Fire insurance has a long history. Its origins date back to the aftermath of the London fire of 1666. Today, hundreds of insurers offer comprehensive property insurance. However, despite the number of insurers offering this coverage, there is almost no difference among them in how coverage is defined and provided. You, the insured, declare where your property is located. The address is listed on a policy along with the amount of insurance. If you have a loss to property that isn’t listed on the schedule, the insurance company declines to pay the loss.

This system works great if you have one location to insure. But how many municipalities only own one building? How many municipalities acquire property through the year, or enter into construction projects that increase values at existing locations? How many municipalities have personal property — tools or mobile equipment, i.e. that are constantly moving from one location to another?

Almost all, that’s how many.

When a system or procedure that is designed to work for one location is forced to work for multiple locations, the chance for error increases dramatically, as does the need for constant monitoring and endorsing of your property insurance schedules.

There is a more efficient method of providing property insurance. And once again, public entity insurance pools are leading the way.

The basic change we made in our Pool property form is really quite simple. We changed the definition of “What is covered” in the policy so that we provide coverage based on ownership, rather than a schedule of locations and values attached to the policy. We still use property schedules for rating purposes, and we still review our members’ property schedules with them to ensure they are complete. But our Pool members no longer receive a declination after a claim is filed because the property isn’t listed on a schedule attached to their policy.

Another change we made was to delete the “100-foot limitation” in the policy language. In a standard property insurance policy, covered property is defined as the described premises and business personal property within 100 feet of the described premises.

But the way I see it, as a pool of municipal members, we know that 99.9 percent of all our members’ property rarely, if ever, leaves the geographic boundaries of the municipality. So what difference does it make to us if, say, a member’s generator is 50 feet away from a building, or two blocks away from a building? If the member owns the generator, isn’t that enough to ensure coverage?

I can’t imagine telling a member, “We must decline your claim for the damaged generator because although there is no doubt you own it, you took the generator more than 100 feet away from a building and you failed to separately list it on your Inland Marine schedule.” Give me a break.

Another unnecessary coverage restriction is the clause that says “you, the insured, have 30 days to report newly acquired property to us, the insurer, or we won’t provide coverage.” I guess this makes sense — if you’re an insurance company that doesn’t trust its insureds enough to report new property so that you can charge an additional premium. But I see no reason why a municipal insurance pool of several hundred members has to be so concerned about protecting ourselves from our own members. Our relationship is different. Our coverage provisions and definitions reflect this closer bond, this “utmost good faith.”

Municipal insurance pools have been constrained for too long with many of the same coverage limitations and inefficiencies as the industry whose poor track record of service and product delivery spawned our growth. Pool administrators and reinsurers are in a unique position to develop enhanced policy provisions and liberalized coverage that sets the standard for our industry for the next generation.