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Definitions

In an effort to help you better understand the variety of terms associated with an earthquake policy, Steve Reich Insurance is pleased to give you the following earthquake insurance definitions.

Admitted Status: Admitted Status gives an insurance carrier the license to conduct business in the State of California and to only sell in this state. Licensed insurance carriers must meet financial requirements and pass examinations by the State of California. Admitted carriers also participate in the State insolvency guarantee funds. So, if your property is with an admitted carrier and at the time of your loss the carrier goes insolvent and/or bankrupt, the State of California will step in and pay the claim. (Note: The state will only pay up to $500,000 or the amount of the claim if it is below $500,000, whichever is less, regardless of the actual amount of the loss.) Admitted insurance carriers must also follow the State form and rate filing requirements, giving them little or no freedom to set the price for rates.

Non-Admitted Status: A non-admitted carrier is not licensed in the State of California and therefore does not participate in the State guarantee funds. If there is a loss and the carrier is unable to pay for the claim, the State of California will not step in and help cover the loss. Non-admitted carriers are not subject to form and rate filings by the State and can charge whatever rates they wish.

A.M. Best Rating: The industry’s premier independent third party evaluation organization, A.M. Best is responsible for ranking the financial strength of insurance companies. They perform a constructive and objective role in the insurance industry by providing the consumer an indicator on how insurance carriers perform (based on past and present ability to pay claims) and help them to prevent and detect insurance insolvency.
A.M. Best assigns traditional letter grades, ranging from the very highest, A++ (Superior) to the lowest, F. Very much like school grades; the higher the grade, the better the performance level the carrier is expected to meet.

Additionally, A.M. Best assigns number grades to express a carrier’s financial size. This is also referred to as the Financial Size Category (FSC). The financial size category is an indicator of how much capital, surplus and conditional reserve funds the carrier has. Financial size categories range from one to 15; one being the poorest, and 15 the richest. Many insurance buyers consider buying insurance coverage from companies that they believe have sufficient capacity to insure their risk.

Amount of Coverage: The total dollar amount you can collect for any catastrophic claim in one policy year.

Bare Walls: Refers to a type of coverage that stops as soon as the wall ends. In a bare walls policy you would not find fixtures, additions, or even paint covered.

Building Ordinance: Also know as code upgrade coverage, Building Ordinance coverage provides three types of protection to address a situation where the Department of Building and Safety may require an entire building to be repaired when only a percentage has been damaged. Those coverages include: 1) Demolition coverage which tears down the undamaged portions if necessary 2) Loss of Value which rebuilds the undamaged portion and 3) Increased Cost of Construction which brings both the damaged portion and the undamaged portions up to current building code.

Deductible: In the event of a loss, the deductible is the predetermined dollar amount that must be paid before the insurance company kicks in. In order for the insurance company to pay anything, the loss must exceed the deductible.

Extended Building Definition: The building definition is extended to include coverage for walls, walkways, fences and paved surfaces.

Foundations: Many insurance policies specifically exclude items that fall below ground level. When the term foundations is included it indicates that the carrier is specifically addressing coverage for the reinforced concrete slabs and footings supporting the structure (even though they may be below ground level).

Loss of Rents: Coverage that protects the business owner from uncollectible monthly rents from tenants whose units became uninhabitable after an earthquake.

Loss of Income: Insurance coverage that pays the policyholder income he/she loses as a result of a business disruption.

Minimum Deductible: All earthquake policies have a minimum deductible (a predetermined dollar amount that must be paid before the insurance company kicks in) per occurrence. When it comes to earthquake insurance, the loss paid out needs to exceed the minimum deductible.

Policy Holder Surplus: The money set aside to pay for catastrophic claims.

Pregnant: When a fault line is due for an earthquake and scientists are predicting heavy activity.

Total Assets: The sum of all admitted assets disclosed by the carrier.

Underground Utilities: Refers to electrical, gas, telephone, and cable lines which service an insured building or structure. Without being specifically called out, coverage for these utilities that can be found below ground are generally excluded.

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