A Video Explaining the Underwriting Concerns About Unacceptable Risks

The Morale Hazard and Unacceptable Risks

The property owner must understand that some risks are unacceptable under any circumstances to most major insurers. For example:

Vacant property represents an unacceptable risk to many insurers. A critical factor in acceptance is the length and cause of the vacancy and the expectations of the insured for the future. Examples of a vacant property include the following:

A commercial building containing no personal property is considered to be more hazardous than an occupied building by many commercial fire underwriters.
Although electrical service is usually off, and natural gas does not enter the facility, a vacant building is not subject to the many hazards of occupancy, such as cooking, heating, or smoking. However, experience has proven that vacant property is more subject to vandalism and malicious mischief losses precisely because it is empty.
A vacant building is also susceptible to windstorm damage since no one is present to secure loose fittings.
A vacant building is more susceptible to the problems caused by rats and other rodents.
If the vacancy is caused by a shift in population or business, or by construction elements that make it unsuitable for most occupancies, or by poor economic conditions, the property may become a burden to the owner that can be “sold” to an insurer by means of a carefully arranged fire or vandalism claim where the fire or vandalism damage is done at the insistence and request of the insured.
Even a new building is subject to scrutiny until it is occupied.
Some insurers are willing to write vacant properties on a restrictive and limited policy for a higher than normal premium.
Property in brush zones, in areas where brush fires are common often will not be insurable without extreme protections and brush clearance around the structure.
Property built in flood zones are usually uninsurable except by the governmentally subsidized National Flood Insurance Program.
Property built on earthquake faults is uninsurable for the peril of earthquake or earth movement.
Property built close to shorelines in areas where hurricanes are common is usually uninsurable.

© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

https://zalma.com/zalmas-insurance-fraud-letter-2/Read last two issues of ZIFL here.

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