Complex Terms
Contract Definition Language (CDL) includes features to model complex terms.
These examples assume claims from one flood event affecting one location and causing (150k, 30k, 20k) USD loss to (Building, Contents, BI) unless stated otherwise.
Max Deductible
Sometimes when there are levels of deductibles, the higher level deductible can act to ensure that the deduction taken is no more than a certain amount. This is often called a maximum deductible or max deductible.
Contract
Declarations
Currency is USD
Covers
100% share
Deductibles
30k max
30k for Building
30k for Contents
30k for BI
Assuming the same claims as our previous examples (150k, 30k, 20k), the three lower-level deductibles produce deductions of 30k, 30k, 20k. Since there is a maximum deductible of 30k, 30k rather than 80k is deducted. The contract payout is 200k-30k = 170k.
Percent of Loss Deductible
A percent of loss deductible deducts a percentage of the loss for its exposure instead of a fixed amount. In the following example, claims are 150k + 30k + 20k = 200k. A 10% deductible deducts 20k, which results in a payout of 180k in this case.
Contract
Declarations
Currency is USD
Covers
100% share
Deductibles
10% of Loss
Percent of RCV Covered
The exposure in these examples has a total insurable value (TIV) of 1M for Building, 100k for Contents, and 50k for BI. A 2% RCV Covered deductible on this location = 23k. If a second location with identical values is covered by the policy and takes no loss, a percentage of RCV Covered deductible takes 2 * 23k = 46k.
Contract
Declarations
Currency is USD
Covers
100% share
Deductibles
2% RCV Covered to R1, R2
Even though R2 takes no loss, the deductible of 46k is taken from the 200k claim of R1, and the contract pays 154k.
Percent of RCV Affected
In contrast to RCV Covered, RCV Affected takes as its basis only exposure with claims. Since only one of the two 1.15M locations has a claim, the deductible is 2% * 1.15M = 23k, and the payout is 177k.
Contract
Declarations
Currency is USD
Covers
100% share
Deductibles
2% RCV Affected to R1, R2
Franchise Deductible
A standard deductible deducts the full claim if the claim is less than or equal to the deductible. It deducts the amount of the deductible from the claim if the claim is larger than the deductible.
A franchise deductible deducts the full claim if the claim is less than or equal to the deductible, but deducts zero from the claim if the claim is larger than the deductible.
In the following examples, the BI claim is 20k.
Contract
Declarations
Currency is USD
Covers
100% share
Deductibles
10k Franchise for BI
Since the 20k BI claim is larger than 10k, the BI claim is eligible to be paid in full. With no other covers or terms, this contract pays the full 200k.
Contract
Declarations
Currency is USD
Covers
100% share
Deductibles
30k Franchise for BI
Since the 20k BI claim is smaller than 30k, the BI claim is not eligible to be paid. With no other covers or terms, this contract pays the full 180k.
Per Risk Terms
Terms can apply Per Risk, which means rather than applying once to the total of the claims of their exposure, there is one term per risk.
Deductibles
10k to R1, R2 per risk
is equivalent to:
Deductibles
10k to R1
10k to R2
Absorbing a Deductible
A common practice in insurance is to allow losses over a sublimit to act as credit to a deductible. Deductibles in the
Contract
Declarations
Currency is USD
Covers
100% share
Sublimits
5k for Contents
Deductibles
10k
The Contents sublimit makes 25k of claims ineligible for recovery. The 10k deductible is satisfied and does not deduct an additional 10k. The payout is 175k in this case.
Aggregate Terms
Sublimits and deductibles can apply to the claims of one event or in the aggregate to the claims of all events during the contract’s lifetime. Processing is done in chronological order, with the “remaining” amount of the term not yet used after each event as the effective amount for subsequent events.
The following example assumes three events in a period, rather than a single event. In each event, a different location is impacted with claims of 150k, 30k, 20k to Building, Contents, BI.
Contract
Declarations
Currency is USD
Covers
100% share
Sublimits
300k Aggregate
The first event pays in full but uses 200k of the 300k sublimit. The effective sublimit before the second event is 100k. The 100k sublimit applies to the claim of 200k from the second event, which pays out 100k but reduces the effective sublimit to 0 for the third event. The third event does not trigger a payout.