Today’s Blanket Policies and the Underinsured Property Problem

Once upon a time (or before 2008), when an organization wanted to insure their full property portfolio, they could streamline their insuring process and secure more complete coverage by getting a true blanket insurance policy. This blanket policy was a single property insurance policy that either covered multiple locations, different types of property at the same location, or different types of property at two or more locations. It generally covered both the buildings themselves and the property inside those buildings.

The way these true blanket policies typically worked was, the maximum amount payable under the policy was divided across all the properties. So, if you owned a business with multiple locations, you could purchase one blanket policy and you’d have insurance coverage for all the locations at one single limit — one maximum amount the insurer would pay for a loss.

Now, this certainly sounds convenient and easy. And as a choice, it made sense for a lot of organizations. But then, on November 1, 2008, the Insurance Service Office (ISO)’s Limitation on Loss Settlement – Blanket Insurance Margin Clause  took effect. And this margin clause was the first of several market changes that began to alter the makeup of blanket policies, shifting the ease and effectiveness of those types of policies for both insured organizations and brokers alike.

No longer your parents’ true blanket insurance policy

Today, blanket policies do exist — in name, at least — but they have been affected by a hard market and now tend to contain constraints that affect limits with often unexpected and unfortunate implications for the policy holder when a risk event occurs.

These constraints include:

That Margin Clause

For a Blanket Policy with a Margin Clause, when you incur a loss, the amount your policy covers depends on the value of the damaged property as listed on the Statement of Values (SOV) that you originally submitted to the insurance company, plus a predetermined percent of that value — the margin — generally from 110% to 125% of the stated value. This means that, despite paying one blanket sum for multiple properties, your loss is paid out on the specific submitted value for each individual property, plus the margin.

Occurrence Limit of Liability Endorsement (OLLE)

A Blanket Policy with an Occurrence of Liability Endorsement (OLLE) (also considered a “scheduled policy”) limits the maximum amount of loss that insurance will cover for a loss event, based on the reported SOV for that location or insured property type (buildings, vehicles, property-in-the-open, contents, etc.).

Building Replacement Cost Endorsement (BRC)

A Blanket Policy with a Building Replacement Cost Endorsement (BRC) bases the replacement cost value for property-related loss on the valuation cost submitted through the insured’s SOV.

So, in all these instances, while your policy may insure multiple items in the typical “blanket” style, your loss limits still automatically revert to the individual valuations you submit on your Statement of Values each year. Meaning, to ensure you have complete property coverage, you still need to keep current, accurate SOV data on those values to ensure you appropriately mitigate your risk. The blanket policy no longer simplifies your insurance process at all and can even leave you underinsured if you fail to keep on top of those property values.

Properties are Already More Underinsured Than You Might Think

While these constraints on blanket policies are just one part of the underinsurance challenge, the underinsurance problem overall has escalated for several reasons. They include factors like increasingly severe and frequent weather events, growing construction costs, labor shortages, delays due to COVID, and fluctuating materials availability. (You can read more about that in our blog post here.)

In a nutshell: as of 2017, a Verisk global data analytics study showed that approximately 75% of all commercial properties were underinsured. And 2022 studies in the UK indicate that that number may be even higher, with more than 90% of UK properties underinsured and covering just 68% of the coverage they needed. It doesn’t bode well for US property portfolios, whether blanket policies are in effect or not. Add in the blanket policy’s unexpected clauses and constraints that revert maximum loss levels to your Statement of Values submission, and the chance that your property is underinsured is only increased.

How to get Property Valuations Right-Sized and Under that Blanket

While insurers want to mitigate potential loss themselves, they may not always check your submitted Statement of Values to see whether your valuations are in range for the current trends. Those that do notice discrepancies between your values and today’s market, however, may request new property valuations, or they may decide to trend your values using in-house valuation software. Both have advantages and disadvantages.

New on-site appraisals offer a first-hand examination of properties and can capture the key data points that affect value. But because today’s labor and reconstruction costs are such moving targets due to unusual and increased severe weather, shortages for certain skilled labor, and supply chain issues, these factors can make it difficult to complete accurate valuations quickly, before additional shifts. The valuation process can be sped up by valuing only buildings over a certain appraisal threshold at a certain time. But this can leave buildings under that threshold without new, clean data. And that can create gaps in your valuations and in your blanket insurance coverage.

Valuation trending is another option to speed the updating process and keep costs low. But how do you determine what percentage increase to use for your trending and how long it should remain that way? What data do you leverage to base your estimates on and how do you know it’s a reasonable predictor?

Gain Peace of Mind with a Customized Combination of Value Estimator Tools and Solutions

At Centurisk, we’ve devised an effective solution to tackle the valuation challenges and help mitigate the potential loss constraints associated with today’s blanket policies. First, we offer our own proprietary property valuation trending tool, tailored specifically your organization, to help adjust your property values year over year. Centurisk’s Valuation Estimator software draws on multiple industry resources and modifiers  — everything from regional market analysis, the producers’ and consumers’ price indices, ISO construction information, regional seismic/windstorm information, and more — to build a sound third-party opinion of value. Then, as needed, we combine this with our expert on-site valuations, to gather the property data you might be missing. Our decades of experience mean we know which red flags to look for in your existing SOV data and work with you to determine the best plan for further investigation. Together, we determine an appropriate valuation schedule and threshold levels so you can account for 100% of your TIV, no matter how the markets fluctuate. And as things change, we can adjust the model to change with it.

With more accurate data in hand, insurers gain greater confidence in your SOV. But most of all, the solution can help you avoid the underinsurance pitfalls that today’s blanket insurance policies can sometimes cause.

There’s no need to lose sleep over the valuations associated with your blanket policy. Find out how Centurisk can become the valuation partner that gives you greater peace of mind. Contact us today.

Want to learn more about how Centurisk’s valuation services can help you avoid the underinsurance pitfalls? Simply fill out the form below and a member of our team will be in touch!

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