Terrorism - Deductible

  • 24 April 2023
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Terrorism - Deductible
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Over the years working on waivers, there were several instances where one sought the waiver of the terrorism coverage deductible requirements, deductible and self-insured retention (SIR) requirements or certain property coverage requirements. For your information, the monetary amount that you pay before the coverage can be utilized is referred to as a deductible or SIR in the insurance context. An interesting thing that I noticed here is that a deductible reduces the amount of coverage available by a certain amount. On the other hand, SIR only requires you to pay an agreed-upon amount before the coverage can be utilized and doesn’t reduce the amount of coverage available. 

To help FM with determining the sufficiency of the current coverage, the details about the properties, their classification, and insurance policies in place are provided. Also, to help illustrate the unlikelihood of the current coverage being exhausted, the details about the properties’ association and proximity to risk should also be provided. I think these are the important elements that need to be included in our request. By utilizing the financial details regarding your cash flow and your guarantors’ net worth and liquidity, you will be able to demonstrate financial stability and strengthen your waiver request. 

An individual could create an insurance waiver for the following specifications based on the outline given below. 

Specifications: 

 

Waiver Type: Renewal/New Origination 
Insurance Type: Property 
Insurance Term: Terrorism - Deductible 

 

Template Outline: 

 

#1 - What information should be included in the opening section of the waiver?  

The opening section of the waiver should clearly state the requestor’s identity and the purpose/type of waiver being requested. The examples provided below can be used for further assistance when writing this section.  

<Organization/Borrower name> is currently seeking a waiver or <Insurance coverage requirements>. These requirements include <Requirement details>.  

<Agent name> is requesting a waiver of <Insurance coverage requirements> on behalf of <Organization/Borrower name>. These requirements include <Requirement details>.  

 

#2 - What property details should be included in the waiver?  

The organization/borrower should provide all relevant details about the properties to which the non-compliant coverage applies. These details may include when the property was built, the construction material that was used, the number of units, and the property type. Below is an example that can be used for additional guidance if needed.  

<Property name> is currently owned by <Organization/Borrower name> and was built in <Year/Date> using <Construction material 1> and <Construction material 2>. The <Property name> currently has <number of units> and is classified as <Property type>.  

 

#3 - How to include details pertaining to the current coverage?  

When writing the waiver, the organization/borrower should provide all details about the current coverage they have. These details can include the type of coverage the organization/borrower has, the coverage limits, and deductible/SIR limits. Providing such information can help demonstrate that the current coverage and deductibles are adequate for the organization/borrower. The example provided below can be used for further assistance if needed.  

<Organization/Borrower name> currency has <Insurance coverage 1> and <Insurance coverage 2>. <Insurance coverage 1> currently has a coverage limit of <dollar amount> and a deductible of <dollar amount> and <Insurance coverage 2> has a limit of <dollar amount>. The SIR for the coverage is <dollar amount>.  

 

#4 - How to elaborate on the property’s proximity to risk?  

In addition to providing details about the current coverage and the property, the organization/borrower should also emphasize its proximity to risk. This can be done by mentioning that the property is neither a high-risk property nor is it located in a high-risk area. Providing this information can help determine if the organization/borrower is likely to experience exhaustion of the current coverage or problems due to the deductibles/SIR limits. Below is an example that can be used for additional guidance if needed.  

<Property name> is currently located in <City, State>, which is not a high-risk location. In addition, the <Property name> is not a high-risk property. Therefore, the <Organization/Borrower name> is not likely to experience a scenario where the current coverage limits of <dollar amount> would be insufficient, and the deductible of <dollar amount> would cause financial strain.  

 

#5 - What information should be used to demonstrate financial stability?  

The organization/borrower should provide all relevant details about their and/or their guarantor’s financial position. These details may include the organization/borrower’s cash flow and their or their guarantor’s net worth and liquidity. Providing this information can help demonstrate that the organization/borrower has sufficient capital to account for damages or losses/claims that exceed coverage limits. In addition, it can also demonstrate that the coverage deductible or SIR is not a financial strain. Provided below is an example that can be used for further assistance if required.  

<Organization/Borrower name> currently has an annual cash flow of <dollar amount> that is generated through <Property name>. In addition, <Person 1>,  identified as the guarantor for <Organization/Borrower name>, currently has a net worth of <dollar amount> and a liquidity value of <dollar amount>. Hence, the <Organization/Borrower name> can sustain damages or losses/claims that exceed the coverage limits, and the <deductible/SIR> of <dollar amount> is not a financial strain.  

#6 - How provide a justification for the waiver being requested?  

Before submitting the waiver, the organization/borrower should provide a justification for the waiver being requested. This justification can be made by providing details about the current property, insurance policies, and deductible/SIR limits. Providing this information can help demonstrate the sufficiency of the current coverage.  

In addition, the organization/borrower should also provide details about their and/or their guarantor’s financials. This can help illustrate that damages or losses/claims in excess of coverage limits and deductible/SIR limits can be managed. Lastly, the organization/borrower can also emphasize the property’s proximity to risk to further strengthen the waiver.  


4 replies

Does FM have a list of types of properties that they consider low-risk or is there some other accepted list we can use to justify our property's status?

If available, should we include other details about the property? For example, when the borrower acquired it or its last major renovation date?

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Does FM have a list of types of properties that they consider low-risk or is there some other accepted list we can use to justify our property's status?

FM does not have a list indicating properties that they consider to be low-risk. A Terror Target Checklist would need to be completed on each individual property to determine the risk associated with each property location. The Terror Target Checklist is then used to analyze the terrorism risk or exposure.  

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If available, should we include other details about the property? For example, when the borrower acquired it or its last major renovation date?

A waiver should always describe the subject property, however, date acquired and renovation date are not necessarily mitigants for a terrorism deductible waiver.

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