Risk Management Services (RMS)
Policy 8
Effective Date: 07/01/2003
Last Modified Date: 02/06/2004
Introduction
Most of the University's real and personal property is insured through the State Property Fire Insurance Fund (the Fund), a division of the North Carolina Department of Insurance. The North Carolina General Assembly created the Fund in 1945 in order to protect State-owned buildings and the life and property within and to provide for the insurance needs of State agencies as required by law.
The Fund operates as a risk-sharing pool. State agencies contribute to the Fund based on their respective property exposures and funding status in the form of insurance premiums. This premium money is then used to pay property claims, purchase reinsurance, or increase the Fund's insuring capacity.
Authorization to Purchase Property Insurance
By law, State agencies cannot obtain insurance directly through private companies. If a particular type of insurance coverage is not available through the N.C. Department of Insurance, the coverage request will be referred to the State's insurance broker. Risk Management Services (RMS) serves as the University's point of contact for coverage requests made to either the Fund or our insurance broker.
Property Coverages Offered by the Fund
The Fund offers three tiers of coverage, as well as several stand-alone coverages, for insuring the University's buildings and contents.
Fire and Lightning
The most basic tier covers just 1) fire and 2) lightning losses, with a $500-per-occurrence deductible. All University properties are required to carry at least this tier of insurance. Whether we are charged a premium depends on the funding of each specific building or its occupants (see "How Property Insurance Premiums Are Applied by the Fund," below).
Extended Coverage
The second tier of coverage, which includes the first tier perils of fire and lightning as well as "extended coverage," is optional and must be specifically requested by the University or by departments. Any department that requests extended coverage will be charged a premium for the additional insurance (that is, for the costs greater than those for fire and lightning coverage), regardless of the department's funding status.
Extended coverage, which can be written on a per-item or a per-building basis, includes the following perils, with a $500-per-occurrence deductible:
- Windstorm or hail
- Explosion
- Smoke
- Aircraft or vehicles
- Riot or civil commotion
All-Risk Insurance
The third tier is "all-risk insurance," which covers all perils unless that peril is specifically excluded. This coverage is optional and must be specifically requested by the University or by departments. A $500-per-occurrence deductible also applies, except in the case of theft, for which the per-occurrence deductible is $1,000. All-risk insurance is the most comprehensive coverage available. As with extended coverage, a premium is charged to all departments requesting this coverage, regardless of their funding status.
As with all insurance policies, certain conditions and exclusions apply that can restrict or broaden coverage. RMS Appendix 7 addresses these coverage limitations.
Insurance for Computers and Peripherals
Insurance for departmental computers and peripherals is handled in the same fashion as described above: unless extended coverage or all-risk insurance is specifically requested, computers are insured only against fire and lightning losses. Departments can insure computers with additional coverage on a per-item basis; it is not necessary to insure their entire inventory. Departments should use this flexibility to insure only those items more susceptible to a loss. See also RMS Policy 6 and Procedure 2, regarding the Carolina Self-Insurance Fund.
Miscellaneous Property Coverages
In addition to the three tiers of coverage described above, the Fund offers several insurance coverages that can be purchased unbundled, that is, on a stand-alone basis. These coverages, which are excluded even when all-risk insurance is purchased, are as follows:
- Flood—Insurance coverage for flood is optional. The University or any department within must specifically request it before coverage is afforded and a premium is charged by the Fund. This coverage can be purchased on a per-item or per-building basis. A $500-per-occurrence deductible applies.
- Sprinkler Leakage—Insurance coverage for sprinkler leakage is optional. The University or any department within must specifically request it before coverage is afforded and a premium is charged by the Fund. This coverage is purchased on a per-building basis. A $500-per-occurrence deductible applies.
- Business Interruption & Extra Expense—Insurance coverage for business interruption is optional. The University or any department within must specifically request it before coverage is afforded and a premium is charged by the Fund. This coverage can be purchased on a per-department or per-building basis. A $500-per-occurrence deductible applies.
Requesting Optional Property Insurance
Departments interested in purchasing any of the optional coverages should contact RMS for rates. RMS will also submit all necessary information to the Fund or our insurance broker on the department's behalf.
Insurance coverage can be purchased at any time during the July 1st to June 30th policy period. If coverage is purchased mid-term, the University will be charged for either one-half the annual policy period or another pro-rated amount.
How Property Insurance Coverages Are Applied by the Fund
In order to be afforded any of the coverages offered by the Fund, the University must first report the property to them. The Fund's limit of insurance for each loss is the building or content value assigned for each respective asset. An exception is made for newly acquired properties whereby our reporting time is extended to 60 days. Refer to the General Property Coverage Policy (RMS Appendix 6) for these conditions.
The State of North Carolina's Reinsurance Policy
To protect the solvency of the Fund, reinsurance is purchased on an all-risk basis to insure all State properties from catastrophic losses. The current limit of liability on this policy for all State-owned properties is $500,000,000. State agencies may not rely on the State's property reinsurance unless they have purchased coverage from the State for the peril causing the loss.
The reinsurance deductible for all covered perils except wind and flood is $2,500,000. For windstorm, the deductible is 1% of the property values for each building, including its contents, with a minimum $100,000 per-building deductible and maximum of $3,000,000 per occurrence. For flood, the deductible is $2,500,000 per occurrence for all locations except those located at or below the FEMA 100-year flood recurrence elevation. For those locations (FEMA Zones A, D, E, M, P, & V), the deductible is 5% of the property value, with a minimum of $2,500,000 per occurrence. The limit of flood coverage available under this reinsurance is $5,000,000 for properties located at or below the 100-year flood elevation.
Replacement Costs Basis
Insured property losses are adjusted on a replacement-cost basis, up to the limit of insurance shown in the Fund's policy declarations. The replacement cost is considered to be the cost to repair or replace the damaged item(s) at the time of loss with products or materials of like kind and quality. No claims payment will be made by the Fund until the damaged item(s) has been repaired or replaced.
How Property Insurance Premiums Are Applied by the Fund
Two criteria determine when the University is charged for property insurance written through the Fund: 1) specially funded departments and 2) purchase of optional coverages.
Specially Funded Departments
The Fund makes a distinction between generally funded and specially funded departments. If a department receives 50% or more of its funding from receipts/proprietary funds, it is charged for all its property insurance (including the basic tier of fire and lightning coverage).
Departments that receive more than 50% of their budgets from the general fund are charged only if they choose to purchase optional coverages other than the basic fire and lightning coverage.
Purchasing Optional Coverages
A premium is charged by the Fund for all insurance other than the basic tier of fire and lightning coverage. This charge is made regardless of whether it is requested by a generally funded or specially funded department.
Calculating the Property Insurance Premium
The amount of premium the Fund charges for each coverage is determined by multiplying the limit of insurance for each building or item by a pre-specified rate, which is obtained from industry standard information. For example, if the University insures a building with a replacement cost value of $5,000,000 for extended coverage with a rate of $0.0016 (16 cents/$100), the annual premium will be $8000.
Property Coverages from Providers Other Than the Fund
While all property insurance authorized for the University must be placed through the Fund, certain property coverages may not be offered by them or they may prefer not to underwrite certain risks. If a particular type of insurance coverage is not available through the Fund, the coverage request will be referred to our insurance broker. The following property coverages are underwritten by a private insurance company rather than by the Fund:
- Boiler & Machinery—Boiler & Machinery coverage is afforded for boilers and other fire pressure vessels located on the UNC–CH campus and at the Institute of Marine Sciences in Morehead City.
The limit of coverage is $5,000,000, with an applicable $5000 deductible per occurrence. This coverage is underwritten by Hartford Steam Boiler through our insurance broker, and has a January 12th renewal date.
- Fine Arts—Fine arts are defined as "paintings, etchings, drawings, rare books, manuscripts, rugs, tapestries, statuary, and other bona fide works of art, or rarity, historic value, or artistic merit."
Our fine arts coverage is provided through Huntington T. Block Insurance Brokers and is part of a master policy issued to the entire State of North Carolina. The policy has a limit of $200,000,000 per occurrence for permanent collections, $200,000,000 limit for on-loan items, and $25,000,000 while items are in transit. The applicable loss deductible per occurrence involving items owned is $2,500. There is no deductible for items on loan.
- Employee Dishonesty—Employee Dishonesty coverage is provided for "dishonest acts committed by an employee, whether identified or not, acting alone or in collusion with other persons, with the manifest intent to: (1) Cause you to sustain loss; and also (2) Obtain financial benefit (other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment) for: (a) the employee; or (b) Any person or organization intended by the employee to receive that benefit." The coverage includes all State employees; enrolled students under UNC–CH's jurisdiction; and volunteer workers or campaign solicitors while handling or having possession of property or funds of UNC–CH.
This master policy was purchased to cover all State agencies and is currently underwritten by Great American Insurance with a coverage limit of $5,000,000 and a $50,000 deductible applying per loss. It renews annually on January 6th.
- Crime Insurance—Coverage is provided for robbery and safe burglary protection for loss of monies and securities. This coverage also extends to damage to the premises from an actual or attempted theft or robbery. Endorsements for forgery or alteration and theft, disappearance, and destruction coverage are not included.
This master policy was purchased to cover all State agencies and is currently underwritten by Great American Insurance with a coverage limit of $500,000 and a $2,500 deductible applying per loss. It renews annually on November 1st.
Return to Risk Management Services Section Contents
Return to Business Manual Table of Contents