Some mistakenly feel over secure with the term, “blanket insurance.”
There are both advantages and disadvantages to this form of coverage option. Blanket insurance is simply the ability to cover, as one amount of insurance: one or more types of property in more than one building or location.
There are four types of property that may be covered within one blanket limit: buildings, personal property, personal property of others in the insureds care, custody or control, tenants improvements and betterments. Blanket coverage does not require any special endorsements or policy modification. It’s necessary, however, to indicate in the policy declarations page that several types of property are intended to be covered as a single item. This can be as simple as indicating “Blanket Building and Contents” in the description of covered property, followed by the limit of insurance, co-insurance, and deductible and loss valuation option. Items within a blanket limit must carry the same cause of loss and deductible.
Often as a condition of providing blanket coverage, a carrier will require a completed (including the insureds signature) Statement of Values (SOV). Typically, a new SOV is required updated annually. A validation of accuracy of large values through a form of cost estimator may also be required, so that major insurance value discrepancies are resolved before providing coverage. This is understandable as unlike specific insurance, the entire “blanket limit” will be available when settling a loss and proper rating for the risk exposure is essential. Co-insurance still applies, since the entire blanket limit would be available to settle the loss to a particular item of property suffering the loss. Depending on these factors, Blanket coverage is not necessarily less in cost.
The blanket method is particularly advantageous for risk whose contents move between locations. Most in manufacturing, but equally present in wholesale as well as retail environments, blanket insurance recognizes that it is often impossible to determine exactly how much value is in a particular location at a given time. Blanket can remove some of this uncertainty by providing a larger limit across all items within the blanket limit.
While coinsurance applies to the blanket limit, not to the values reported for each item. Blanket coverage provides 100 percent insurance to value at each location while only requiring a minimum 90 percent insurance to value. This is true because although coinsurance is set at 90 percent (the minimum coinsurance allowed under blanket rating), 100 percent of the limit is available for loss at a given location.
Regardless of the fact that the entire limit is available at time of loss for a particular building or other item of coverage, co-insurance must still be met across all items insured. At time of loss the carrier will perform an inventory of all items within the blanket and validate whether or not co-insurance has been met.
While some level of underinsurance (unintentional or not) can likely be absorbed, it is not wise to rely on a blanket limit as a replacement for sound values determination. To ensure adequate limits at the time of loss, insureds should work with the carrier to determine proper insurance to value and reduce the possibility of underinsurance at the time of loss.
When used properly and understood, blanket insurance is just another way to modify the insurance contract to meet the needs of the insured.
Chet E. Caldwell and Mickey Mace are agents with American National Insurance. Caldwell is located in Fayetteville, Ark., and can be reached at 479-443-2212. Mace is located in Bentonville, Ark., and may be reached at (479) 271-6223.