The most common insurance policy written for Thoroughbreds is an all risk mortality policy. This type of policy provides coverage on the animal for death due to any cause, and generally includes coverage for theft and unlawful removal, poisoning, and willful and malicious misconduct. The policy is usually written on an annual basis, and the animal must be proven to be sound of health at inception to effect coverage. Completion of a satisfactory veterinary certificate at policy inception is the accepted means of proving the horse to be “sound of health at inception”.
The all risk mortality policy can be written in three basic policy formats, which include a “straight” mortality policy which has no deductible applicable, a coinsurance policy, or a deductible policy. The “straight” mortality policy is written on individual animals, or on schedules of horses. With a straight mortality policy there is no deductible applicable in the event of a loss, while with the coinsurance policy and the deductible policy, there is a deductible to apply in the event of a claim occurrence. The rating on the straight policy is dependent upon the age, use, value and sex of the insured animal, with breeding animals at the lower end of the rating scale, and flatracers at the higher end of the scale. Show animals are rated based on their use, age and value.
Coinsurance policies are written on an “each and every loss deductible” basis, and typically involve schedules of 20 or more animals with a total sum insured of over $1 million. A set “each and every” loss deductible amount is established at policy inception that would apply to each loss, with the excess of the insured value over that set amount being paid in the event of a claim. A maximum annual aggregate deductible rate is also set forth at the beginning of the policy period, and each time the “each and every” loss deductible is applied to a claim, it is offset against that maximum deductible. Once the annual aggregate deductible has been satisfied, all additional claims would be paid in full. Because the probability of collecting at least a partial payment on each claim is high, rates for coinsurance policies are higher than for deductible policies, but are still lower than basic non-deductible policy rates.
The final and most inexpensive type of all risk mortality policy available is the deductible policy. The underwriting requirements for deductible policies are the same as for coinsurance policies, but an annual aggregate deductible based on the total sum insured at the time of loss must be exhausted prior to any claims being paid under the policy. There is an annual aggregate deductible calculated at inception which must be exhausted prior to any actual payment of claims monies to the assured. The policy is rated by first rating each individual animal separately on a straight mortality basis, and obtaining an average rate weighted by the insured values for the entire schedule of horses, and then splitting out the average rate into the premium rate and the deductible rate. No one animal can be insured for in excess of 20% of the total sum insured on the entire policy. When this type of policy is quoted, the assured may be given several alternatives on rates to choose from and he can choose which option he prefers depending on the degree of retention, or self-insurance he feels comfortable with on the policy. He may choose a higher premium rate, and lower deductible rate, or vice versa, depending on his specific insurance requirements. Deductible policies are written on large schedules of usually 20 or more animals, with the total sum insured totaling $1 million or higher.