Difference in Conditions (DIC)
Also known as: DIC Insurance, Difference in Conditions Policy
Difference in conditions (DIC) is a separate property policy bought alongside a primary commercial property program to cover the "difference" between what the underlying policy provides and the broader protection the insured wants. Rather than duplicating the primary coverage, a DIC form is typically written on an all-risk basis and excludes the perils already insured underneath, focusing on the gaps. In practice its most common uses are adding flood and earthquake coverage that standard forms omit, and broadening a named-peril primary policy to all-risk.
For a small or growing business, DIC matters when the standard market cannot deliver the breadth or catastrophe perils it needs at the limits required. A company in a seismic or coastal zone may find flood and quake unavailable or severely sublimited on its base policy; a DIC layer supplies those perils, often with a higher limit than the government flood program alone. DIC is frequently placed in the excess and surplus lines market, giving underwriters flexibility to tailor terms, deductibles, and catastrophe sublimits to the specific risk.
The essential nuance is coordination with the underlying insurance. Because DIC is designed to dovetail with the primary policy, mismatched valuation clauses, deductibles, or covered locations can create unexpected gaps or disputes over which policy pays. DIC deductibles for catastrophe perils are often percentage-based (a share of the insured value) rather than flat dollars, so a large earthquake or flood loss can leave a meaningful retained amount. Buyers should confirm exactly which perils and locations the DIC picks up, how its limits stack over or beside the primary, and that flood/quake sublimits are adequate — a DIC is powerful but only as good as its alignment with the coverage beneath it.
Real-world scenario
Pacific Crest Cold Storage, a refrigerated-warehouse operator in Oakland, California, carries a standard commercial property policy insuring its building for $8,000,000, its stored inventory and equipment for $3,500,000, and up to $1,200,000 of business income, all for an annual premium of $42,000. That policy, like nearly every standard property form, flatly excludes earthquake and flood. Sitting two miles from the Hayward Fault and in a mapped flood zone, the owner buys a Difference in Conditions policy from a surplus-lines carrier for $58,000 a year, giving $10,000,000 of combined earthquake and flood limit, a 5% earthquake deductible (roughly $400,000 on the building value), a $2,000,000 flood sublimit, and a flat $100,000 flood deductible.
Eighteen months in, a magnitude-6.2 quake ruptures racking and cracks the tilt-up walls. The adjuster values structural damage at $2,800,000, spoiled frozen product at $650,000, lost business income during the eight-week shutdown at $480,000, and debris removal at $120,000 — losses the standard property policy will not touch because of its earthquake exclusion.
The DIC policy responds. Total earthquake loss is $4,050,000; after the $400,000 deductible, Pacific Crest collects $3,650,000, plus $35,000 in covered claim-preparation and adjusting costs. The $58,000 DIC premium paid for itself many times over, filling exactly the gap the base flood-and-quake-excluded property policy left open.
How it affects your premium
DIC pricing is driven by the specific perils it fills in and the exposure of the insured property, so two buyers on the same block can pay very different rates:
- Catastrophe zone and modeling — proximity to fault lines, flood plains, and coastal wind exposure feeds directly into the carrier's cat model; a building near an active fault costs far more than one on bedrock.
- Total insured value — the combined building, contents, and business income values set the premium base; higher values mean higher premium even at the same rate.
- Deductible structure — a large percentage deductible (e.g., 5% versus 2% of value) lowers premium sharply because the insured retains more of each loss.
- Limit and any sublimit — buying a full $10M limit costs more than a smaller earthquake or flood sublimit; carriers price each peril's capacity separately.
- Construction and occupancy — masonry, tilt-up, and older wood-frame buildings rate worse for quake; hazardous or high-value contents (cold storage, electronics) raise the rate.
- Loss history and mitigation — prior cat claims push premium up, while seismic retrofits, flood barriers, and elevated equipment can earn credits.
Common misconceptions
Myth: A DIC policy duplicates my regular property insurance, so it's a waste of money.
Reality: DIC is designed to not overlap — it only pays for perils your base property policy excludes, chiefly earthquake and flood. It fills the gap rather than doubling coverage. See drop-down coverage for how a DIC layer steps in where the underlying form stops.
Myth: DIC automatically matches all the terms and limits of my property policy.
Reality: Unlike a follows-form excess policy, a DIC is a standalone manuscript form with its own deductibles, sublimits, and exclusions that often differ from your primary property policy. You must read both side by side to spot gaps.
Myth: Only businesses in California or on the coast need DIC.
Reality: Flood and quake exposures exist across the country, and DIC is also widely used to backstop international property programs and hard-to-place risks placed in the excess and surplus market.
Frequently asked questions
What perils does a DIC policy usually cover?
Is DIC the same as an excess or umbrella policy?
Does DIC coverage include ordinance-or-law rebuilding costs?
Why is DIC usually written on a surplus-lines paper?
How big are DIC deductibles?
Sources cited
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