Understanding the outside factors that impact your commercial property insurance can be complicated, particularly for those with little to no knowledge of what goes into the underwriting process. While the type of business you’re in, your location and the state of the insurance industry in general can all affect commercial property coverage pricing, there’s often more to it than that. Because commercial property insurance rating can be complex, it’s important to have an experienced insurance broker. GDI Insurance Agency, Inc. can help, call us today 209-634-2929.
In fact,when it comes to underwriting and rating commercial property insurance,insurers examine four key characteristics of a building: its construction,occupancy, protection and exposure (COPE). Together, these factors can affectcommercial property policy pricing—pricing that can fluctuate drasticallyfollowing an Insurance Services Office (ISO) inspection. This is especiallytrue if there’s a discrepancy between what’s on an insurance application versuswhat’s found during an ISO inspection.
ThisCoverage Insights examines each aspect of COPE and how it can affect anorganization’s commercial property insurance rating and, subsequently, theirinsurance rates.
The Types of Commercial Property Insurance Rating
Beforelooking at the specific factors of COPE, it’s important to understand when itis used and how underwriters rate property in general. When rating propertyinsurance, insurers will generally use one of two methods—class rating orspecific rating:
- Class rating—For the class rating method, buildings with similarcharacteristics are assigned to the same class. Insurance rates for classrating buildings will often be an average of all those in a particular group,with some rates fluctuating based on positive or negative features of aspecific structure. Typically, your building will be assigned a class rating ifit has all of the following characteristics:
- It consists of25,000 square feet or less
- It doesn’t contain asprinkler system
- It is notfire-resistive
- It is not used for manufacturing
- Specific rating—In instances where a building doesn’t fall underthe class rating method, a specific rating will be calculated based onindividual characteristics of the structure itself. This is where COPE comes in.Specific ratings are used for more complex buildings and take into accountunique features—features that are examined closely during an ISO inspection.Following the inspection, ISO or the insurer will calculate a specific rate.
Construction of Property
With ageneral understanding of the two rating systems, we can now examine how abuilding’s characteristics under COPE can affect policy pricing.
The firstand most basic element of a commercial property insurance rating is abuilding’s construction (i.e., the materials the building is made of). Based onan ISO-developed system, insurers categorize buildings into one of six classes.These classes not only take into account the building materials used inconstruction (e.g., wood and concrete), but the combustibility of thosematerials as well.
Theseclasses—numbered in order of combustibility, with Class 1 being the most likelyto burn—are as follows:
- Class 1 (Frame)—Buildingsgenerally receive this classification if their exterior walls are made of woodor some other combustible material.
- Class 2 (Joisted Masonry)—Buildingsin this classification typically have noncombustible exterior walls consistingof concrete block, stone, brick adobe or another masonry material. In addition,Class 2 buildings usually have combustible floors and roofs.
- Class 3 (Noncombustible)—Class3 buildings will have exterior walls, floors and roofs made of and supported bynoncombustible or slow-burning materials. This can include materials likemetal, asbestos or gypsum. Often, Class 3 buildings are equipped with steelframes.
- Class 4 (MasonryNoncombustible)—Class 4 buildings will often have exterior walls made ofbrick, concrete block or another type of masonry. Unlike Class 2 buildings, thefloor and roof are constructed of metal or another noncombustible material.
- Class 5 (ModifiedFire-resistive)—The walls, floor and roof of Class 5 buildings will have afire rating of at least two hours. Because these buildings are heavily fireresistant, Class 5 buildings generally have walls, roofs and floors made ofsolid masonry that are at least 4 inches thick.
- Class 6 (Fire Resistive)—Similarto Class 5 buildings, the walls, floor and roof of Class 6 buildings will havea fire rating of at least two hours. In addition, the walls, floor and roofwill consist of reinforced concrete and will be 4 inches thick or more. What’smore, structural steel used in Class 6 buildings will be load bearing and havea fire rating of at least two hours.
Followingan ISO inspection, your building may be assigned a specific class, which couldsubstantially impact your rates.
Occupancy
The secondfactor in COPE that insurers look at is occupancy. Specifically, underwriterswill examine how a particular building is used (e.g., for retailing, manufacturingor renting).
Inaddition, underwriters are interested in the contents of a building and howthose contents impact combustibility. For example, if a building is used as agrain mill, it will likely contain dust that could ignite or explode. With thisin mind, your commercial property insurance rates will vary depending on thetype of work you perform in your building.
Protection
The thirdfactor of COPE relates to protection and the methods used to safeguard abuilding from fire. When it comes to protection, insurers will take intoaccount both public and private protection:
- Public protection—In general, public protection is provided bylocal fire departments, and an ISO-developed system is used to rate the qualityof that protection. Under this system, fire departments are assigned what’scalled a Public Protection Class rating—numbered one to 10, with one being thebest. Essentially, buildings located in communities with low Public ProtectionClass ratings will be charged a lower commercial property insurance rate. Theseratings take into account:
- The caliber of thefire department
- The adequacy of thewater supply
- The effectiveness ofthe fire alarm and communication system
- Private protection—Private protection refers to the policyholder’sfire protection methods. This can include things like fire doors, fire alarms,fire extinguishers and sprinkler systems. Essentially, the more of thesefeatures your building has, the more likely your insurer will apply a credit toyour insurance rate.
Exposure
The fourth andfinal factor of COPE refers to exposure. Exposure relates to external hazardsthat exist primarily due to a building’s location. This can include naturalhazards (e.g., wind, hail and lightning) or man-made hazards from localinfrastructure (e.g., highways) or the general public (e.g., high-crime areas).
The closer your building is to a natural orman-made hazard, the more likely you are to pay higher prices for commercialproperty insurance.
What This Means for Your Commercial Property
Commercial property insurance rates areanything but static, and a variety of outside factors can influence pricing.Despite this, you aren’t alone when it comes to managing your risks and gaininginsight into your unique policies. We’re here to help.
Contact GDI Insurance Agency, Inc. today to learn more and speak to a qualified insurance broker.
California’s Leader in Insurance and Risk Management
As one of the fastest growing agencies in California, GDI Insurance Agency, Inc. is able to provide its clients with the latest and greatest of what the insurance industry has to offer and much, much more.
We are headquartered in Turlock, CA, with locations across the heart of California’s Central Valley, Northern California and beyond to provide a local feel to the solutions and services we provide our clients. We pride ourselves on exceeding our client’s expectations in every interaction to make sure that our client’s know how much we value and appreciate their business. Contact us today 1-209-634-2929 for your comprehensive commercial property insurance quote!
