Complex outside factors impact your commercial property insurance rating, and most persons have little to no knowledge of the intricacies associated with the underwriting process. While conditions such as the type of business you are in, your location, and the state of the insurance industry in general can all affect commercial property coverage pricing, there is often a lot more to it than that.
In fact, when it comes to underwriting and rating commercial property insurance, insurers thoroughly examine four key characteristics of a building: its construction, occupancy, protection, and exposure, otherwise known as COPE. Together, these factors will have significant impact on commercial property policy pricing—pricing that can fluctuate drastically following an Insurance Services Office (ISO) inspection. This is especially true if there is a discrepancy between the insurance application and the results of an ISO inspection.
This article will examine each aspect of COPE and shine a light on how it can influence your organization’s commercial property insurance rating and, subsequently, your overall insurance price.
Types of Property Rating
Before looking at the specific factors of COPE, it is essential that you understand when and how underwriters assign a property rating. When rating property insurance, insurers will generally use one of two methods—class rating or specific rating:
- Class rating – For this method, buildings with similar characteristics are assigned to the same class. Insurance rates for class rating buildings will often be an average of all those in a particular group, with some rates fluctuating based on positive or negative features of a specific structure. Typically, buildings receive a class rating if it has all of the following characteristics:
- Consists of 25,000 square feet or less
- Does not contain a sprinkler system
- Is not fire-resistive
- Is not a manufacturing facility
- Specific rating – When a building does not fall under the class rating method, a specific rating will be calculated based on individual characteristics of the structure itself. This is where COPE comes into play. Specific ratings are used for more complex buildings and account for unique features examined closely during an ISO inspection. Following the inspection, ISO or the insurer will calculate a specific rate.
With a fundamental understanding of the two rating systems, we can now examine how a building’s characteristics under COPE can affect your insurance policy pricing.
A building’s construction materials are the first and most basic element of a commercial property insurance rating. Based on an ISO-developed system, insurers categorize buildings into one of six classes. These classes consider the building materials used in construction and the combustibility of those materials.
These classes—numbered in order of combustibility, with Class 1 being the most likely to burn—are as follows:
Class 1 (Frame)
Buildings generally receive this classification if their exterior walls are made of wood or some other combustible material.
Class 2 (Joisted Masonry)
Buildings in this classification typically have noncombustible exterior walls consisting of concrete block, stone, brick adobe, or another masonry material. In addition, Class 2 buildings usually have combustible floors and roofs.
Class 3 (Noncombustible)
Class 3 buildings will have exterior walls, floors, and roofs made of and supported by noncombustible or slow-burning materials. This includes materials like metal, asbestos, or gypsum. Often, Class 3 buildings are equipped with steel frames.
Class 4 (Masonry Noncombustible)
Class 4 buildings will usually have exterior walls made of brick, concrete block, or another type of masonry. Unlike Class 2 buildings, metal or other noncombustible materials compose the floor and roof construction.
Class 5 (Modified Fire-resistive)
The walls, floor, and roof of Class 5 buildings will generally be made of solid masonry that is at least 4 inches thick. Because of this, they have a fire rating of at least two hours, meaning that these buildings are heavily fire resistant.
Class 6 (Fire Resistive)
Similar to Class 5 buildings, the walls, floor, and roof of Class 6 buildings will have a fire rating of at least two hours. In addition, the walls, floor, and roof will consist of reinforced concrete that will be at least 4 inches thick. Also, the structural steel used in Class 6 buildings will be load bearing and have a fire rating of at least two hours.
Following an ISO inspection, your building is assigned a specific class that ultimately impacts your insurance rates.
The second factor in COPE that insurers look at is occupancy. Specifically, underwriters examine a particular building’s use (e.g. for retailing, manufacturing, or renting).
Underwriters also consider the contents of a building and how those contents impact combustibility. For example, a building used as a grain mill will likely contain dust that could ignite or explode. With this in mind, your commercial property insurance rates will vary depending on the type of work you perform in your building and the associated risk that it poses.
The third factor of COPE relates to protection and the methods used to safeguard a building from fire. When it comes to protection, insurers will take into account both public and private forms of protection:
- Public protection—Typically, public protection is provided by local fire departments. An ISO-developed system rates the quality of that protection. Under this system, fire departments are assigned what a Public Protection Class rating, numbered 1 to 10. Generally speaking, buildings in communities with better Public Protection Class ratings will be charged a lower commercial property insurance rate. These ratings are determined by:
- The caliber of the fire department
- The adequacy of the water supply
- The effectiveness of the fire alarm and communication system
- Private protection—Private protection refers to the policyholder’s fire protection methods. This can include features such as fire doors, fire alarms, fire extinguishers, and sprinkler systems. The more elements like these your building has, the more likely your insurer will apply a credit to your insurance rate.
The fourth and final factor of COPE refers to exposure. Exposure relates to external hazards that exist primarily due to a building’s location. This can include natural hazards (e.g. wind, hail, and lightning) or man-made hazards from local infrastructure (e.g. highways) or the general public (e.g. high-crime areas).
The closer your building is to a hazard, the more likely you will pay higher prices for commercial property insurance.
What This Means for You
Commercial property insurance rates are anything but static, and a variety of outside factors can influence pricing. Despite this, you are not alone when it comes to managing your risks and gaining insight into your unique policies. We are here to help.
Contact Camargo Insurance today to learn more and speak to a qualified insurance broker.