Commercial Property and a Commercial Lines Rating System

A Commercial Lines rating System provides the insurance industry with a convenient way to formulate the costs for coverage in a variety of different segments where pricing is competitive. It allows for several quotes at once, which allows for a choice between carriers based on cost and coverage options.

In the case of rating commercial property, there are seven factors that control the premium development for commercial property:

  • Coverage form (building, contents, business income, etc)
  • Cause of loss form (Basic Form, Broad Form, Special Form)
  • Construction of the building
  • Occupancy of the building
  • Location of the property
  • Amount of insurance being written, and
  • Applicable coinsurance requirement

Specific rating versus class rating

For property that is not eligible for class rating, the property loss costs that apply specifically to a building and its contents are provided by WSRB in publications by street address. In addition, loss costs are developed as the result of an on-site inspection, and generally larger businesses or those involving more hazardous operations are specifically rated.

However, most businesses can be rated on a class basis, in which case similar businesses have similar exposure to loss and similar probabilities of sustaining damage. Exposures and probabilities are statistically analyzed, and loss costs are produced that reflect the chance of loss for a typical business in each class (CSP codes).

With class rating, loss costs can be modified to reflect how an individual business may differ from others in the same class. This information is essential to a Commercial Lines Rating System when determining the proper rates.

Special Form

“Special Cause of Loss” provides coverage for risks of direct physical loss unless excluded or limited. It’s important to understand that when rating a policy with special form, specifically rated properties as well as class rated properties are eligible. The amount of insurance and the coinsurance percentage must be the same for each cause of loss rated. Property in offices may be written as a separate item under “Special Causes of Loss” and the remaining property may be written under “Basic or Broad Causes of Loss” forms.

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