Insurance companies evaluate business owners who wish to purchase coverage in terms of the risk of loss that the type of operations they’re conducting may pose. Businesses having a relatively higher level of risk will generally pay more for insurance coverage, as where businesses with a relatively lower risk will pay less for insurance coverage and also find that it’s easier to obtain.
Class rating versus specific rating
ISO Commercial Property Rating is done in one of two ways. Commercial property can be either class rated or specifically rated. The rating mechanics are the same for both. Most businesses can be rated on a class basis. Similar businesses are seen as having common exposures to loss and therefore have an equal probability of sustaining damage.
Specific rating is designed for risks that are not eligible for class rating. Loss costs are developed as the result of an on-site inspection. Property loss costs that apply specifically to a building and its contents are provided by WSRB in publications by street address. WSRB is Washington’s premier source of property underwriting and rating information for the insurance industry.
Construction, Occupancy, Protection and Exposure (COPE) are the same four basic elements of underwriting data that real property underwriters have been using for nearly 300 years. Commercial property applications are designed to capture most of this basic underwriting data as specified by the Insurance Services Office (ISO).
Fire rating helps establish premium costs
The construction of a building establishes the basis of its fire rating. Using fire-resistant materials throughout a structure can make a huge difference in insurance premiums. In order to receive the full benefit of a good rating, builders must use fire-resistant materials throughout construction. Adding-on to an existing structure could possibly hurt its fire rating.
A relatively hazardous occupant affects the fire rating for an entire building, so if a business shares space with a more hazardous occupant, premiums will tend to be higher. For example, a restaurant presents greater fire risks than a travel agency for obvious reasons, but a travel agency adjacent to a restaurant will experience higher premiums than one that isn’t.
Location is also vital for determining fire rating, while exposure measures the extent to which a structure faces external or unusual internal risks. ISO Commercial Property Rating factors all of these issues in when determining rates for every type of business.