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.
In fact, when it comes to underwriting and rating commercial property insurance, insurers examine four key characteristics of building: its construction, occupancy, protection and exposure (COPE). Together, these factors can affect commercial property policy pricing – pricing that can fluctuate drastically following an Insurance Services Office (ISO) inspection. This is especially true if there’s a discrepancy between what’s on an insurance application versus what’s found during an ISO inspection.
This article examines each aspect of COPE and how it can affect an organization’s commercial property insurance rating, and subsequently, their insurance rates.
Before looking at the specific factors of COPE, it’s important to understand when it is used and how underwriters rate property in general. When rating property insurance, insurers will generally use one of two methods – class rating or specific rating:
With a general understanding of the two rating systems, we can now examine how a building’s characteristics under COPE can affect policy pricing.
The first and most basic element of a commercial property insurance rating is a building’s construction (i.e., the materials the building is made of). Based on an ISO-developed system, insurers categorize buildings into one of six classes. These classes not only take into account the building materials used in construction (e.g., wood and concrete), but the combustibility of those materials as well.
These classes – numbered in order of combustibility, with Class 1 being the most likely to burn – are as follows:
Following an ISO inspection, your building may be assigned a specific class, which could substantially impact your rates.
The second factor in COPE that insurers look at is occupancy. Specifically, underwriters will examine how a particular building is used (e.g., for retailing, manufacturing or renting).
In addition, underwriters are interested in the contents of a building and how those contents impact combustibility. For example, if a building is used as a grain mill, it 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.
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 protection:
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 natural or man-made hazard, the more likely you are to pay higher prices for commercial property insurance.
Commercial property insurance rates are anything 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 gaining insight into your unique policies. We’re here to help.
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