Commercial Property Insurance Rating

By: Marianne Bonner

To an insurance underwriter, the most important aspects of a commercial characteristics are used in the underwriting and rating of commercial property insurance. They are often abbreviated COPE. All of these factors affect the price you pay for a commercial property policy.

1. Construction
The most basic element of building is its construction. This term means the materials from which a building is made.
Many insurers classify buildings into categories based on their construction type using a system developed by the Insurance Service Office. This system includes the six classes described below. Each classification reflects both the building materials used and the combustibility of those materials. ISO's categories are numbered from one through six in descending order of combustibility. Of the six categories, Class 1 (frame) buildings are most likely to burn, while Class 6 (fire-resistive) buildings are the least likely to burn.

2. Occupancy
A second key factor underwriters consider when evaluating and rating commercial property is occupancy. This term means the purpose for which property is used. Examples are retail food market, furniture manufacturing, and apartments. 
The type of contents a building contains depends on the manner in which the building is used. The contents affect the building's combustibility. A grain mill contains dust that can ignite and explode. 
Thus, a grain mill is more prone to fire than an office building. A sawmill contains logs, lumber and sawdust, all fo which burn readily. A machine shop, on the other hand, may contain mostly metals that are not very flammable.

3. Protection
Protection means the methods used to safeguard a building from fire. It includes both public and private protection.
Public protection is provided by the local fire department. Fire departments are assigned a Public Protection Class rating from one (superior) to ten (doesn't meet ISO's standards). The ratings reflect the following three characteristics:
-the caliber of the fire department
-the adequacy of the water supply
-the effectiveness of the fire alarm and communication system
Generally, a building located in a community with a low Public Protection Class rating will be charged a lower rate for commercial property insurance than a similar building located in an area with a high class rating.
Private protection refers to fire suppression mechanisms that are under the control of the policyholder. Examples are fire doors, fire alarms, fire extinguishers, and sprinkler systems. If your building includes one or more of these features, your insurer may apply a credit to your property insurance rate.

4. Exposure
Exposure refers to external hazards that exist largely due to a building's location. Some hazards are natural. A building located in a breezy area may be subject to damage by high winds. Other natural hazards include sinkholes, hail, lightning, and heavy snow. Natural hazards can vary widely from one location to another. 
Man-made hazards may be created by neighboring business, local infrastructure or the general public. A warehouse situated next to a fertilizer plant may be vulnerable to damage by explosions. A building located in a high-crime area may be vulnerable to vandalism. Other examples of man-made hazards are civil unrest, pollution from nearby freight trains, and smoke from industrial operations. 

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