There’s a lot of information one can gather on a building or commercial property.
Regardless of the perils being considered, the more reliable and precise that information, the better an insurer can underwrite coverage and set proper premiums.
Questions to ask
Of course, insurers need to know everything they can about the building, but how do you find details on how the building compares with similar ones? What materials have the builders used? Are there hazards at the property? What safeguards and mitigation systems exist? Does the building have a properly-designed sprinkler system?
The method used to gather that information is critical. Insurers need high-quality information on construction, occupancy, public and private fire protection, and exposure—otherwise known as COPE. COPE is the system Verisk field analysts use to gather the information you need related to building characteristics, conditions, and hazards. Here’s a breakdown of the information we document:
- type of construction, ranging from frame to noncombustible to fire resistive
- building height
- support for walls, roofs, and floors
- interior construction, such as vertical openings and interior finishes
- roof geometry, covering, and age
- amount and type of glass/windows
- ranking of combustibility and susceptibility to fire, smoke, and water damage
- floor level and square footage
- sprinkler and extinguisher credits
- building hazards, such as heating, electrical systems, flammable liquids, cooking equipment, chemicals, and gases
Public and private fire protection
- automatic sprinklers
- extinguishers and alarms
- water supply
- sprinkler grading
- Public Protection Classification (PPC™) Building Code Effectiveness Grading Schedule (BCEGS™)
- adjacent building risks
- exposing walls, hazards, construction, and distance
- adjacent storage tanks
COPE and loss costs
Verisk uses verified on-site COPE information and hundreds of other variables to develop specific loss costs for millions of commercial properties in the United States. The degree of hazard variability for businesses can be very high, and you need an equitable way to price policies for larger buildings. Using a class loss cost without field-verifying the key rating variables can result in pricing the policy incorrectly. With COPE information, you can:
- identify conditions that, if corrected, could reduce hazards and improve protection deficiencies
- identify loss exposures
- stay ahead of the competition by offering better pricing for a better risk
- make more accurate and cost-effective underwriting decisions
- develop insurance pricing information
Using COPE information and conducting a strong hazard analysis gives insurers specific loss costs. The loss portion of the premiums you charge can accurately reflect the wide variations in hazards and conditions among commercial properties.
The specific rating process you use should reflect the contributing loss factors for individual buildings, not just overall loss experience of classes of businesses. Specific loss costs can help promote underwriting and rating equity and vary with the loss potential of the buildings you insure.
For the fire peril, Verisk relies on the Specific Commercial Property Evaluation Schedule (SCOPES) to assure the consistent analysis of specifically-rated properties we survey. Insurers can analyze the charges behind the loss cost calculations with SCOPES, and easily reference the relative hazards of occupancies by looking up the applicable codes in the manual.
Rating the wind peril was historically a fairly straightforward exercise. Because fire had been the predominant peril, in the past the classification of buildings for underwriting purposes generally focused on building characteristics that impacted its performance related to fire. The wind peril was generally class-rated and used the building's fire classification, with only minor modifications such as to reflect a roof's uplift characteristics and height. When wind was a relatively small proportion of overall property losses, that approach made sense. Over the last few decades, in certain areas of the country, wind has become an increasingly significant loss exposure. So, evaluating the resilience of a building with respect to the wind peril—separate from the fire peril—became necessary. Verisk accomplished this through the development of the Enhanced Wind Rating program, which resulted in the incorporation of additional COPE-related features.
Enhanced wind rating approach
The enhanced wind rating approach identifies, evaluates, and measures the specific wind exposure of eligible commercial buildings in areas subject to significant wind losses. The key exposed areas are along the coast, where the hurricane exposure is significant, and the central part of the country, where tornadoes and severe thunderstorms are the key threat. COPE features relevant to the wind exposure for each eligible building include information such as location and surrounding environment, roof and wall envelope, framework, and building codes.
COPE information plays a major role in that hazard analysis. An insurer can use COPE information to encourage a business to mitigate hazards and reduce deficiencies. You can improve your bottom line by offering pricing incentives for policyholders to install and maintain protection features, such as automatic fire-detection systems, portable fire extinguishers, and hurricane shutters.
For more information on all commercial lines solutions, please visit our website.
Kevin Kuntz is assistant vice president, Commercial Lines, Verisk Insurance Solutions, and can be reached at email@example.com.