Robert Andrews sat down with the editors of Visualize to discuss ISO’s Public Protection Classification (PPC™) program, which analyzes the quality of fire protection in thousands of communities around the nation. Virtually all U.S. insurers of homes and business properties use PPC in calculating premiums. Mr. Andrews talks about the factors that led to the development of an updated PPC structure, the new split classifications, and the effect on insurers and communities.
Visualize: Let’s start with the basics. What is PPC?
Robert Andrews: We derive Public Protection Classification (PPC) grades from the Fire Suppression Rating Schedule (FSRS) — a schedule that ISO developed and uses to review the fire suppression capabilities of communities. The PPC grading system provides information on the level of public fire protection in communities across the United States. To determine a community’s PPC, our field staff surveys the emergency communications system, fire department, and water supply.
A PPC of 1 represents a superior level of property fire protection. A PPC of 10 indicates that the area’s fire suppression program doesn’t meet our minimum criteria.
Visualize: How do insurers use PPC information?
Andrews: Insurers use PPC information in many ways. PPC can help determine how much to charge for coverage: If a community has a lower PPC, its property owners, both commercial and residential, usually pay lower premiums, assuming everything else is equal. Insurers can manage the quality of fire protection across their book of business and even identify opportunities for writing new business.
Visualize: What factors does ISO use to determine a PPC?
Andrews: PPC is based primarily on the quality of a community’s fire department (50 points), water supply (40 points), and emergency communications (10 points). For example, when we evaluate a fire department, we look at equipment, staffing, training, and geographic deployment of fire companies. When we evaluate water supply, we inspect hydrants and conduct flow tests. And for emergency communications, we evaluate dispatch facilities. Last year, we also began recognizing a community’s fire prevention, public fire education, and fire investigation efforts, which together account for an additional 5.5 points (out of a total 105.5 available points).
Visualize: What’s a split class, and how will it change on July 1, 2014?
Andrews: A split classification is one in which two classes could apply based on the distance from the property to the responding fire station or whether the property is within 1,000 feet of a creditable water supply. For example, in a split-class 4/9 community, the 4 refers to properties in the community within 5 road miles of the primary responding fire station and within 1,000 feet of a creditable water supply; the 9 refers to properties within 5 road miles of the station but not within 1,000 feet of a creditable water supply.
The primary reason we’re revising the split classes is that properties with Class 9 (or 8B*) in split-class communities have better loss experience than properties with Class 9 (or 8B) in single-class communities (communities in which the same PPC applies to all properties). For example, in a Class 4/9 community, a property that currently receives PPC 9 is really a Class 4 that happens to be more than 1,000 feet from a creditable water supply. The revised system changes the Class 4/9 to a 4/4X, the X indicating that the property is more than 1,000 feet from a creditable water supply. Those changes apply in every split class, so a 3/9 would be a 3/3X, a 5/9 would be a 5/5X, and so on. In our 8B split classes, we’ll replace the 8B with the letter Y. So Class 4/8B will be renamed 4/4Y, Class 3/8B will be 3/3Y, and so on. The reasoning is the same: We want to be more precise in how we classify these properties, so that their PPC codes are more reflective of the actual loss experience.
* Class 8B is a PPC for communities that provide superior fire protection services and fire alarm facilities but lack the water supply required for a PPC of Class 8 or better.
This chart illustrates the new split classifications.
Visualize: How does the new PPC structure recognize the reduced loss potential of individual properties?
Andrews: We’re introducing a new class: 10W. Instead of assigning a PPC 10 to all properties located beyond 5 road miles of the responding fire station, we’re introducing the “10 Water,” or 10W, class and assigning it to those properties between 5 and 7 road miles from the responding fire station but within 1,000 feet of a creditable water source. Class 10W represents a property that has better loss experience than a traditional Class 10.
Visualize: How will offering new split classes and a Class 10W help insurers?
Andrews: No matter how great their training or advanced their equipment, firefighters need access to a nearby water source to extinguish a fire. But the proximity of a water source and its effects on fire suppression can vary.
The new split classes provide more granularity, reflect actual loss experience more effectively, and allow for more accurate risk pricing. The changes will enable increased competition and align better with industry trends. Put simply, these new classes will help insurers develop appropriate rates for the risks.
The new Class 10W will also provide insurers the opportunity to expand their portfolios. Insurers that avoided Class 10 risks in the past may see potential for new business, where nearby water sources could potentially reduce losses.
Visualize: Will the new split classes help communities?
Andrews: Absolutely. People who buy property insurance in such communities should see their insurance premiums reduced. Even those who don’t purchase insurance can benefit from the new split classes. With a better understanding of the level of fire protection in their community, residents can advocate for specific safety improvements in their neighborhoods. Whether the upgrades are new hydrants or new fire stations, they’ll make everyone in those areas safer in the event of a fire.
In addition, while not directly related to split classes, the introduction of community risk reduction initiatives in PPC grading can motivate communities and residents to help control fire losses. By advocating for public fire safety education or expanding a community’s fire prevention activities, local residents will be able to see the results in a better PPC.
Visualize: Do you expect many areas to be eligible for the new classes?
Andrews: Yes. We expect that approximately 19,000 communities across the country will receive the new X and Y classes and have properties eligible for the new Class 10W. Note that we’ve filed the PPC changes in all states except Hawaii, Idaho, Louisiana, Mississippi, North Carolina, and Washington.
Visualize: Are insurers required to use the new classes by July 1?
Andrews: No, they’re not. While we believe the new classes are beneficial, it’s up to each insurer to decide whether to adopt, not adopt, or modify the new classes by July 1, 2014.
For LOCATION® customers, we plan to support the current split classifications (without the X, Y, and 10W codes) for the PPC Enhanced Service only, until the end of 2016.
Visualize: What is the expected effect of the changes on the LOCATION PPC database?
Andrews: We’ll return the new PPC classes as applicable in the enhanced version of the LOCATION PPC database. The format, structure, and field names will not change, and we expect file sizes to increase only minimally. We already have test files available. Those who want a copy should contact their LOCATION PPC project manager.
For more information about LOCATION, contact your LOCATION PPC project manager or email email@example.com.