COPEing with Commercial Property Premiums
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As a business owner, you may have wondered what specific factors commercial underwriters look at when considering a risk. We generally start with the COPE factors: Construction, Occupancy, Protection, and Exposure. Lets take a look at each of them in more detail.
Construction
There are six basic types.
- Frame exterior walls, floors and roofs of combustible construction.
- Joisted Masonry exterior walls of masonry or fire resistive construction rated for not less than one hour and with combustible floors and roof.
- Noncombustible - buildings with exterior walls, floors, and roofs of noncombustible or slow burning materials.
- Masonry Noncombustible - exterior walls of masonry or fire-resistive construction with a minimum of a one-hour fire resistive rating. Floors and roof supports are of noncombustible or slow burning materials.
- Modified Fire Resistive - exterior walls, floors and roof all with fire resistance rating of more than one hour but less than two hours.
- Fire Resistive similar to modified fire resistive but the fire resistance rating is two hours or more.
Commercial underwriters would prefer that all property be Fire Resistive construction but that is unrealistic. However, the rates for Fire Resistive and Masonry Noncombustible are generally cheaper than Frame or Joisted Masonry. This is something to consider when deciding on the construction of your new building. Coastal property is also scrutinized for construction purposes because the wind resistive qualities of masonry noncombustible and fire resistive buildings are much greater than frame or joisted masonry.
Occupancy
The type of operation that occupies a building is what determines the combustibility of contents (how easily they burn) and susceptibility of contents (how damageable they are to the direct and indirect effects of fire, smoke, water, etc.). A cabinet shop in a frame building will generally have a fairly high property rate due to these factors.
Protection
There are two components. The first is public fire protection. Protection classes are assigned from 1 (best) to 10 (worst). This is a measure of the fire protection capability of the local fire department to respond to structure fires. The second is private fire protection. These are controlled by the owner or occupant and would include sprinkler systems, cooking protection, automatic fire detection and alarms, and fire extinguishers. All things to consider if constructing a new building or moving into a new space.
Exposure
This refers to the surrounding property. We look at the construction of the buildings, occupancies, outdoor exposures (grass, trees) and distance between the insured building and these exposures. What and who are next to you can significantly affect your property rates.
Property underwriters will also look closely at the age of a building with emphasis on the last updates to the roof, wiring, heating, and plumbing. It may be difficult to get replacement cost coverage on an older building that hasnt been updated in the last 15 or 20 years.
Finally, we also look at management. This includes their attitude toward fire prevention and employee training. The best property risk is one that has an owner with pride of ownership.
While you cant control some things like public protection class, you can sometimes make decisions regarding construction, location, and private protection that can improve your property insurance rates.
Commercial property premiums can vary widely from class to class. Additionally, some carriers will not insure certain classes due to the inherent dangerous exposures
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