(September 2022)
The Insurance Services
Office (ISO) Businessowners Program uses a fairly straightforward premium rating
formula that is found its Businessowners Rules Manual. All calculations begin with
a common starting point. Property and liability premiums are calculated
separately. This section deals with rating the mandatory property and liability
coverages.
All building and business
personal property rating begins with the loss cost for a non-sprinklered frame
structure located in public protection classification 01, Property Rate Group
01, a building limit of $200,000, and a business personal property limit of
$50,000. The standard deductible is $500. This loss cost is selected from the
applicable state loss cost pages based on the specific territory. Separate
rates apply to building and business personal property. The base rates are then
modified by relativities based upon their deviation from the starting point.
|
Building base loss cost
|
Business Personal
Property base loss cost |
|
X Property Rate Number
Factor |
X Property Rate Number
Factor |
|
X Construction Factor |
X Construction Factor |
|
X Limit Of Insurance Factor |
X Limit Of Insurance Factor |
|
X Public Protection
Class Factor |
X Public Protection
Class Factor |
|
X Building Code
Effectiveness Grading |
X Building Code
Effectiveness Grading |
|
X Sprinklered Factor |
X Sprinklered Factor |
|
X Deductible Factor |
X Deductible Factor |
|
X Company Loss Cost
Multiplier |
X Company Loss Cost
Multiplier |
|
= Building Rate |
= Business Personal
Property Rate |
The rate is rounded to
three decimal places and then multiplied by the limit of insurance. The premium
is then rounded to the nearest dollar.
Property rate numbers are
in the Businessowners Classification section. The numbers range from 01 to 29.
The table in the Rating Relativities and Factors Section of the Countrywide
Manual under Rule 23 then assigns a factor based on the appropriate property
rate number for the risk or class of business involved.
One of the following
types of construction applies, using the information and descriptions in Rule
23. One part of the rule describes the proper method to be used to classify
mixed construction.
This
construction has exterior walls
of wood or other combustible materials. It also includes mixed construction
like brick veneer, stone veneer, wood-iron clad, or stucco on wood.
This
construction has exterior walls
of masonry materials such as adobe, brick, concrete, gypsum block, hollow
concrete block, stone, and tile. Floors and roof materials are combustible.
This
construction has exterior walls,
floors, and roof constructed of and supported by metal, asbestos, gypsum, or
other noncombustible materials.
This
construction has exterior walls
of masonry materials as described under joisted masonry above. Floors and roof
consist of metal or other noncombustible materials.
This
construction has exterior walls,
floors, and roof of masonry or materials that have a fire-resistive rating of
at least one hour and less than two hours.
This
construction has exterior walls,
floors, and roof of masonry or materials that have a fire resistance rating of
two hours or more.
This factor reflects the
fact that most losses fall within the lower limits of insurance and that the
odds of a total loss diminishes as the limits increase. ISO determined that
limits of $200,000 on building and $50,000 on business personal property were
the dividing point for credits and debits and assigned a factor of 1.00 for
these limits. Risks with limits below these thresholds receive a surcharge
factor and limits above receive a credit factor. Building and business personal
property limits are the basis for insurance relativity tables. The Building relativity table is in the Rating Relativities and
Factors Section of the Countrywide Manual under Rule 23 and is based on
territory groups and limits. The Business Personal Property relativity table is
in the same section but is based on only the limit of insurance. The territory
group code is the Businessowners exception pages for the particular state.
Protection classification
numbers are in the Community Mitigation Classification Manual. The ten possible
numbers are 1 through 10. Some risks have a split protection class, such as
6/9. Protection class 9 is used if the location is over 1,000 feet from a
public fire hydrant.
The Public Protection
Class table in the Rating Relativities and Factors Section of the Countrywide
Manual under Rule 23 provides a factor based on the actual public protection
class at risk.
Building code
effectiveness grading numbers are in the Community Mitigation Classification
Manual. They are used to determine the protection level of a community with
respect to windstorm and earthquake.
This rating does not
necessarily apply to every state. When it does, factors are in the Rating
Relativities and Factors Section, Rule 23 pages for the specific state.
Rule 23 has a
comprehensive definition of sprinklered property. It describes what qualifies
as sprinklers and states that cooking equipment with an approved automatic
extinguishing system also qualifies as a sprinkler system.
If the risk is
sprinklered based on this definition, a factor is applied based on the property
rate number. The factor is in the Rating Relativities and Factors Section of
the Countrywide Manual.
The risk must be
classified using the Businessowners Classification Tables. Two factors that
apply specifically to General Liability are the Liability Class Group and the
Liability Exposure Base. The rate is based on the selected base loss cost from
the state loss cost table for the appropriate territory and the liability
exposure base.
If the exposure base is
Limit of Insurance (LOI), a different rate applies as opposed to a lessor of
premises or a risk with a specific occupancy. The base loss costs are then
modified by relativities using the following formula:
|
General Liability Base Loss
Cost |
|
X Class Group Occupant
Factor |
|
X Increased Limits
Factor |
|
X Company Loss Cost
Multiplier |
|
= Liability Rate |
The rate is rounded to
three decimal places and then multiplied by the exposure that applies. If the
exposure base is either sales or payroll, the rate applies per $1,000. If the
exposure base is the limit of insurance, the rate is per $100. The premium is
then rounded to the nearest dollar.
Class group factors are
in the Rating Relativities and Factors Section of the Countrywide Manual under
Rule 23. They break down in tables based on whether the exposure basis is
annual sales, payroll, or limit of insurance. The two tables available if the
premium basis is limit of insurance are for lessors of premises and for
specific occupancies.
Rule 23, Premium
Development, Item B–Special Rules explains how to apply rating to multiple
occupancy locations. The class group is based on the most hazardous occupancy,
not on a “majority rules” method. There is no provision for split class groups
within the same building.
The Increased Limit Table
is in the Rating Relativities and Factors Section of the Countrywide Manual
under Rule 23. There are no additional tables because there are no limits
options.
Payroll and gross sales
exposures are explained in Businessowners Rule 23. Since this rating program is
self-contained, the rules for payroll and gross sales are in this section of
the manual, not in the General Liability Manual.
The Businessowners
Program has additional coverage options available. The premiums for these
optional coverages are calculated based on the rules provided.
Underwriting judgment
credits and debits are available for the Businessowners Program in most states.
The same credit or debit factor is applied to the total premium, not to the
rate.
Each insurance company
establishes its own minimum premiums. ISO does not. The minimum premium is
charged if the calculated premium is less than the minimum premium.