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This article originally appeared in the Fall 2008 edition of OnSite.
Feature Story:
The Value of COPE Information for Insurers
by Kevin Kuntz, Assistant Vice President, ISO Risk Decision Services
How does the building you’re insuring compare with similar ones? What materials have the builders used? Are there hazards at the property? What fire safeguards exist? Does the building have a properly designed sprinkler system? ISO’s databases contain high-quality information on construction, occupancy, public and private fire protection, and exposure (COPE) — information you need to make the right business decisions.
With COPE information, you can:
- identify conditions that, if corrected, could reduce hazards and improve protection deficiencies at the property
- 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 ISO’s Specific Commercial Property Evaluation Schedule (SCOPES) as a guide
When ISO field representatives survey buildings, they observe COPE information. In each area, representatives record the conditions they find and evaluate the hazards. Here’s just some of the information we document:
Construction
- type of construction, ranging from frame to noncombustible to fire resistive
- support for walls, roofs, and floors
- heating and electrical systems
- interior construction, such as vertical openings and interior finishes
Occupancy
- ranking of combustibility and susceptibility to fire, smoke, and water damage
- floor level and square footage
- sprinkler and extinguisher credits
- building hazards, such as flammable liquids, cooking equipment, and chemicals and gases
Public and private fire protection
- automatic sprinklers
- extinguishers and alarms
- water supply
- sprinkler grading
- Public Protection Classification (PPC™)
Exposure
- adjacent buildings, including exposing walls, hazards, construction, and distance
- adjacent storage tanks
COPE and loss costs
ISO 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 your policies for larger buildings. If you use a class loss cost without field-verifying the key rating variables, you risk pricing the policy incorrectly.
With ISO’s 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 will also 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 in your business — ISO specific loss costs vary with the loss potential of the buildings you insure.
Specific Commercial Property Evaluation Schedule (SCOPES)
ISO uses its SCOPES methodology to assure the consistent analysis of properties we survey. Insurers can analyze the charges behind the loss cost calculations with SCOPES — or easily reference the relative hazards of occupancies by looking up the applicable codes in the manual. 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. And 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 watchman services.
More about ISO loss costs
ISO’s loss costs are accurate projections of average future claim costs and loss adjustment expenses — overall and by coverage, class, territory, and other categories.
Your company can use ISO’s estimates of future loss costs to make your own decisions about the prices you charge for your policies. For most property/casualty insurers, in most lines of business, ISO loss costs are an essential piece of information. You can consider our loss data — together with other information and your own judgment — to determine your competitive pricing strategies.
Unlike companies in other industries, you don’t know the ultimate cost of the product you sell — the insurance policy — at the time of sale. At that time, losses under the policy have not yet occurred. It may take months or years after the policy expires before you learn about, settle, and pay all the claims. You have to predict the major part of your costs — losses and related expenses — based on historical data gathered from policies written in the past and from claims paid or incurred on those policies. As in all forms of statistical analysis, a large and consistent sample allows more accurate predictions than a smaller sample.
That’s where ISO comes in. The ISO database of insurance premium and loss data is the world’s largest. ISO quality-checks the data to make sure it’s valid, reliable, and accurate. You get solid data that you can use in determining your prices by coverage, state, territory, class, policy limit, deductible, and many other categories. And you get the benefit of ISO’s renowned team of actuaries and other insurance professionals. ISO has a staff of more than 200 actuarial personnel — including about 50 members in the Casualty Actuarial Society. And no organization anywhere has more experience and expertise in collecting and managing data and estimating future losses.
As an underwriter, you’re faced with many important questions about a property, often with little time to find the answers. ISO can provide you with the timely and cost-effective COPE information you need to make accurate and profitable rating and underwriting decisions.
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