Ten Things a Commercial Underwriter Needs to Know
When you’re underwriting or rating a commercial property, there are many important factors to consider. ISO has developed its own “top ten” list to ensure the consistent analysis of properties we survey, help you mitigate hazards and reduce deficiencies, and improve your bottom line.
10. High-Risk Notification
 ISO’s High-Risk Notification Service lets you know about immediate hazards. When our field representatives discover hazards or conditions that present immediate potential for loss, their first call is to you. They’ll then follow up with a detailed e-mail and photographs to document the hazardous condition. You can then take prompt action, which may include making recommendations to the property owner to eliminate the hazards.
9. Exposures
 Exposure data on adjacent buildings, including exposing walls, hazards, construction, and distance can provide an underwriter with critical information. For example, a property close to a high-hazard operation or adjacent to a storage tank with flammable liquids can present potential hazards. Underwriters should be aware of additional exposures:
- local wildfire risk
- possibility for damaging winds and/or water
- how close the structure is to a flood or earthquake zone
8. Probable Maximum Loss (PML) and Maximum Foreseeable Loss (MFL)
 There’s great value in using PML and MFL in underwriting. PML is an estimate of the maximum expected loss in a single fire, expressed as a percentage of the building's value, when critical protection systems are functioning as expected. MFL is an estimate of the largest fire loss likely to occur if a key loss-reduction system fails.
Those two measures can help you understand the extent of risk involved and manage it better through hazard and loss analyses. You can also assess economic loss to the property and determine the amount of reinsurance you need.
7. Estimated Replacement Cost
 According to industry studies, 75 percent of commercial buildings are underinsured. ISO’s commercial estimated replacement cost represents the average estimated cost to rebuild the building after a total loss. That estimate will improve your ability to charge premiums appropriate to your risk and help you protect your customers with adequate policy limits.
6. Risk Improvement Statements
 Risk Improvement Statements give you the information you need for underwriting and pricing — observed building and occupancy hazards, as well as fire-protection features. For the building and each occupant, you’ll get specific information to:
- identify hazardous conditions and suggest remedial action
- highlight fire-protection improvements and suggest modifications
When using SPI Plus®, you can select one or more Risk Improvement Statements and view the effect of implementing improvements by seeing how much the Estimated Loss Cost will change. The information can help you price coverage more accurately and provide valuable cost-benefit analysis for suggested improvements.
5. Liability Exposure
 Underwriters need information on liability exposures to assess risk at properties they’re insuring. Premises exposures, such as storage areas, balconies, stairs, and handrails can play a significant role in underwriting decisions. You also need accurate information on other premises exposures, such as swimming pools, animals, lighting, fire escapes, and elevators.
4. Construction
  One of the primary goals of underwriting for any property insurance policy is determining the risk of fire. And one of the main considerations in making that determination is assigning the proper construction class. What are the materials? What percentage of the structure consists of each kind of material? How much damage will the building sustain when exposed to fire? Properly identifying the construction class can help the underwriter rate the risk more accurately.
ISO defines six construction classes for commercial buildings. You can find detailed information on the types of materials used and their susceptibility to damage on the ISO Property website at www.isopro.com/construction.
3. Occupancy
 Occupancy considers the following information:
- numerical ranking of combustibility of contents, which measures the effect of flammable contents on the structure under fire conditions
- numerical ranking of susceptibility of contents, which measures potential damage to materials or merchandise from the effects of fire, smoke, and water
- square footage for each floor level
- sprinkler and extinguisher protection credits
2. Protection
 Public fire protection
ISO’s Public Protection Classification (PPCTM) evaluates a community’s public fire-protection services, including the fire department, water supply, and fire alarm and communications systems. We assign a PPC from 1 to 10, with Class 1 representing exemplary protection and Class 10 indicating that the fire-suppression program doesn’t meet minimum criteria. A better PPC — meaning better fire protection — translates to lower fire losses.
 Private fire protection
Private fire protection systems — fire safeguards at the property — include extinguishers, alarms, and automatic sprinkler systems. Automatic sprinklers are the most reliable and effective fire-protection devices available today — provided they operate correctly. As an underwriter, you want to ensure that your risks are getting full credit for such systems. A working sprinkler system is important not only to the insurance rating but also to the prevention of extensive property damage.
1. Hazards
 Every underwriter should have a good understanding of both common and special hazards. If you’re underwriting a commercial property, everyone benefits when you give your insured recommendations for reducing hazards and improving protection deficiencies at the property. Knowing the hazards lets you adequately price the risk based on current conditions. Common hazards can include deficiencies in electrical components, heating systems, and housekeeping. Special hazards can include flammable and combustible liquids, spray-painting operations, commercial cooking, and welding and cutting.
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Every insurer will have its own significant considerations when it comes to underwriting and rating. You may have dozens of factors to consider when you’re underwriting a building or occupancy. We’ve chosen to focus here on ten essential pieces of information — information you need to make the right business decisions.
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