Insurers COPE By Going Back To Basics
"Back to the basics" is more than just a catchphrase in underwriting circles these days. Insurance companies are once again requiring information–scads of it–not only about the risks theyre being asked to write for the first time, but also on those theyre renewing.
One area that has gained renewed importance is COPE: the construction, occupancy, protection and exposures of properties being considered for fire insurance. These four attributes are at the core of what makes a property risk a good–or bad–one. After all, fire remains both the most basic and the most serious general threat.
Several discussions Ive had with veteran insurance professionals point out that, even if they were trained to understand COPE way back when, its hard to remember what its all about. And practitioners just entering the field may be left with blank expressions on their faces when the subject comes up.
Its become such an important topic that an insurance company recently contacted us for multiple copies of our "Commercial Fire Underwriting" book, published by The National Underwriter Company back in 1989, to use in retraining personnel in basic property underwriting skills. And I just finished helping construct an Internet-based training course on, you guessed it–COPE! So its time here for a very brief refresher course.
Building construction is the first consideration. It controls the rates and influences many other factors, making the "construction type" box on the ACORD property application more important than it may seem at first.
There are seven construction classes: frame, joisted masonry, noncombustible, masonry noncombustible, modified fire resistive, fire resistive and mixed construction.
Frame, obviously, is the most susceptible to fire, with fire resistive construction exhibiting the greatest fire resistance. There is no such thing as "fireproof" construction because, given enough heat, most anything will burn, melt or collapse.
For example, its a common misunderstanding that metal buildings are the best in terms of fire resistance. Even though metal wont burn, it does twist under heat.
The second factor in the COPE acronym is occupancy–the way the building is being used. Occupancy involves the type of operations being conducted as well as the materials that are housed within the building.
The materials that are used in a particular occupancy differ in flammability levels. For example, certain waste products of an operation–such as dust or oils–are more flammable than others. If these types of materials are inherent in the operation, its important to indicate the steps taken to decrease the hazard associated with them.
Operations involving spray painting, cooking or combustible gases may increase the likelihood of fire, so underwriters should insist on information about how these hazards are being addressed.
For example, its important to show how the hood and ductwork over a restaurants grill area are regularly cleaned and the hood fire suppression system tested. After all, a fire can ignite and feed on the grease that has accumulated in an improperly maintained system.
The third factor is protection–the relative efforts to prevent, detect and extinguish fires. The most important–fire prevention–falls into two categories: public and private protection.
ISOs Public Protection Classification (PPC) rating system provides insurers with information about the fire-loss characteristics of individual communities. Tens of thousands of individual communities have been analyzed and assigned PPC classifications of from one-to-10. Class 1 is the premiere classification, hallmarked by full-time paid fire departments, good water supply and pressure, sophisticated equipment, and quick response time.
A Class 10 community usually is a rural area with a volunteer fire department, potentially longer response time and reliance on water tankers.
Property owners often institute private protection systems. This type of protection runs the gamut from an automatic sprinkler system to a paid private fire department for large industrial insureds. Information about the type of protection available can go a long way in easing underwriting fears about how well a property is protected from fire.
The last letter in the COPE acronym is the one that property owners have the least ability to control–exposures. This denotes a propertys potential chance of loss from outside forces, something that a property owner may not be able to control.
Because of the fact that we cant control what our neighbors do, it makes sense to analyze a buildings outside exposures before proceeding further in the underwriting process. Being located immediately next to an explosives factory is not a good thing in property underwriting circles!
Other exposure issues involve the distance between buildings, measures to prevent fire from jumping from one building or section to another, and the varying hazards that are possible with buildings that have multiple tenants.
The attention that COPE is getting points out that, despite the last decade of marketshare underwriting, the quality of the risk should have something to do with the type and price of coverage being offered. The more we know about what were insuring, the better off everyone is in the long run.
And, in some cases, detailed information means the difference between being able to write a new account–or getting a renewal offer–or not.
Diana Reitz, CPCU, AAI, is associate editor of the FC&S Bulletins and Editor of the RF&S Bulletins, published by the National Underwriter Company in Erlanger, Ky. The editors welcome comment and questions and may be reached by fax at 859-692-2293 or via e-mail at FCS@NUCO.COM.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 10, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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