Rating Property Using a Commercial Lines Rating System
Posted by: Banitech Insurance | on May 30, 2014
As a Managing General Agency (MGA), Program Administrator, or insurer, you no doubt use some type of commercial lines rating system when seeking and comparing quotes for insurance services. A comparative rating service allows your firm to deliver quotes for commercial insurance at a much quicker pace than was possible before these systems came into play. Plus, a custom commercial lines rating system is customized for the specific coverage lines or niche markets you specialize in. It is not an agency rating system that does address your needs.
Rating commercial property, for example, is a multiple-step process that requires several factors. Among those factors are seven basic things that contribute to, and control the premium development for commercial property:
- Type of coverage (building, contents, business income, etc)
- Cause of loss form (Basic Form, Broad Form, Special Form, Earthquake Form)
- Construction of the building
- Occupancy of the building
- Location of the property
- Amount of insurance being written
- Applicable coinsurance requirement
As an insurer you understand that commercial property can be either class rated or specifically rated. In either scenario, the rating mechanics are the same for both cases.
Specific rating exists for risks that are not eligible for class rating and includes property loss costs that apply specifically to a building and its contents. Additionally, as a carrier you may use your own rates (deviating from ISO), which a commercial rating system designed for MGAs, Program Administrators and insurers can accommodate.
In addition, loss costs are developed as the result of an on-site inspection, and generally larger businesses, or those involving more hazardous operations, are specifically rated.
Most businesses can be rated on a class basis since similar businesses have similar exposure to loss and similar probabilities of sustaining damage. Exposures and probabilities are statistically analyzed, and loss costs are produced that reflect the chance of loss for a typical business in each class, based on Commercial Statistical Plan (CSP codes).
Using your knowledge of how properties are rated can help make your commercial lines rating system and associated business processes more efficient and cost effective.