(September 2019)
The Insurance Services Office (ISO) Businessowners Program uses a fairly straightforward premium rating formula. ISO outlines the formula it uses in the Businessowners Rules Manual Rule 23 Premium Development. All calculations are formula-based and develop from a common starting point. Property and liability premiums are calculated separately. This section deals with rating the mandatory property and liability coverages.
Note: The rating formula used for a number of available optional coverages is similar to the ones described below.
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 fire-resistive materials that has 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 fire-resistive materials that has 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.