AAIS BUSINESSOWNERS POLICY RATING CONSIDERATIONS

(June 2018)

INTRODUCTION

The American Association of Insurance Services (AAIS) Businessowners Policy's rating uses an established formula and a specific rating methodology. Previously all rating has been based on the property limit of insurance, but the 01 15 manual edition introduced separate rating for liability exposure.

CLASSIFICATION

The classification table serves several purposes. The most important is that it lists only eligible classifications. If a classification is listed, the table then supplies a rate group for each of the following:

• Property
• Special Property (SP)
• Sprinkler Leakage (SL)
• Earthquake (EQ)
• Liability (L)

It is also important to know if the building is owner occupied or tenant occupied. A building is considered owner occupied if the building owner occupies at least 75% of it. Anything less is treated as tenant occupied. If the building has multiple occupancies, each tenant's classification (combined with the total square foot area it occupies) determines the building’s final classification.

Apartment buildings with offices are still classified as apartment buildings if the office area is 15% or less of the square foot area. If the area that offices occupy is more than 15%, the building is classified as an office building.

Apartment buildings with offices and retail, wholesale, service, or processing occupancies are classified according to the occupancy with the largest retail, wholesale, service, or processing square foot floor area. If all tenants occupy the same square foot area, the one that represents the highest rated classification is the classification assigned to the entire building.

Buildings with any type of restaurant occupancy are rated as restaurants.

Buildings with retail, wholesale, service, or processing occupancies are rated using the classification of the tenant with the largest square foot area. If this approach does not apply, the classification that applies to the highest rated tenant is assigned to the entire building.

PROTECTION

External protection means the risk's access to public protection. AAIS uses three classes: Protected, Partially Protected, and Unprotected.

• Protected properties are within 1,000 feet of a public fire hydrant and within five road miles of a responding fire department.
• Partially Protected properties are more than 1,000 feet from a public fire hydrant but are still within five road miles of a responding fire department.
• Unprotected properties do not meet either of these criteria. They are more than 1,000 feet from a public fire hydrant and more than five road miles from a responding fire department.

CONSTRUCTION

The following are the six types of construction:

• Frame
• Joisted Masonry
• Non-combustible
• Masonry Non-combustible
• Modified Fire Resistive
• Fire Resistive

Mixed construction must be evaluated and classified based on criteria in the manual.

RATING METHODOLOGY

The 01 15 edition of the AAIS BOP Manual changed the rating methodology. The prior editions had rated building and liability as a single process. The revised methodology requires that building and business personal property premium be developed and then a liability premium be developed. The two are then added together for a single BOP premium.

Rating begins after developing the information above. All loss costs must be converted to rates using the insurance company's loss cost multiplier before using them in the rating formula.

Building Premium	Business Personal Property Premium
Base Loss Cost Amount – per $1,000/$500 deductible (State Table– based on territory)	Base Loss Cost Amount – per $1,000/$500 deductible (State Table – based on territory)
X Insurance Company Loss Cost Multiplier	X Insurance Company Loss Cost Multiplier
X Subzone relativity (Subzone is found on State Territory pages, but relativity is found in Multistate Table A)	X Subzone relativity (Subzone is found on State Territory pages, but relativity is found in Multistate Table A)
X Protection Class Relativity (Multistate Table B)	X Protection Class Relativity (Multistate Table B)
X Construction Class Relativity (Multistate Table C)	X Construction Class Relativity (Multistate table C)
X Rate Group Relativity – State level Table D1	X Rate Group Relativity – State level Table D1
X All other deductible – (Multistate Table 6.1) by amount of insurance and amount of deductible. OR Windstorm deductible – (Multistate Table 6.2) by amount of insurance and amount of deductible. Use Windstorm multiplier in lieu of the all other deductible even though the all other is required to be the same as the windstorm deductible.	X All other deductible – (Multistate Table 6.1) by amount of insurance and amount of deductible. Windstorm deductible – (Multistate Table 6.2) by amount of insurance and amount of deductible. Use Windstorm multiplier in lieu of the all other deductible even though the all other is required to be the same as the windstorm deductible.
X Protective Device Factor	X Protective Device Factor
X Restaurant Modifications	X Restaurant Modifications
X Actual Cash Value Factor	X Actual Cash Value Factor
X Amount of Insurance Relativity (Multistate Table G1)	X Amount of Insurance Relativity (Multistate Table G2)
X Other factors such as peril exclusions, other coverages, etc.	X Other factors such as peril exclusions, other coverages, etc.
X Limit (per $1,000)	X Limit (per $1,000)
= Building Basic Premium	= Business Personal Property Basic Premium
Liability Premium	Final Businessowners Premium
Base Amount – per $1,000/$500 deductible (State Table– based on territory)	Building Basic Premium
X Insurance Company Loss Cost Multiplier	+ Business Personal Property Basic Premium
X Subzone relativity (Subzone is found on State Territory pages, but relativity is found in Multistate Table A)	+ Liability Basic Premium
Rate Group relativity – State level Table D2	= Total Businessowners Basic Premium
Increased Limit Relativity	Credits and debits may be applied and premium for other coverage may be added.
X Actual Cash Value Factor
Other factors such as peril exclusions, other coveages, etc.
(Choose only 1) X Building Limit (per $1,000) – if lessors risk only X Restaurant Annual Sales (per $1,000) – if restaurant X Business Personal Property Limit (per $1,000) if not restaurant
+ Liability Basic Premium

Example: Marissa’s Lamps owns and occupies a joisted masonry building in territory 010, Subzone 14 that is a Partially Protected Protection Class. Her building limit is $250,000 and her business personal property limit is $60,000. She purchases an AAIS Businessowners Special Policy with a $1,000 deductible and a $1,000,000 liability limit. The premium is developed for the building, the business personal property and the liability. All are then added together for a final premium.
Building Premium	Business Personal Property Premium
$1.451 Building Base Loss Cost Amount	$3.447 Business Personal Property Base Loss Cost Amount
X 1,50 Insurance Company Loss Cost Multiplier	X 1.50 Insurance Company Loss Cost Multiplier
X 1.05 Subzone Relativity	X 1.05 Subzone Relativity
X 1.427 Protection Class Relativity	X 1.427 Protection Class Relativity
X .825 Construction Relativity	X .825 Construction Relativity
X 1.934 - Rate Group 15	X 2.449 - Rate Group 15
X 1.00 Protective Device Factor	X 1.00 Protective Device Factor
X 1.00 Actual Cash Value Factor	X 1.00 Actual Cash Value Factor
X .970 Amount of Insurance Relativity	X .984 Amount of Insurance Relativity
X 200,000	X 60,000 Limit
X .979 Deductible	X .979 Deductible
= $988 Building Basic Premium	= $905 Business Personal Property Basic Premium
Liability Premium	Final Businessowners Premium
.500 Liability Base Loss Cost Amount	$988 – Building Basic Premium
X 1,50 Insurance Company Loss Cost Multiplier	+ 905 – Business Personal Property Basic Premium
X 1.00 Subzone Relativity	+ 168 – Liability Basic Premium
X 3.111 - Rate Group 7	= $2,061 – Total Businessowners Basic Premium
X 1.20 Increased Limit Relativity
X 1.00 Actual Cash Value Factor
X 60,000 – Business Personal Property Limit
= $168 – Liability Basic Premium