Question

Application Question 6-8: Etchley Clothing owns a red brick building that it occupies as a retail clothing store. Etchley is purchasing a commercial property policy from Radley Insurance Company with a Causes of Loss - Broad Form for this building. Etchley has selected a policy with a limit of $500,000 on the building on a replacement cost basis with a 90 percent coinsurance clause and a $1,000 deductible. Because Etchley’s building is located fifteen miles from the nearest fire department and twenty miles from a police station, it has installed a sprinkler system and a burglar alarm.

1. In rating Etchley’s commercial property policy, what factors will Radley consider?

2. How will the factors you identified affect the premium for this policy?

Answer 1

Primarily, the rating of a commercial property depends upon the analysis and evaluation of four factors namely construction , occupancy , protection and exposure . Often termed as COPE, it helps in determining the premium for the policy.

1.) Construction - It includes the type of construction and the materials used in constructing the property. Red brick falls under category 2 se per insurance service office norms and therefore it is classified as combustible .

2.) Occupancy - This means the purpose for which the property is likely to be used . A retail clothing store will be more prone to fire therefore it will be an important factor affecting the premium for the policy .

3.) Protection - This includes the protection measures to avoid damages from fire . There may be public peotection or private protection . Sprinkler system are a part of private protection and installation of such a system will allow the insurance holder to lower the premium .

4.) Exposure - It means risk to a property due to its location . Hazards may be natural hazards or man made hazards . Natural hazards include snowfall, lighting etc . Man-made hazards includes pollution , civil unrest etc .

Aforementioned factors are considered by every underwriter to rate a commercial insurance policy . These also plays a significant role in determining the premium of the policy .