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Insurance Journal’s Academy of Insurance Training Series“COPE” – Property Underwriting and Effective Loss Control

© 2011 Insurance Journal Academy of Insurance

“COPE” – Property Underwriting and Effective Loss Control

Property Underwriting & “COPE”

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The advent of the modern property policy can be traced back to just after the Great Fire of London in 1666

Property underwriters from the very beginning have used the same information to evaluate a risk:

Construction (C) Occupancy (O) Protection (P) Exposure (E)

Collectively known as “COPE” data within the insurance world.

“C” for Construction



The “Construction” element of COPE is broken into three sub-parts:

Construction materials

Square footage

Age

Construction Materials



ISO defines six construction classifications based on the combustibility and damageability of the “major structural features”

“Major structural features” are defined as: Exterior, load-bearing walls (primary element) Roof (secondary element) Floors (secondary element)



Exterior, load-bearing wall types (“Primary”): Masonry Fire resistive/modified fire resistive Non-masonry / non-fire resistive Combustible (i.e. wood)

Roof and floor types (“Secondary”): Concrete Fire resistive/modified fire resistive Non-combustible/slow burning Wood or materials not included above

Major Structural Features



Primary and secondary elements combine to delineate the construction class. The lower the number, the more susceptible to fire damage the structure is considered to be:

“1” – Frame “2” – Joisted-Masonry “3” – Non-Combustible “4” – Masonry Non-Combustible “5” – Modified Fire Resistive “6” – Fire Resistive

Construction Classifications



1.If the exterior load-bearing wall is frame (wood), the entire building is rated as frame, regardless of the roof material

2.If the exterior load-bearing wall is anything OTHER THAN masonry, modified fire resistive or fire resistive, the structure’s construction class is based on the roof and floor construction material

Four Classification “Rules”

Four “Rules” Continued



3.If the load-bearing walls are masonry, fire resistive or modified fire resistive, the construction class becomes a function of the floor and roof materials.

4.“Major structural features” are often an assembly of several parts. When this is the case, the entire assemblage is classed using its most combustible or susceptible member

Const. Class “Cheat Sheet”


© 2011 Insurance Journal Academy of InsuranceMixed Construction

Problems

Wall Material Floor/Roof Material Construction ClassWood / Combustible1 Wood / Combustible1

Non-Combustible / Metal Wood / Combustible1

Masonry2 Wood / Combustible1 Joisted MasonryModified Fire Resistive Wood / Combustible1 Joisted Masonry

Fire Resistive Wood / Combustible1 Joisted Masonry

Wall Material Floor/Roof Material Construction ClassWood / Combustible1 Non-Combustible / Slow Burning3

Non-Combustible / Metal Non-Combustible / Slow Burning3 Non-CombustibleMasonry Non-Combustible / Slow Burning3 Masonry Non-Combustible

Modified Fire Resistive Non-Combustible / Slow Burning3 Masonry Non-CombustibleFire Resistive Non-Combustible / Slow Burning3 Masonry Non-Combustible

Wall Material Floor/Roof Material Construction ClassWood / Combustible1 Concrete, Modified Fire Resistive or Fire Resistive

Non-Combustible / Metal Concrete, Modified Fire Resistive or Fire Resistive Non-CombustibleMasonry4 Concrete, Modified Fire Resistive or Fire Resistive Modified Fire ResistiveMasonry4,5 Concrete or Fire Resistive

Modified Fire Resistive Concrete, Modified Fire Resistive or Fire Resistive Modified Fire ResistiveFire Resistive6 Modified Fire Resistive Modified Fire ResistiveFire Resistive6 Concrete or Fire Resistive

1 Includes a “Combustible Assembly”2 One layer of non-load-bearing bricks covering metal studs is not considered a masonry wall; it is a non-combustible wall with a brick facade.3 This includes Built-Up Tar and Gravel Roof4If the masonry does not meet the requirements of footnote “5” but is at least 4 inches thick, then the structure is classed as modified fire resistive. 5To qualify, the wall must be either: 1) solid masonry at least 4” thick; 2) hollow masonry at least 12” thick; or 3) hollow masonry between 8” and 12” think with a listed fire resistance rating of at least 2 hours. 6”Fire Resistive” is defined as a non-combustible material or assemblies with a fire resistance rating of at least 2

hours. Can be accomplished based on the material or by the application of a sprayed on cementitious mixture



What affect does a combination of diverse construction materials have on a building’s construction classification?

Unless the superior construction materials constitute 66 2/3% or more of that ratable “major structural feature,” the entire feature is assigned the lower class



Two examples follow

Example 1 – Mixed Wall Materials



Example 2 – Mixed Floor and Roof



Exterior and Interior features may affect combustibility and damageability. These are known as “Minor” or “Secondary” construction features

A large amount of combustible interior walls (including assemblies)

Combustible flooring (think bowling alleys) Combustible exterior attachments

“Other Materials” Considerations



The main aspect of structure size from the underwriting aspect is in the comparison of the building’s “maximum possible loss” (MPL) versus its “probable maximum loss” (PML)

Requires the insurer to review the possibility of a total or constructive total loss

Necessitates a review of the “Protection” (“P”) features in place

Square Footage

Age of the Structure



Underwriters will concern themselves with the building’s major systems (roofing, plumbing, HVAC and wiring) when underwriting an older structure

Have the systems been maintained and updated as necessary?

When were the last updates? What was the extent of those updates? Who did the updates?

Agents should concern themselves with the age issue due to changes in construction-related ordinances and laws. May create the need for additional coverage

C“O”PE With the Occupancy



“Occupancy” information is broken into two parts:

1. What the insured does

2. How the insured manages the “hazards” associated with what they do (known as the “Hazards of Occupancy”)

“Hazard” is defined as:

What the Insured Does



Two primary occupancy classifications:

Each class of insured presents its own basic relative risk of property loss.

The greater the basic risk of loss, the more closely the underwriter analyzes the operations/occupancy.

How the Insured Manages its Operations

and Hazards



Similarly classed insureds do not necessarily manage their operations similarly.

Since each insured manages its exposures and hazards differently, each presents its own “hazards of occupancy.”

How the Insured Manages its Operations

and Hazards

“H of O” Example



Body Shop “A” Body Shop “B” Body Shop “C”

All three share the same construction classification, protection class, square footage, general methods of doing business and experience. The only difference is how flammable/ combustible liquids are stored.

Other Hazard of Occupancy

Considerations



Housekeeping

The amount of combustible materials within the building

The condition of major systems (heating and wiring)

Dust-collection systems for woodworking and like operations

Use of spark-reduction/arresting equipment where necessary

The amount and storage of any other potentially hazardous materials

Other Hazard of Occupancy

Considerations

CO“P”E With Protection



Property underwriters view property protection measures in regards to their ability to lessen the amount of property damage

Primary property protection provided by: Sprinkler systems Fire extinguishers Alarm systems Fire doors and fire walls Public fire protection

Sprinkler Systems



Merely having a sprinkler system is not sufficient

Main question: Is the system adequate and proper for the occupancy? (Fire load, water supply, etc.)

Other necessary underwriting information: The type of system; The condition of the system; If the location and number of sprinkler heads is adequate; The size and location of any non-sprinkered area; and Whether there is adequate sprinkler protection in the situation where

there is high-rack storage

What the underwriter needs to know about extinguishers:

Fire Extinguishers



Are there an appropriate number for the building Are they properly located and at eye level Are they in the path of natural exit Are they the correct size Are the fire extinguishers the correct type:

o Class A – Paper, wood, etc. (anything that produces “A”sh)o Class B – Flammable or combustible liquids (anything that

“B”oils)o Class C – Electrical fires (anything that has a “C”harge)o Class D – Combustible metals such as shaved magnesiumo Class K – Cooking oils and fats (“K”itchen)

Are the extinguishers inspected and, if necessary, charged annually

Underwriter Concerns:

Alarm Systems



The type of system in use

If at an off-site location, is the monitoring company listed by Underwriters Laboratory (UL)

Where does the alarm sound?

Is the system installed properly?

Directly affect the “Probable Maximum Loss” (PML)

Fire WALLS must meet certain minimum standards:

Fire Walls and Doors



Continuous masonry wall At least 6” to 8” thick (based on the masonry material used) Must come into direct contact with fire resistive, masonry or non-

combustible roof or walls Must pierce “slow burning,” or combustible (including assemblies)

roof or walls HVAC ducts must be protected by at least ONE 1½ hour damper Any openings must be protected by proper “fire doors”

What is a “Proper Fire Door” Self-closing Listed for 3 hour protection (Class “A” by UL) or have a sprinkler

curtain Cannot be blocked open

Fire departments are graded on a scale of 1 to 10 based on response time, personnel, training, equipment and water supply (including alternative water sources); the lower the number, the better the rating.

Public Fire Protection



What about “Split Classes” (i.e. 6/9)

Is the insured property exposed to any external hazards?

External exposures relevant to property underwriters include:

1 2 3 4 5 6 7 8 9 100.000%

5.000%

10.000%

15.000%

20.000%

25.000%

30.000%

Country Wide

Country Wide

COP”E” With the Exposures



The insured structure’s proximity to a high-hazard operation

The local wildfire risk The possibility for damaging winds and/or water The structure’s flood zone location (located in or near a

special flood hazard area (SFHA)) The structures earthquake exposure The jurisdictions building code requirements

Allows better planning when gathering the property information

Why Knowing “COPE” Helps



Knowing what to provide and why to provide specific information makes the underwriting process smoother and, hopefully, quicker

Agents can better assist clients when they are planning upgrades to current structures or constructing new buildings

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