Commercial Property Underwriting Insights Public Protection

Commercial Property Underwriting Insights
Public Protection Classification Changes on the Horizon
Great American Insurance Group, Mary McFadden, October 2013
What is a Protection Class?
When underwriting a property risk for fire coverage,
attention is always given to analysis of resources that
would be available to extinguish potential fires. These
resources can include local municipal fire departments,
water supplies and on-premises fire extinguishing
equipment, like sprinkler systems.
One method for evaluating the fire protection services
available for a location is by referencing the ISO Public
Protection Classification (PPC) grade assigned to the
community in which the property is located. The PPC
grade is designed to be an objective, countrywide
measurement of the effectiveness of an areas’ public fire
protection services and is developed by ISO through
use of their Fire Suppression Rating Schedule (FSRS).
Communities are graded along a scale from 1 to 10, with
class 1 representing the best protection while class 10
indicates fire suppression resources below ISO’s minimum
A Protection Class Multiplier, which is based on the PPC
grade, is used in developing premiums. The protection
class modification factor used is based on the PPC
grade assigned to the community in which the property
is located and is designed to recognize the relative
reduction and/or increase in fire loss potential based on
the effectiveness of the communities’ fire suppression
Fire Suppression Rating Schedule – Changes and
In 2009, ISO embarked on a comprehensive review of their
FSRS to ensure that it continued to accurately predict the
potential for property fire loss. The review included an
analysis of current trends in fire protection (as published
by various national associations like the National Fire
Protection Association - NFPA) and technological
advances in fire department operations, fire alarms and
water supplies.
In January 2013, ISO concluded their review and began
filing a revised FSRS with state insurance departments.
The new schedule continues to evaluate the existing three
major categories of fire suppression: fire department
effectiveness, emergency communications and water
supply. In addition, it now includes a new Community Risk
Reduction section that recognizes community efforts to
reduce losses through fire prevention, public fire safety
education, and fire investigation.
ISO’s new FSRS revision has been approved in all ISO
jurisdictions except KS and TX. With respect to HI, ID, LA,
MS, NC and WA, these six states are under the jurisdiction
of their own independent property bureau and may or may
not adopt ISO’s revised FSRS.
There is no premium or rating impact solely as a result of the
revised FSRS. The FSRS changes will not have any retroactive effect on current community classifications. The
revised FSRS will only be used on a going forward basis for
future evaluations.
"Split" Public Protection Classifications
As part of the analysis of the FSRS, ISO conducted
extensive actuarial and statistical analysis in order to
validate that components of the FSRS correlated with
fire losses. The analysis revealed differences between
communities graded with a split classification and those
with pure grades.
When all properties within the fire protection area are
equal with respects to the fire suppression services
available, all locations within that area receive a single
PPC grade. For example, a PPC of 5 indicates all properties
within that classification area are equal in protection at a
class 5 level.
ISO does have a method to recognize when all properties
within that community are not equal with respects to the
fire suppression services available. In those cases, ISO
will issue a ‘split’ PPC. For example, a PPC of 6/9 means
a community qualifies for a PPC grade of 6 based on the
FSRS analysis, but the area serviced by the community
includes properties are not within 1,000 feet of a
recognized water source. PPC 9 applies to those properties
serviced by the community that are beyond the 1,000 feet
water source requirement. (PPC 8B is similar to 9 but
recognizes that the community has a ‘superior’ level of fire
protection as compared to PPC 9.)
ISO’s data analysis found that loss experience for properties
located in “split classification” areas (relative to PPC 8B
and 9) was more favorable than the loss experience of
properties located in communities rated as non-split or
pure PPC 8B or 9.
New Protection Classifications and Modifiers
In order to recognize more favorable loss potential, ISO
is introducing new classifications which will replace
the 9 or 8B only in split classification grades. In split
classifications, X will replace 9 and Y will replace 8B. For
example, a split classification currently listed as 6/9 will be
listed as 6/6X after the changes are implemented.
Similarly, ISO’s analysis also revealed that properties
located in PPC 10 areas with a credible water source
had more favorable loss experience than those with no
credible water source. To recognize this difference, ISO is
introducing PPC grade 10W (“Water 10”).
GAI Action
At this time, PDC intends to adopt the new protection
classes and associated modification factors. We will
continue to monitor ISO notices for state approvals and
submit the necessary request for changes to rating within
Although we are not certain of the specific details, once the
revisions are approved by the respective state insurance
departments, we expect ISO will take some time to revise
existing split classifications to the new X ,Y format and to
identify communities qualifying for the 10W grade.
Business Units will be notified in advance of any revisions
or the implementation of the protection class modification
ISO is also introducing new protection class modification
factors for the X, Y and 10W classifications which will have
an impact on rating and premium development.
For example, the new PPC factor for 6X will be 1.35. A
property of frame, joisted masonry or non-combustible
construction, which is located in a community with
a current PPC of 6/9, but is not within 1,000 feet of a
recognized water source, is rated using the pure PPC
9 modification factor of 1.42. After the changes are
implemented, the PPC for the community in which that
property is located will be revised to 6/6X and properties
not within 1,000 feet from a recognized water source will
be rated using the new 1.35 factor applicable to PPC 6X.
The rules governing the new protection classifications and
modification factors have been filed by ISO to be applicable
to policies written on or after July 1, 2014. At present, 27
states have approved the changes for policies written on or
after July 1, 2014.
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The information in this article is provided with the understanding that the author is not engaged in rendering legal or other professional services.
Federal and State laws are more complex than presented here. The information is simplified for the sake of brevity and is not a substitute for legal
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