COMMERCIAL LINES
3 WAYS YOUR CLIENTS INCREASE THEIR OWN PROPERTY PREMIUMS Bad decisions cause commercial property clients to pay higher property premiums. Sadly, the insured may not even recognize their poor choices. However, with the right information, agents can help clients identify their bad decisions. Here are the three most common property mistakes and how agents can help them avoid them: 1) Altering the construction class. A building’s construction class is a function of its major structural features. The two structural features used to develop the construction class are the exterior, load-bearing walls and the floors and roof. Occasionally, the insured alters the characteristics of one of these features. Generally, it is the exterior, loadbearing wall that is sabotaged. Warehouses, assembly operations and manufacturing operations are the most common offenders. Consider an all-metal building—steel I-beam studs wrapped on the exterior with metal sheet siding and slow-burning insulation between the studs for comfort—a common construction method in many industrial complexes. The roof is likely made of the same construction. If the insured leaves the building alone, this is considered a non-combustible—construction class 3—building. However, for one reason
or another, the insured may decide to attach plywood panels to all interior walls of the production areas, often to protect the insulation from damage. When the plywood is attached to the metal studs it creates an “assembly.” Assemblies are rated based on the most combustible feature of the assembly, a rule that does not apply to masonry and fire-resistant walls. The plywood causes the walls to be rated as frame assemblies. When discussing mixed construction, as discussed in the Big “I” Virtual University (VU) session, “The Unseen ‘Magic’ Behind Commercial Property Underwriting,” when more than 33 1/3 percent of a major structural feature is of an inferior construction class, the entire feature is assigned to that class. Because the production area is likely the majority of the building, the addition of the plywood causes much more than one-third of the walls to be rated as frame assemblies. Because the insured made this decision, the building is classified as a construction class 1 rather than 3. Depending on the occupancy and protection class, this difference may result in a 25%-30% higher Group I rate. Don’t misunderstand. This doesn’t mean the insured cannot protect the insulation or cover the interior walls in some way—they just shouldn’t use combustible materials to do so. wisconsin INDEPENDENT AGENT
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