CLASSIFYING RISK
A checklist for classifying property ownership
By Linda Ferguson
The other day I noticed some construction taking place in our small town. Being the ever-observant insurance person, I commented to my sons that it looked like a strip center was being built. They were amazed that such a thing could be built here since we don't even permit alcohol sales in town. At that point I realized that their idea of a strip mall and mine were radically different.
The ISO classification manual can be equally confusing when we attempt to properly classify any type of property owner.
As with all ISO classifications, we don't get to choose the one we like the best; instead we must choose the one that meets the criteria. Only when the risk fails the criteria of a specific class may it be classified in the broader classifications.
The Shopping Center classes come first. If there are five or more stores, we must determine if the risk is a shopping center and if so, what kind. Four or fewer stores do not comprise a shopping center and other codes should be used.
There are two Shopping Center classes and each has its own criteria:
The first one is Shopping Center - building or premises not occupied by the insured - indoor mall (lessor's risk only) - code 67634. There are two criteria:
1) Five or more stores
2) An indoor passageway connecting all stores.
If either of these two criteria is NOT met, the property is not an indoor mall and another code must be chosen. It is important to note that there is NO requirement regarding parking space. It is possible to have an indoor mall without having parking space provided. This is becoming common in downtown city areas where municipal parking is used in lieu of store-supplied parking.
Five stores with no indoor common space connecting all stores could be a Shopping Center - building or premises not occupied by the insured (lessor's risk only) - code 67635, provided the following criteria are met:
1) Five or more stores
2) 25,000 or more square feet of parking area
These are the "strip centers" or "mini malls" that pop up in most commercial areas in suburbs and rural communities.
The parking areas for either of these risks MUST be charged for separately. The shopping center classifications do not include charges for parking, so this exposure must be evaluated and priced under a different code. There are two classifications available for the parking area:
Parking - public - shopping centers - maintained by the insured (lessor's risk only) - 46607
Parking - public - shopping centers - maintained by lessee (lessor's risk only) - 46606
The question is, who maintains the parking lot and, therefore, who is legally liable for injury due to lack of maintenance? Some lease agreements have the largest tenant agreeing to maintain the parking lot. There can be a substantial premium difference in these codes, so it is wise to review any contract to verify agreements prior to using the 46606.
The Shopping Center codes both state that separate charges must be made for special events but provide no guidance on what charge to make and which events should be "special events." Discussing typical events with the insured and the insurer in advance could prevent unfortunate surprises in the renewal process.
The Shopping Center classifica-tions also require that any building occupied by the insured and NOT incidental to the operation of the mall must be separately rated.
If your risk doesn't fit either of the shopping center classes, check out the following specific lessor's risk only classes:
Gasoline or Oil Supply Stations - retail (lessor's risk only) - 44009
Premium is based on gross sales, NOT area
Hotels and Motels (lessor's risk only) - 64074 and 64075
Land - occupied by persons other than the insured for business purposes - 45539
- based on acreage not square footage
Markets - Not open air - (lessor's risk only) - not for profit - 15120
Not open air - (lessor's risk only) - other than not for profit - 15119
Open air - (lessor's risk only) - not for profit - 15124
Open air - (lessor's risk only) other than not for profit - 15123
All of the Markets codes are based on sales, NOT area.
Race Tracks - motorized vehicles (lessor's risk only) - 48913
Racing (lessor's risk only) - 46914
Race Tracks and Racing are based on sales, NOT area.
Warehouses - manufacturing or private building or premises occupied by multiple interests (lessor's risk only) - 68702
Warehouses - manufacturing or private building or premise occupied by single interest (lessor's risk only) - 68703
Wharf and waterfront property - not occupied by the insured (lessor's risk only) - 49802
If your risk does not fit any of the above classifications, then the NOC classes are available.
As a recap - the NOC codes may be used only if:
Five or more stores not connected by indoor walkway and parking less than 25,000 square feet; OR
2) Fewer than five stores and not one of the following occupancies
a) Gasoline or oil supply station
b) Land - occupied by persons other than the insured for business purposes
c) Markets
d) Race track or racing area
e) Warehouse
f) Wharf or waterfront property
The codes are:
Building or premises - bank or office - mercantile or manufacturing (lessor's risk only)- maintained by the insured - not for profit - 61218
Building or premises - bank or office - mercantile or manufacturing (lessor's risk only) - maintained by the insured - other than not for profit - 61217
Building or premises - bank or office - mercantile or manufacturing (lessor's risk only) - not for profit - 61216
Building or premises - bank or office - mercantile or manufacturing (lessor's risk only) - other than not for profit - 61212
Who is responsible for the maintenance of the property? The lease agreement will spell out the answer. The larger the area that one tenant commands, the higher the chance of the tenant's maintaining the property. Since there may be a substantial difference in premium, it will benefit the insured to research this.
These classifications have no extra charges in the classification manual, which means that parking lots are included in the classification at no additional cost.
Colloquialisms vary around the country and can cause some amusing situations. Don't make one of them cost you a client. The classification manual is the common language linking the industry. Knowing the risk, then matching it to the correct classification will end up with a positive in ANY language. *
The author
Linda Ferguson, CPCU, has 30 years of underwriting experience with national commercial lines carriers. She now operates a consulting business, Pleasant Street Consulting Company, in West Union, Ohio.