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How to Underwrite Commercial Property Insurance

Updated on July 4, 2016
Randi Glazer profile image

Randi Glazer is a Sr. Insurance Professional with experience underwriting, marketing, organizational leadership & managing large staff

ENGINEERING REPORTS

Engineering Surveys should not be ordered on a routine or procedural basis, but only after a preliminary review of the risk has been completed. They should not be ordered simply to complete a file, defend individual risk handling, or to postpone decisive solution of an underwriting problem.

A review of each risk should include consulting available underwriting sources. Rate information and financial references are usually available. In some cases, an inspection made by the Insurance Services Office (ISO), an Independent state Rating Bureau, or by a commercial fire inspection service may be on file.

A review of the available information should enable the underwriter to make a preliminary judgment as to acceptability of the risk. In some instances, further information will be necessary before final underwriting is done and reinsurance arrangements finalized. Surveys will normally be ordered through a company's Engineering Unit, but outside commercial inspection services might be used occasionally.

In the case of sprinklered risks, the Insurance Services Office (ISO) will make a report on the sprinkler system and water supply, but a Company's engineering report is necessary to determine the water supply and sprinkler system gradings. Before a survey is ordered, the underwriter must determine whether or not a commercial or ISO inspection is available.

Shopping Center - Commercial Property

Example of Commercial Property
Example of Commercial Property | Source

ORDERING ENGINEERING SURVEYS

The underwriter should consider the interrelationship of the following policy or risk conditions before making a decision to order an inspection.

1. The amount of insurance at risk.

2. The perils insured against in the policy.

3. The hazards usual to the class of risk insured and the hazard protection normally required.

4. Any indication of underwriting deficiency based on available information.

5. Other lines of insurance being considered for the account that may also benefit from a survey.

6. The amount of premium generated by the account relative to the cost of surveying it. If the hazards indicate a survey is required, but insufficient premium is available, declination must be seriously considered.

WHEN TO REORDER ENGINEERING SURVEYS

Re-inspection on renewal or at some interim time during the policy term should be ordered only for those risks which are new and not fully established initially, have had changes of ownership or occupancy, or which have operations or processes that require an ongoing fire prevention and protection policy on the part of the insured, e.g., commercial cooking, builders risks, renovations, vacant buildings.

Commercial Property is all Around us

International Commercial Property
International Commercial Property | Source

"FIRE ONLY" COVERAGE IN COASTAL TERRITORY

In some states, fire only, or Group 1 and Group II excluding wind coverage, can be written. One might conclude that without wind coverage, fire coverage should be readily acceptable in the vulnerable windstorm territory. However, it must be recognized that a major windstorm or hurricane also exaggerates the fire exposure.

The factors to be considered are:

1. Moral Hazard - Inadequate windstorm coverage may result in less than full reimbursement, thus encouraging a fire to complete the destruction and provide full insurance recovery for property damage and possibly business interruption.

2. The lack of normal fire protection during and following a storm due to:
(a) inaccessibility.
(b) disrupted communications.
(c) water deficiencies due to breaks in water lines.
(d) preoccupation with fife safety emergencies.

3. Increase in fire exposure hazard from heavy wind.

4. Electrical disturbances or power surges caused by lightning and downed trees.

5. Trespassing and looting.

6. Explosion possibilities in ruptured gas appliances and equipment.

7. Flash fire possibilities from fuel spills or leakage.

If, after consideration of these factors as they may be meaningful in respect to a specific risk, the underwriter is prepared to accept the risk.

COMMUNICATING UNDERWRITING DECISIONS

The tone in which an underwriter communicates their underwriting decision is a great influence in forming their own image and a reflection on the Company for whom they work for. Even if a decision is negative it needs to be a positive communication.

Generalizing the decision does not usually help the Agent or Broker with statements such as "does not meet our underwriting requirements". Even worse, it gives the agent nothing to work on to try to improve the account so that it is write-able, and In many cases, it can be made write-able.

Careful consideration is always prudent when replying with an underwriting decision.

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