2003 CAS RATEMAKING SEMINAR CONSIDERATIONS FOR SMALL BUSINESSOWNERS

2003 CAS RATEMAKING SEMINAR CONSIDERATIONS FOR SMALL BUSINESSOWNERS POLICIES (COM - 5) BETH FITZGERALD, FCAS, MAAA

BOP vs. CPP Written Premium

PREMIUM INCREASE 2001 vs. 1998 BOP CPP + 33% + 15% TOTAL CML + 20%

ISO 2002 Businessowners Program n New BOP Coverage Form n New BOP Manual Rules n Simplified Rating Procedure

ISO 2002 BOP Policy Form n Combines Special Property & Liability coverage forms into one form n Includes computers & electronic media n Includes all interior & exterior glass n Includes fire extinguisher systems recharge expense

ISO 2002 BOP Policy Form n Includes business income from dependent properties n Increases the limits for valuable papers & accounts receivable n Increases Products/Completed Operations aggregate limit to two times liability limit

ISO 2002 BOP New Endorsements n Food contamination n Water back-up and sump overflow n Liquor liability n Pollution liability – several options n Named peril – provide coverage similar to old Standard Property form

ISO 2002 BOP Manual n Introduce newly eligible classes § Combined restaurant/convenience store/gasoline store § Motels (< 4 stories) § Self-Storage Facilities ( <3 stories) n Introduce BOP-specific class table n Incorporate Special Trade Contractors manual into BOP manual

ISO 2002 BOP Manual n Introduce Blanket rating rule n Simplify rating procedure n Introduce rating factors n Three-year transition rule to temper effects of new rating procedure & coverages

ISO 2002 BOP Rating Procedure n Rate all BOP risks on special form basis for property n Split rate property vs. liability where class table identifies liability class group #’s & property rate #’s n Factor-based rating with simplified state loss cost pages

ISO 2002 BOP State Loss Cost Pages n n n By territory, base loss costs separated by property & liability Property base loss costs per $100 limit of insurance for building & business personal property Liability base loss costs displayed for: § § Occupant per $100 limit of insurance Occupant per $1000 annual gross sales Occupant per $1000 annual payroll Lessors per $100 limit of insurance

ISO 2002 BOP Factor-Based Rating Procedure Mandatory Property Premium = Territory base loss costs for frame construction, protection class 1 -4, nonsprinklered risk for $500 deductible x x x x Rate number relativity Construction relativity Protection relativity Building code effectiveness grade relativity Sprinklered factor Optional deductible factor Limit of insurance (per $100)

ISO 2002 BOP Factor-Based Rating Procedure Mandatory Liability Premium = Territory base loss costs for $300, 000 limit with no deductible x x Class group relativity Increased limit factor Optional property damage deductible factor Applicable exposure base assigned in class table