If you’re in business, you probably understand what insurance underwriting means. The process of underwriting determines how likely your business is to file a claim. Simply put, the greater the likelihood of a claim, the higher your premium will be. If an insurance company determines that your business is at a high risk for a loss, it might even decide not to issue you a policy.
Fire risk is usually the primary factor that determines a business’s commercial property rates. Insurance companies do inspections as part of the underwriting process.
Fire inspectors use a standard rating system and weigh five factors to determine a structure’s fire rating.
The five factors are:
- Construction materials.Buildings made of potentially combustible materials will have higher premiums, while those made of fire-resistant materials could earn a discount. Additions to an existing structure might affect a fire rating, so it’s a good idea to talk to your agent or insurance company before remodeling. Internal structural elements can also affect a fire rating. Using wood partitions, floors, and stairways in an otherwise fire-resistant building will likely nullify any rate reduction. Fire-resistant interior walls, floors, and doors can help maintain a good fire rating.
- Buildings in cities or towns with good fire protection — as assessed by the Texas Commission on Fire Protection — typically cost less to insure than buildings outside a city or in areas with limited fire protection.
- A building’s use also affects its fire rating. An office building will likely rate better than a restaurant or auto repair shop. In a building with multiple tenants, one hazardous occupant will negatively affect the fire rating of the entire building. If your business is in a building with a more hazardous tenant, your premiums will be higher.
- Fire protection measures.Automatic sprinklers can reduce a building’s fire rating by as much as 50 percent. Buildings with fire extinguishers and automatic alarms and those within 500 feet of a fire hydrant will usually have lower ratings.
- Nearby hazards increase a building’s fire risk. Proximity to external fire hazards, such as a lumberyard or oil storage tank, will affect a fire rating even more. Other things that could affect your fire risk include cluttered buildings and grounds, heavy mechanical or electrical equipment, or volatile materials stored on site.
Your business insurance is an extremely important part of successful operations, affecting every aspect of your business. Cover all your bases by getting answers from your insurance agent to ensure positive outcomes for you, your employees and your investors.