BY DENNIS GAGE
As a public safety and fire prevention professional, you may already know a good deal about the Insurance Services Office (ISO) Public Protection Classification (PPC™) program. Chances are you participated in your fire department’s evaluation, have attended an ISO seminar, or have been in contact with one of more than 100 national ISO PPC professionals located throughout the country.
But you may not be aware of the critical role that ISO and its fire suppression program play in the property/casualty insurance business—and in the availability of affordable homeowners’ and commercial property coverage.
Insurance companies understand the connection between good fire protection (that includes an adequate water supply) and lower insured losses. So they generally charge lower property insurance premiums in communities with better PPC classifications. For example, on average across the country, the cost of fire losses for homeowners’ policies in Class 9 communities is 65 percent higher than in Class 5 communities; if a community improved from Class 9 to Class 5, homeowners could expect their premiums for fire insurance to drop substantially.
Although the ISO was created by the insurance industry more than 30 years ago, today it is an independent advisory organization that helps the industry project losses for most types of property/casualty coverage. The analytical information the ISO provides for property insurers combines sound actuarial analysis with engineering evaluations of fire loss mitigation programs. The analysis of actual fire loss experience in a given state or portion of a state, along with mathematical factors based on the ISO’s Fire Suppression Rating Schedule (FSRS) program, form the foundation of the projected loss information insurers need. Virtually all insurers writing personal or commercial property insurance throughout the United States use the ISO information in their underwriting and rating processes.
HOW THE PPC GRADING WORKS
The evaluation process can be initiated on request by a community demonstrating a significant change in its level of fire protection or responding to the ISO’s Community Outreach Program. For example, when a fire department changes it boundaries, adopts automatic aid, implements hauled water operations, or adds hydranted areas to its protection jurisdiction, the ISO may reevaluate the fire service delivery to ensure that the PPC rating reflects those changes. To facilitate awareness of those changes, each month the ISO staff sends an Outreach questionnaire to some 1,000 communities to assess changed fire protection capabilities and the need for reevaluation. Responses to the Outreach Program are evaluated regarding the need to revisit a community. In addition to the Outreach questionnaire responses, the ISO works with fire departments, state agencies, state and local fire and water utility associations, and insurers to gather information about changes in protection. Most of those reevaluations result in an improved recognition of protection.
The physical evaluation process begins with the FSRS review of three critical elements of a community’s structural firefighting capabilities: receiving and handling fire alarms (10 percent); fire department (50 percent); and water supply (40 percent).
The ISO keeps the FSRS up to date by referencing standards adopted by organizations such as the National Fire Protection Association (NFPA) and the American Water Works Association (AWWA). For example, the ISO’s evaluation of fire apparatus references the general criteria found in NFPA 1901, Standard for Automotive Apparatus. Another example includes NFPA 1221, Standard for the Installation, Maintenance, and Use of Emergency Services Communications Systems for the definition of critical components of a fire alarm and dispatch system. The ISO relies on the AWWA for guidance on public water supply for fire protection and hydrant design and maintenance criteria. Using national standards keeps the ISO’s FSRS up to date; as the standards change, so can the Schedule.
Ten percent of the overall grading is based on how well the fire department receives and dispatches fire alarms. ISO field representatives evaluate the communications center, looking at the number of operators at the center, the telephone service, the number of telephone lines coming into the center, and the listing of emergency numbers in the telephone book. The ISO also looks at the dispatch circuits and how the center notifies firefighters about the location of the emergency.
Fifty percent of a community’s overall grade is based on the fire department. The ISO reviews the distribution of fire companies throughout the area and the average number of personnel who responded to structure fires. The ISO checks whether aerial devices, hoses, and pumps on the fire apparatus are tested regularly and inventories each engine company’s nozzles, hoses, breathing apparatus, and other equipment. The ISO also checks the number and types of ladders, including ground and aerial ladders, and other service equipment such as salvage covers, saws, and smoke ejectors.
To keep up with advances in firefighting technology, some of the tools and equipment outlined in the FSRS have equivalencies. A complete list of equipment equivalencies is posted on the ISO’s Web site (www.iso.com) at the direct site location of http://www.isomitigation.com/fire70.html.
The ISO also reviews fire company records to determine the type and extent of training provided to fire company personnel, the number of people who participate in training, the firefighter response to emergencies, and the maintenance and testing of the fire department’s equipment.
Common sense suggests that an adequate water supply is an essential ingredient in effective firefighting. Insurance statistics from insured fire losses point conclusively to a significant increase in loss where water for fire protection is lacking. Thus, 40 percent of the evaluation focuses on the available water for fire suppression. The ISO examines whether sufficient water is available for fire suppression beyond the community’s maximum daily consumption and surveys all components of the water-supply system, including pumps, storage, and filtration. The ISO observes hydrant tests at representative locations in the community to determine the rate of flow the water mains provide, evaluates the distribution of fire hydrants up to 1,000 feet from representative properties, and determines the ratio of the amount of available water and the amount of water needed to suppress fires on properties. This particular analysis is worth 35 percent of the water supply points.
PPC AND INDIVIDUAL POLICIES
Insurance companies, not the ISO, establish the premiums they charge to policyholders. The amount of discounts insurers offer to policyholders depends on an individual company’s fire loss experience, underwriting guidelines, and marketing strategy. The ISO doesn’t know how each company incorporates the protection class changes into its insurance pricing structures, so it’s difficult to generalize how an improvement or deterioration in PPC class will affect individual policies. But here are some general guidelines to help communities understand the benefits of improved PPC ratings for residents and businesses:
- PPC may affect availability and/or pricing for a variety of personal and commercial insurance coverage, including homeowners, mobile homes, fine-arts floaters, and commercial property insurance (including business interruption).
- Assuming all other factors are equal, the price of property insurance in a community with a good PPC is lower than in a community with a poor PPC.
- The greater the change in PPC class, the more likely that premiums for individual policies will be affected, especially for commercial properties. Even when savings on a percentage basis appear to be small, the total savings for a community as a whole can be significant. A few percentage points of reduction can add up to substantial dollar savings, especially when extended over a period of years.
- Even without an overall improvement in the community’s PPC class, individual policies can be affected significantly by the construction of new fire stations, the availability of recognized water sources, and the execution of recognized automatic aid agreements. How insurers apply these factors depends on the proximity of the insured property to the improvement.
TEACHING FIRE CHIEFS
In a recent survey of fire chiefs and municipal officials by ORC International (press release available at http://www.iso.com/press_ releases/2001/02_21_01.html), almost 9 out of 10 said that they were familiar with the ISO’s program of evaluating fire departments. Contributing to this high percentage is the ISO’s commitment to educating fire chiefs on the FSRS program. Each year, the ISO has information booths at state and national fire service conferences. We also provide courses on the FSRS at our expense in cooperation with state fire chiefs associations and the state fire service training organizations. At these and similar sessions during the year 2002, the ISO trained more than 1,600 fire officials who participated in 42 separate programs across the country. Through 2003 mid-year, we have presented 37 programs to 1,320 fire and water utility officials.
In addition to FSRS presentations, the ISO provides a toll-free phone number ((800) 444-4554) for contacting a PPC Customer Service Center during normal business hours. The PPC customer service representatives are available to review classification information with communities and help fire officers understand the FSRS at no charge. One of the more popular requests is to help the fire officer determine the impact a projected change in the level of service will have on the department’s classification number.
Fire chiefs recognize that the FSRS may bring substantial economic benefits to communities where their fire departments earn a better classification number. For this reason, the program encourages improvements and helps fire departments plan for, budget, and justify expenditures that reduce property damage from fires. Insurers also benefit knowing that a community’s investment in its fire department is a proven and reliable predictor of future fire losses.
DENNIS GAGE is the manager of the Natural Hazards Mitigation Division of the Insurance Services Office, Inc. (ISO). His responsibilities include overseeing the administration of the ISO Community Mitigation programs including the Public Protection Classification and the Building Code Effectiveness Grading Schedule programs.