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Commercial Lines Rating Series: Part 6 – Causes of Loss – Basic Form

January 27, 2014

Commercial lines rating

Causes of Loss – Basic Form

Basic Cause of Loss provides coverage for eleven causes of loss (perils). These are the only causes of loss for which a claim will be paid under a basic form policy.

They are grouped as follows:

      Group I:        Group II:
1.  Fire

2.  Lightning

3.  Explosion

4.  Vandalism

5.  Sprinkler Leakage*

6. Windstorm or Hail

7. Smoke

8. Aircraft or Vehicles

9. Riot and Civil Commotion

10. Sinkhole Collapse

11. Volcanic Action

        * Sprinkler Leakage is included in Group I whether or not the building is sprinklered.

 

A complete description of each cause of loss will be shown in the Basic Cause of Loss form.

Specifically rated properties as well as class-rated properties are eligible for Basic Form.

When rating a basic form policy, the amount of insurance and the coinsurance percentage must be the same for Basic Group I (BGI) and for Basic Group II (BGII).

 

Basic Group I loss cost

Class-rated risks:

  • Determine eligibility for class rating according to Rule 85 of the Commercial Lines Manual (CLM).
  • Find the risk description and CSP (Commercial Statistical Plan) class code in the classification table.
  • The Basic Group I loss cost will be found in the state loss cost pages of the CLM based on the CSP class code.

Specifically rated risks:

  • Find the Basic Group I loss cost on the loss cost publication for the property that was physically inspected. In Washington, see www.wsrb.com.

 

Basic Group II loss cost – Group II symbols are used to determine the loss cost.

In Washington the symbols are:

A – Wind-Resistive Construction

B – Semi–Wind Resistive

C – Ordinary Construction

 

Class-rated risks:

  • Use the following table to determine the correct symbol:
  Construction Code of the building *
CSP Class Code 1, 2, 3 4 5, 6 9
All (Except Those

Specifically Listed

In This Column)

B AB A NA
Open Sides 4B 3AB 2A NA
0580

(Greenhouses)

4B 4B 4B 4B
1150 (Builders’

Risks)

2B 1½ AB A NA
1185, 1190 &

1200

For symbol, see Rule 85.L. in

the multistate rates*

1300 (Baled Cot-

ton and Cotton

Seed Yards)

NA NA NA B
1650 (Lumber

Yards)

4B 4B 4B 4B
  * Construction codes
                                1 – Frame
                                2 – Joisted masonry
                                3 – Non-Combustible
                                4 – Masonry Non-Combustible
                                5 – Modified Fire-Resistive
                                6 – Fire-Resistive
               For example:  A  frame (1) building would be symbol B for Basic Group II loss cost.

 

Specifically rated risks:

  • The Basic Group II symbol is shown on the published loss cost page for the property that has been specifically rated.

The Basic Group II loss costs for both class-rated and specifically rated properties will be found in the state loss cost pages of the CLM based on the BGII symbol.

Note:    If the Group II symbol includes a numerical prefix, multiply the applicable loss cost by that number.    

 

The following factors apply to BGI and BGII loss costs in the following order unless otherwise specified by rule:

  • Company-filed loss cost multiplier
  • Protection class multipliers, if applicable, to class-rated risks
  • Territorial multiplier, if applicable, to class-rated risks
  • Causes of loss exclusion adjustment
  • Coinsurance or flat rate adjustment
  • Limit of Insurance relativity factor, if LOI rating method is used
  • Factors or charges required by individual rules

 

Article by: Terry Krueger, Subscriber Administrator

Read more articles from our Commercial Lines Rating Series.

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