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

BOP vs. CPP Written Premium

PREMIUM INCREASE 2001 vs BOP+ 33% CPP+ 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 By territory, base loss costs separated by property & liability n Property base loss costs per $100 limit of insurance for building & business personal property n 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 Rate number relativity x Construction relativity x Protection relativity x Building code effectiveness grade relativity x Sprinklered factor x Optional deductible factor x 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 Class group relativity x Increased limit factor x Optional property damage deductible factor x Applicable exposure base assigned in class table