Measuring Community Risks:
The Value of Assessing Fire-Suppression Capabilities
An interview with Mike Waters
In this interview, Mike Waters, vice president, ISO Risk Decision Services, discusses the significance of the PPC™ program’s underlying data and the implications for insurance underwriting.
How does the PPC program contribute to insurer underwriting capabilities?
PPC classifications — as delivered in ISO’s LOCATION® solution suite — can serve as a key competitive advantage for insurers. PPC represents the effectiveness of fire protection in a community. Incorporating a wealth of integrated data not available elsewhere, PPC helps insurers in their efforts to assess property policies for potential loss. When insurers use PPC, the classification reflects key detailed variables — sources of water and their viability, automatic-aid agreements, department personnel details, dispatch operations, information on fire district boundaries, and distances to responding fire stations — to achieve more precise underwriting and rating analysis.
What is the benefit of PPC classifications for homeowners and businesses?
The link between effective public fire-mitigation capabilities and lower insured property loss is unquestioned. ISO’s PPC program is based on a partnership between insurers and local governments to help communities plan, budget, and justify investments that improve municipal fire protection. Virtually all U.S. insurers of home and business property use ISO’s PPC program to assess property policies. That’s because statistical data on insurance losses demonstrates the relationship between better fire protection — as measured by the PPC program — and lower fire losses. ISO statistics show that, per $1,000 of insured property, communities with the worst PPC ratings have fire losses two or more times as high as communities with the best PPC ratings.
Why is good PPC data important for underwriting precision?
Using proprietary data, the PPC database is built from the ground up. But without high-quality underlying data, any application based on geographic information systems (GIS) tends to be much less effective. For PPC, ISO deploys two road bases — Tele Atlas and NAVTEQ — to develop and maintain data, adding more street-level information to ensure the most complete location-based coverage.
ISO’s Fire Suppression Rating Schedule (FSRS) is used to measure the firefighting capabilities of communities. ISO derives PPC gradings from the FSRS. The FSRS measures fire-alarm and emergency communication systems, the fire department, and water supply. Criteria include receiving and dispatching alarms, fire company personnel training, maintenance and testing of equipment, condition of hydrants, and adequacy of water supply. In turn, the depth and scope of the FSRS analysis is an informative and valuable tool for insurers in their underwriting workflow.
ISO GIS Analysis of Fire Response Areas
The map depicts a typical distribution study ISO conducts when evaluating a community’s fire defense systems.
How is PPC information kept up to date?
ISO is constantly updating PPC data. ISO has added more than 50,000 geographic updates in the past 12 months alone — reflecting changes to fire district boundaries, fire station locations and response areas, fire hydrant locations, and other key geographic information.
PPC maintenance is implemented through 3,000-plus on-site community PPC gradings each year and with a Community Outreach Program — through which local officials are encouraged to notify ISO of changes that may affect the PPC codes of properties in their jurisdictions. Every month, ISO contacts about 1,300 communities by phone and mail.
ISO also collaborates with almost every state-level fire service association to augment PPC data. Detailed information on community changes are also derived from local insurers and agents. And ISO representatives access more than 500 public-record sources nationwide every month to enhance and support the PPC database.
Is ISO’s hydrant and water-source database significant in risk assessment?
Water information is a critical component in assigning PPC for individual properties, and insurers use the LOCATION PPC database in their risk assessment to determine if a property has access to the necessary water. Knowing the locations of responding fire stations to an insured property is an important first step to understanding the level of risk from fire. But insurers also need to know if a fire department has sufficient water pressure and volume to fight a fire or if it relies on hauled water from tenders or tankers. From an underwriting perspective, claims history shows that fire losses for risks in areas not supported by a recognized water source are much more severe than losses where a creditable water supply is available.
ISO is the only organization with full-time, dedicated subject experts working with local community officials to validate details of protection on-site, including performing hydrant flow tests and obtaining maps of water-supply sources nationwide prior to recognition of credit. The data reflects water from hydrants and other workable water sources for 90 percent of the buildings in the country.
Please summarize the value of the PPC program and its role in underwriting efficiency.
Information about public protection is fundamental to property underwriting. By assigning the appropriate PPC classification to every risk, insurers can achieve measureable underwriting efficiency in their property business. Beyond policy rating, PPC can impact the underwriting process because it supports decision making on risk tolerance, capacity, and market penetration.
The correlation between effective public fire suppression, lower insured property loss, and informed underwriting constitutes the central value proposition of PPC. ISO’s statistical data shows that communities with the worst PPC ratings have fire losses two or more times as high as communities with the best PPC ratings.
If communities strive to improve their PPC, everyone benefits. The community benefits by investing in loss-mitigation initiatives and making the neighborhood a safer place to live. The insurer benefits from reduced losses. And individuals benefit because, simply put, better fire protection saves lives.
Mike Waters is a vice president of ISO Risk Decision Services.