How does Building Code Effectiveness Grading Schedule (BCEGS®) affect insurance rates?
ISO has filed advisory rating programs, including rating credits for commercial fire and allied lines, businessowners, homeowners, and dwelling lines of insurance. The credits apply to various ranges of BCEGS classifications (1–3, 4–7, 8–9, 10).
Any building constructed in the year ISO classifies a community, or in a later year, will be eligible for the program. Buildings in communities with classifications of 9 and lower (down to 1) will receive a rating credit. A classification of 10 will receive no credit. Classifications of 1–3 will receive the highest credit. Classifications of 4–9 will receive intermediate credits.
Do separate factors apply to personal and commercial risks?
Yes. ISO develops rating credit factors separately for each line of insurance.
Can there be separate factors by territory?
Yes. For each line, each territory will have its own rating credit factor based on loss information and other data specific to that territory.
How does ISO develop the credits?
ISO staff gathered extensive information from wind damage experts, seismic experts, loss control engineers, storm shutter manufacturers and installers, seismic retrofitters, building officials, and consultants.
ISO staff also reviewed studies of Hurricane Andrew, the Northridge earthquake, and other catastrophes. Based on this research, ISO actuaries estimated:
- the percentage of all losses due to natural hazards
- the percentage of natural hazard losses to property not affected by building code enforcement (trees, fences, noninspected utility structures, etc.)
- the percentage of natural hazard losses not mitigated by building code enforcement (Building codes will not affect losses from minor events, and building codes will have minimal effect on losses from the most severe catastrophes.)
- the percentage of natural hazard losses mitigated by building code enforcement
ISO actuaries then applied those percentages to varying intensity levels of natural hazards using nationally recognized measuring scales, such as the Saffir-Simpson scale for hurricanes and the Richter scale for earthquakes. Finally, to calculate appropriate credits, ISO actuaries calculated the effect on loss costs (estimates of future claims losses), using modeling techniques and actuarial judgment.
Do insurers increase rates on buildings in communities classified 8, 9, or 10?
No. In most states, no rate increase will be implemented with BCEGS. ISO designed it as a credit-only program.
Why do grading schedule credits apply only to new buildings? Why not to existing buildings?
The BCEGS program is intended to promote a long-term reduction in catastrophe damage in classified communities. In most cases, staff turnover, model code revisions and updates, or a lack of record keeping makes it impossible to measure a building department's effectiveness retroactively. So, with some exceptions, BCEGS will apply only to buildings receiving a certificate of occupancy in the year a community is evaluated or later.
Does ISO treat the existing building stock as classification 10?
Existing buildings are not subject to the program, and BCEGS does not affect loss costs for those buildings. The program — and potential credits based on a municipality's classification — applies only to buildings receiving a certificate of occupancy in the year ISO classifies a community or later. But individual properties can receive the best classification (class 1) and be eligible for associated credits if a registered design professional (architect or engineer) certifies that the structure complies with the natural hazard provisions of a nationally recognized code.
How does BCEGS affect rates on existing building stock? Do rates go up for the existing building stock to balance the credits for new buildings?
No. BCEGS does not affect existing building stock.
What happens when ISO reevaluates communities?
When ISO first reevaluates a community, the new classification applies to buildings built in the year the new classification becomes effective or later. The previous classification continues to apply to buildings built in the period between the effective date of the first classification and the effective date of the new classification.
Could a building constructed according to a nationally recognized code get a better BCEGS classification than the community in which it is located?
Yes, through an individual building certification process. If a registered design professional inspects the building and certifies that it complies with the natural hazard provisions of a nationally recognized code, the building will receive the highest possible classification and rating credit.
Can an entire community be eligible for Building Code Classification 1 through a certification by a qualified inspector, or are only individual buildings that meet the appropriate criteria eligible?
A community's classification only applies to buildings completed during or after the year ISO evaluated the community. In a community evaluated as Class 1, only buildings constructed before the community's evaluation would need individual certification for ISO to consider the building Class 1.
How does individual risk certification work?
If a registered design professional inspects a building and certifies that it complies with the natural hazard provisions of a nationally recognized code, the building will receive the highest possible classification and rating credit.
If a building is certified to be in compliance with a nationally recognized code, when does the credit apply?
Credit will only apply from the year of certification.
Consider this situation: An insured's building does not qualify for a credit because it was built before a community received its classification, yet the building next door, built by the same builder but only a year or two later, does qualify. How do you explain that?
There is no retroactive way to determine the effectiveness of building code enforcement that prevailed during construction of the older building. But the older building's owner can receive a credit if a design professional certifies that the building meets the natural hazard provisions of a nationally recognized model building code.
How often, if ever, will the classifications change?
ISO will reevaluate each community at least every five years, and classifications may or may not change, depending on ISO’s findings. Classifications for existing buildings will not change as a result of a community's reclassification.
Who determines whether an individual property qualifies for the individual-risk certification?
Each insurer will make its own determination as to the conditions under which a property will qualify for individual-risk treatment.
Does the year of construction ever change for a risk?
If a risk undergoes a major renovation — and if the property owner must bring the building into compliance with current codes and receive a new certificate of occupancy or legal equivalent — the year of construction for that risk will change.