Posted by Terry Krueger on September 17, 2019
Can your commercial risk be rated on a class basis, or must it be specifically rated? Rule 85 will tell you.
To help you understand when you need to order an inspection to get a specific loss cost, we've updated one of our most popular blog posts. Read on to learn more about Rule 85 and how to apply it.
Rule 85 is a powerful tool, but at 11 pages, it’s not the simplest rule in the Commercial Lines Manual (CLM). We’re going to break it down for you, explaining what Rule 85 is and what you need to know about it.
In addition to determining how to rate a building, Rule 85 also provides Basic Group I (BGI) loss costs for properties eligible for class rating.
Here are the key components of Rule 85, which you can read in full in Division Five of the CLM.
Many buildings can be class rated, but some need to be specifically rated.
Most businesses are eligible for class rating. Similar businesses have similar risks, including exposure to loss and probability of sustaining damage. These risks are statistically analyzed, producing loss costs that reflect the typical chance of loss for a typical business in each class.
Each class is assigned a Commercial Statistical Plan (CSP) classification code. It’s important to note: class loss costs contemplate average conditions of occupancy and maintenance and typical construction.
Related: CSP Classification Codes Explained
Some risks are not eligible for a class rating. Larger, more complex businesses require specific rating, as do those involved in hazardous operations.
Physical inspections are necessary to develop a specific Basic Group I loss cost, which provides coverage for a particular group of perils, including fire, lightning, explosion, vandalism and sprinkler leakage. A CSP classification code is also assigned as a result of an inspection.
If you are a WSRB Subscriber, you can arrange for an inspection in Washington state free of charge. Simply log into the member site and request one.
Calculating the rate
Once you know if your risk is class or specifically rated and you have your loss cost multiplier, you can apply the variables to calculate the rate. Use this formula for both types of risk:
Rate = Loss Cost x Company filed-and-approved Loss Cost Multiplier
LC x LCM = Rate
Related: Commercial Lines Rating Series
Class loss costs
To determine a class loss cost, the following information is required:
- Construction of the building as defined in Rule 15 of the CLM, or if the risk has mixed construction, as indicated in Rule 85.
- Area and height of the building.
- Protection Class, which you can obtain via WSRB’s Protection for Washington state.
- The building’s occupant and related CSP class code.
Related: The Basics on Construction Classes Series
Class rating categories: general, habitational and special
Rule 85 addresses these three categories, which we’ve summarized for you.
General Class Rates
Certain types of occupants are eligible for rating within the General Class Rates category. They include mercantile or non-manufacturing businesses, some light manufacturing and warehouses. Depending on the occupant, area and height restrictions may apply. Keep in mind: only certain CSP class codes are eligible.
Example: A building with frame construction housing a 6,000-square-foot retail store is typically rated under General Class Rates. But, if the same retail store occupied a modified fire-resistive structure, it would not be eligible for a General Class Rating.
Some occupants are not eligible for General Class Rates. Usually, these businesses are engaged in hazardous practices. An auto body shop offering spray painting, for example, is considered a greater risk than an office because of the volatile chemicals in use.
General Class Rating also comes with area and height restrictions. Generally, buildings can’t be over two stories. Note: basements, sub-basements and mezzanines are not included when determining height and floor area of a building.
Of course, there are exceptions — a building occupied by a church is exempt from the height restriction, and with greenhouses, the area limitation does not apply. Check Rule 85 in the CLM for other exceptions.
If a property can be rated under any of the following areas, it is not to be rated using General Class Rates:
- The Dwelling Policy Program.
- Classified under CLM Division Four, Farm.
- Habitational Class Rates as defined in Rule 85.
- Special Class Rates as defined in Rule 85.
- Sprinklered risks.
If multiple occupants inhabit the building, Rule 85 addresses how to assign the correct Basic Group I CSP class code.
Many skyscrapers are sprinklered and should be specifically rated.
Habitational Class Rates
Rule 85 spells out specific occupants eligible for Habitational Class Rates. These include apartments and condominiums, hotels and motels as well as convents and monasteries and several others.
In general, a Habitational building can also include light service occupants, such as libraries or offices, as well as some mercantile occupancies. But be careful, there’s a restriction on the amount of area these businesses can occupy.
Ineligible occupancies (like spray painting) are listed in the CLM and are basically the same as those not eligible for General Class Rates.
As with General Class Rates, there are properties that are not eligible for Habitational Class Rates. They include properties eligible for:
- The Dwelling Policy Program.
- CLM Division Four, Farm.
- Sprinklered risks (Pro tip: Connect with WSRB so the building can get sprinkler credit).
Special Class Rates
There needs to be a way to rate everything. Special Class Rates accommodate those unique situations — property in the open or a risk that can’t be rated elsewhere, like artificial turf or a swimming pool.
Now you understand the basics of Rule 85. If you need assistance interpreting the complete rule, or have other rating questions, please know we are here to help.