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The Ins and Outs of Tentative Loss Costs

August 8, 2017

There is a great deal of misunderstanding about what a tentative loss cost is and how it is developed.  In its most basic form, it is an educated guess. This is where the confusion usually starts.

When do you need a tentative loss cost?

To create a rate and calculate a final premium, insurance policy-writing systems need a Loss Cost, which is one key output of a commercial property inspection. Sometimes, though, you don't yet have a Loss Cost because the inspection isn't complete. So what number do you use? We provide a tentative loss cost calculator in the Subscriber portion of our website. You answer a few questions, and we generate a tentative loss cost.

The tentative number is not an exact number, nor is it intended to be.

Only a WSRB property inspection will provide an accurate Loss Cost. The tentative loss cost is a starting point the underwriter is free to accept or change either up or down. It may be perfectly acceptable to ignore the calculator and make up a number based on your company guidelines. In WSRB’s tentative loss cost, sprinklered buildings do not receive credit because giving sprinkler credit would raise two questions:

  1. What credit level?
  2. What happens if, after the WSRB inspection, the system does receive full credit?

The underwriter would need to explain with an additional premium, which may cause the insured to raise additional questions.

Frequently asked questions about the tentative loss cost calculator

Why are there only limited options in the categories and occupancies fields?

We limit the choices to make your life easier. Did you know there are over 15 Million business SIC codes? Working with our inspection services team, we batched similar code levels to provide you a tool that was manageable and provides actionable insights.

Why do the tentative loss costs tend to be so high?

Once a tentative loss cost is used and the quote accepted, the issuing company MUST attach form CP 99 93, TENTATIVE RATE, and order a WSRB property inspection.  Once WSRB conducts an inspection and returns a specific Loss Cost, that number becomes the only Loss Cost that can be used for that building. That specific Loss Cost then needs to be applied to the policy as of the inception date. If the specific Loss Cost is higher than the tentative loss cost used in the original quote, the insurer must bill the insured for the additional premium, which often upsets customers. If the specific Loss Cost is lower than the tentative loss cost, the insurer would refund the return premium. 

Tips for using a tentative loss cost

Determining a tentative loss cost is the art, not the science, of rating, underwriting and business development. We give you a starting number but encourage you to fine tune by looking at other similar risks in the area. In Risk Search, all inspected buildings are outlined in blue, so you can easily find potential comparison points. Class loss costs can also be used as tentative. You will need to know the CSP code, construction and Protection Class to accurately determine it. Usually, class loss costs tend to be higher, given that they are averages of a number of similar risks.

In summary, the tentative loss cost calculator is there to provide a starting point. Combine the WSRB tools with your professional judgment to provide a quote. 

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