Understanding Rule 85: What is Class Rated?

This is Part I of our seven-part series on Understanding Rule 85. In this series, we delve into the intricacies of Rule 85 and its implications for property insurance.

To start, let’s explore the foundational concept of class ratings, their differences from specific ratings, and their implications for property insurance.

Class ratings vs. specific ratings

Class ratings and specific ratings are two methods used to evaluate and price insurance policies, each used for different types of properties.

Class ratings

• Class ratings apply to buildings that meet average conditions of occupancy, maintenance, and typical construction.
• They are designed to provide a standard rate for a broad category of buildings without the need for individual inspections.
• Class-rated buildings are grouped together and averaged based on common characteristics, allowing for a more streamlined and efficient rating process.

Specific ratings

• Specific ratings are tailored to individual buildings, unique structures that are often more complex and have higher-values than class-rated structures. 
• They involve detailed inspections and assessments of the unique features and conditions of each individual property.
• Specific ratings consider factors such as construction materials, fire protection systems, occupancy type, and overall building maintenance.

Application to average conditions

Class ratings are particularly useful for buildings that fall within typical ranges of occupancy, maintenance, and construction. This simplifies the rating process and provides a model for evaluating risk across a variety of properties.

It’s important to note that class ratings may not accurately reflect the risk profile of buildings with unique or exceptional characteristics.

Importance of understanding class ratings

For insurance professionals, understanding class ratings is essential, helping with...

Risk assessment and underwriting

Class ratings streamline the underwriting process by grouping buildings with similar characteristics, allowing insurers to quickly assess risks and set policies without individual inspections, saving time and resources.

Pricing accuracy

Class ratings enable insurers to set standardized premiums that reflect the average risk of a building category, ensuring competitive pricing while maintaining sufficient premium collections to cover potential claims.

Portfolio management

Understanding class ratings helps insurers maintain a balanced and diversified portfolio, monitoring risk distribution across property types and adjusting underwriting strategies to avoid overexposure. Additionally, it can help in developing accurate loss models and predicting potential claims by understanding associated risks.

Regulatory compliance

Class ratings align with regulatory requirements, ensuring insurers' practices meet industry standards, helping avoid legal issues and penalties, and maintaining operational integrity.

Customer relationships

Educating customers about class ratings enhances their understanding of insurance products, helping them make informed decisions about coverage, fostering trust, and building loyalty. Educated property owners can better plan for future insurance needs by understanding how their buildings are rated and what factors may affect their premiums.

No inspections for class-rated buildings

Class-rated buildings do not get inspected by the WSRB.

This lack of individual inspections is both a strength and a limitation of the class rating system. While it allows for quicker and more cost-effective policy writing, class ratings can overlook specific risk factors that may affect the overall insurance premium.

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Class ratings play a significant role in the property insurance landscape. By applying standardized rates to buildings with average conditions, they provide a streamlined approach to risk assessment and policy pricing. However, it's important to recognize the limitations of this system and consider specific ratings when dealing with properties that have unique or exceptional features.