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When to use the Broad Causes of Loss Form, Part 7 in the Commercial Lines Rating Series

Posted by Terry Krueger on January 30, 2018

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Only two more posts left until our Commercial Lines Rating series reaches its conclusion. If you’ve been following this series, you’ll know that each post builds upon the last, so we encourage you not to get ahead of the story, so to speak. If you’re new to this series, or just need a refresher on Commercial Lines Rating, you’ll want to start with Part 1 and read the posts in order.

 

Related: Commercial Lines Rating Series

Part 1 – Rating Commercial Property

Part 2 – What are Loss Costs and Loss Cost Multipliers

Part 3 - Coinsurance Primer

Part 4 – Going Green

Part 5 - To Be Class Rated or Not To Be, Rule 85

Part 6 – The Basics on the Basic Causes of Loss

 

Amazon Spheres in Seattle

 

As you’ll remember from Part 6, the Basic Causes of Loss Form covers 11 perils in two groups:

Group I:

Group II:

1.    Fire

2.    Lightning

3.    Explosion

4.    Vandalism

5.    Sprinkler Leakage*

6.    Windstorm or Hail

7.    Smoke

8.    Aircraft or Vehicles

9.    Riot and Civil Commotion

10.  Sinkhole Collapse

11.  Volcanic Action

Sprinkler Leakage is included in Group I whether or not the building is sprinklered.

The Broad Causes of Loss includes all the perils listed above, plus three more causes of loss:

  • Falling objects
  • Weight of snow, ice or sleet
  • Water damage

The Broad Causes of Loss form also includes an additional coverage for collapse. The form includes an explanation of what collapse entails for the purposes of this additional coverage, along with a description of each of the covered causes of loss.

For a Broad Form policy, these are the only perils for which a claim will be paid. Both specifically-rated and class-rated properties are eligible for a Broad Causes of Loss policy.

When rating a policy with Broad Form, the amount of insurance and coinsurance percentage must be the same for each cause of loss.

 

Broad Cause of Loss eligibility requirements:

Coinsurance must be at least 80% for property damage and 50% for time element coverages. Also, be aware that certain kinds of risks can’t be covered under a Broad form policy:

  • Farms or farming operations
  • Grain elevators, grain tanks and grain warehouses
  • Neon, automatic or mechanical electric outdoor signs erected or in the course of construction
  • Risks rated using the Rating Plan for Highly Protected Risks or Superior Risks

To develop the premium for a Broad form policy, you will need to rate:

  • Group I Causes of Loss
  • Group II Causes of Loss
  • Broad Causes of Loss

 

Basic Group I (BGI) and Basic Group II (BGII) loss costs are determined in the same way as in a Basic form policy, regardless of whether the risk is class-rated or specifically-rated.

Broad form loss costs are based on the construction of the building. Here is an example of what they might look like:

 

Item

Modified Fire Resistive (5) and Fire Resistive (6)

All Other
(1 - 4)

 Building

 .010

 .015

Personal Property

 .011

 .021

 

These loss costs can be found in the Multistate Loss Costs pages of the Commercial Lines Manual (CLM) Rule 71.E.2.c

Applying rate factors:

BGI and BGII loss costs: When rating these for a Broad form policy, apply the same rate factors in the same order as for a Basic form policy.

 

Broad Form loss costs: Apply rate factors in the following order:

  • Company-filed loss cost multiplier
  • Coinsurance adjustment, if applicable
  • Limit of Insurance relativity factor, if using LOI rating method (interpolated)
  • Factors or charges required by individual rules

 

Remember to apply additive factors before applying multiplicative factors unless a rule states otherwise.

The complete Causes of Loss - Broad Form Rule (Rule 71) is found in Division Five of the CLM.

In early February, we’ll publish the final post in this series, rounding out our overview of Commercial Lines Rating by taking a look at the Special Causes of Loss Form. Remember, as a benefit to our subscribers, WSRB can provide your team with a complete rating training program at no additional cost. Contact us for more information and to schedule the training program for your team.

 

This post was originally created on January 30, 2018 and updated on July 30, 2019.

Topics: Building Construction, Commercial Rating