Fire Insurance Ratings

Dan Petersen, Fire ChiefJackson County Fire District 3Chair of OFCA Fire Insurance Task Force

Laura Cali, Insurance CommissionerOregon Department of Consumer and Business Services, Insurance Division

OFCA Concerns

Fire Chiefs reported significant challenges in working with the ISO

OFCA monitored the situation OFCA and WFCA began working

closely with the ISO National Director of Community Hazard Mitigation

No change in behavior from the ISO OFCA formed Task Force in

December 2012

OFCA Task Force mission

To evaluate and identify options for a credible science/performance based fire insurance rating system that assesses the ability of fire agencies to reduce the risk to both insurance agencies and property owners in Oregon.

OFCA Taskforce goals

Gather ISO Experiences Provide member support Evaluate ISO Identify Options Establish supervision

Task Force Members Dan Petersen, Fire Chief, Jackson County Fire District 3,

Chair John Nohr, Deputy Chief, Portland Fire Bureau Mike Duyck, Fire Chief, Tualatin Valley Fire and Rescue Jim Wenzel, Fire Chief, Klamath Falls Fire District 1 Ted Kunze, Fire Chief, Canby Fire District Brett Fillis, Fire Chief, Applegate Fire District 9 Devon Wells, Fire Chief, Hood River Fire & EMS Doug Koellermeier, Deputy Chief, Bend Fire and Rescue David Sellers, President, Oregon Volunteer Firefighters

Association John Buchanan, Fire Chief, Siuslaw Valley Fire & Rescue Mark Prince, Operations Chief, Hillsboro Fire Margie Moulin, Director, Emergency Communications of

Southern Or. Kelly Dutra, Director, Washington County Consolidated

Communications

What does the ISO do?

Classifies the communities ability to suppress fires to help establish appropriate fire insurance premiums.

Public Protection Classification of 1-10

Evaluate water supply, dispatch, and fire department

New schedule also evaluates operational considerations and community risk reduction

They do not rate your Fire Department

Oregon Fire Departments

What is the classification rating for the majority of Oregon Fire Agencies? Class 8 or 8b for hauled water areas Class 4 or 5 for hydranted areas

What is a class 9? A system with credible dispatch and fire

department but no credible water supply What is a Class 10?

Community that does not meet minimum criteria

If you did not exist…

Insurance for $150,000 home Unavailable or $897 per year

What is the cost of Insurance if you form a Class 8b Fire Department? $680 per year. A savings of $217 per year

How much could a community of 1000 homes save if they form a Class 8b Fire Department? $217,000 per year

Rate quoted by Country Financial in Southern Oregon. Your rate may vary.

Hauled Water Area

Cost of Insurance for $150,000 home Class 9 - $853

4.9% less than 10, a savings of $44 per year Class 8b - $680

20.3% less than 9, a savings of $173 per year Class 7 - $627

7.8% less than 8, a savings of $53 per year Class 6 - $574

8.5% less than 7, a savings of $53 per year

Rate quoted by Country Financial in Southern Oregon. Your rate may vary.

Community Savings

What are the savings to a community with 10,000 homes? Improving a Class 9 to a Class 8b

$1,730,000 per year Class 7 compared to Class 10 (No FD)

$2,700,000 per year

Rate quoted by Country Financial in Southern Oregon. Your rate may vary.

Hydranted Area

Cost of Insurance for $150,000 home Class 5 - $552

3.8% less than 6, a savings of $22 per year Class 4- $505

8.5% less than 5, a savings of $47 per year Class 3 - $465

8% less than 4, a savings of $40 per year

Rate quoted by Country Financial in Southern Oregon. Your rate may vary.

Community Savings

What are the savings to a community with 10,000 homes? Improving a Class 5 to a Class 4

$470,000 per year Class 3 compared to Class 10 (No FD)

$4,324,000 per year What about for 20,000 homes?

$8,648,000 per yearRate quoted by Country Financial in Southern Oregon. Your rate may vary.

Who is the ISO?

Founded in 1971 Private for profit in 1997 Verisk founded in 2008 by ISO

Executives Employs over 3500 staff 47,000 fire response jurisdictions Funded by subscriber insurance

companies

Experience with ISO

Very little transparency Most documents are considered proprietary

Portions of the rating schedule “just don’t make sense” Cannot find the science behind the

requirements Little consistency in the application Impossible to learn all the impacts in your

grading For profit company

They are not here for the community

Oregon Regulations

Division of the Department of Consumer and Business Services Laura Cali, Insurance Commissioner

To protect the public by ensuring the financial soundness of insurers, the availability and affordability of insurance, and fair treatment of policyholders while maintaining a positive business climate.

OREGON INSURANCE DIVISION MISSION

State-based insurance regulation focuses on consumer protection through financial solvency, product compliance, and market conduct Oregon Insurance Division (OID) structure:

» Administration» Financial & Producer Regulation» Product Regulation» Market Regulation

Authority over all major lines of business:» Property & casualty (includes personal and commercial

products, such as homeowners, commercial property, and general liability)

» Life & annuities» Health

Regulated entities:» Insurance companies, producers, rating bureaus, etc.

Rating organizations in Oregon

Four licensed property rating organizations:» ISO (Insurance Services Organizations)» AAIS (American Association of

Insurance Services)» Washington Survey and Rating

Bureau» MSO, Inc. of New Jersey

Three of the four have rating plans on file with OID

Rating organizations serve many roles within the insurance industry Statistical agent

» Collects claim and exposure information for use in setting loss costs

» “Loss cost” is the portion of premium that covers claim costs Loss cost development

» Files loss costs on behalf of members and subscribers to use in developing rates

Classification rating plan development» Files classification rating plans for members and subscribers for

use in Oregon Policy form development

» Files policy forms for members and subscribers to use in developing their insurance contract language

Insurer use of rating organizations & OID authority Member insurers can rely on rating organization filings,

but have flexibility» Insurers must file their own expense and profit provisions with

OID» Insurers may choose whether and to what degree to adopt a

rating organization’s rating plan and/or policy forms» Insurers may develop independent classification plans or rating

systems OID’s regulatory authority

» Licensure» Form, plan, and rate filings» Market conduct

▹ OID may independently examine rating organizations▹ OID also participates in multi-state exams through the National

Association of Insurance Commissioners (NAIC)

OID review of rating organization classification and rating plans Property & casualty rating plans are “file and use” OID actuaries review filings for compliance with state

laws and actuarial soundness» Reasonable» Not excessive or inadequate» Not unfairly discriminatory

Rating plans must reflect differences in expected losses or expenses» Rating organizations file statistical support» Actuaries evaluate whether rating plan is a reasonable predictor

of claims experience» Causal relationship not necessarily required

OID rating plan review considerations Unfair discrimination statute requires that two

policyholders with the same expected claims costs not be rated differently» Rating categories must be clear and mutually exclusive» Must have sufficient detail to understand how each policyholder is rated

Rating plans may include factors outside an actuary’s traditional area of expertise, such as:» Building code effectiveness» Fire protection» Type of construction» Site geology

OID may seek input from other agencies, entities, or interested parties to obtain subject matter expertise

Market Regulation unit responsible for investigating concerns with rating plan compliance

Washington Survey and Rating Bureau

Non-Profit Transparent with documents and

process Similar schedule

Working with OFCA to address Oregon issues

Need to evaluate the impact of this schedule on your existing rating

Washington Fire Chiefs rate the organization highly

Actions

Insurance Commissioner working with the ISO to address the OFCA’s concerns

Fire Districts need to follow their policy on fees for service with private companies

OFCA is working with the WSRB to prepare their schedule for filing in Oregon

OFCA will evaluate the impact of a new rating schedule on a sample of communities

Task Force Mission

To evaluate and identify options for a credible science/performance based fire insurance rating system that assesses the ability of fire agencies to reduce the risk to both insurance agencies and property owners in Oregon.

Questions?

Dan Petersen, Fire ChiefJackson County Fire District 3Chair of OFCA Fire Insurance Task Forcedanp@jcfd3.com

Laura Cali, Insurance CommissionerOregon Department of Consumer and Business Services, Insurance Divisionlaura.n.cali@state.or.us