Property Insurance Basics: Rates, Premiums & Insurance Company Ratings

Property management means you end up having to know a little bit about a lot of different things. And while you may know that property insurance is important for your business, it’s not always easy to find good information on the basics and how they can affect your own risk levels and bottom line. This post will do just that.

And there’s no better place to start than with property insurance rates.

What is a Property Insurance Rate?

A property insurance rate is the cost you pay to an insurer for a specific quantity of property coverage, for a set timeframe, offsetting losses to that property in the case of an accident, catastrophe or other risk event. This is called an “exposure unit.” and generally, these rates are valid by the month or year. An example of a rate would be $1,000 worth of coverage at a cost of $10.00 per year.

Sounds simple enough, right? Interestingly, there are actually many factors that go into calculating an insurance rate.

How Are Property Insurance Rates Calculated?

A rate depends on the cost of any agent commissions, expenses, profit margins and the type of property you’re insuring. (For instance, a vehicle and a school building will have very different rates.) But a rate also depends on the risk for potential claims payments on the property. What this means is the features of the property to be insured can raise or lower your rate depending on the amount of risk associated with that feature and the type of insurance you’re purchasing.

For example, for windstorm insurance, the type of roof and how it’s connected to the building frame can be an important factor to calculate your insurance rate, because different materials and structural designs are more or less subject to wind damage. For flood insurance, factors affecting your rate might be the proximity to a body of water, the elevation, history of flooding in the area, etc. For any kind of property insurance there are a myriad of details – called COPE data – that are taken into account when calculating your insurance rate. COPE is an acronym that stands for Construction, Occupancy, Protection and Exposure, four categories of information that are collected about each property to calculate a rate. The more thorough your COPE data, the more comprehensive and accurate your insurance coverage will be. And by demonstrating that your property has features that promote safety and reduce risk, you can help ensure you receive a better rate and, in turn, potentially lower insurance premiums.

Speaking of premiums, insurance premiums and rates are very different things, even though people tend to use the terms interchangeably. So, you may ask…

What is an Insurance Premium and How is it Different from a Rate?

A premium is the total cost you pay for the number of exposure units you choose to insure based on a property’s replacement value. In the case of the rate example we gave above, if you wanted full coverage on, say, a commercial building, and the building was worth $1 million to replace, you would pay a premium of $10,000 for a year of insurance coverage at the rate of $10 per $1,000 exposure units a year. Some premiums are yearly and some are split into monthly premium payments. By paying the premium, you purchase coverage for any claims made against your policy. But be careful– neglect to pay the premiums, your policy may be cancelled

What About Insurance Ratings?

In addition to rates and premiums, you may have also heard industry professionals talk about insurance ratings. What are they? Insurance ratings rate the financial and overall business stability of the insurance provider themselves. When you’re choosing a property insurance provider, selecting one rated as financially strong can be important because well-rated providers demonstrate they have the financial capacity to pay a claim to you, if a risk event on your property should occur. Note, insurance ratings do not rate the customer service you’ll receive regarding your claim. They only suggest you can enjoy greater peace of mind by doing business with that provider, knowing that your company or organization is unlikely to face a significant financial loss, if you file a claim.

Several firms rank insurance companies’ financial ratings, including:

  • A.M. Best
  • Fitch Ratings
  • Moody’s
  • Standard and Poor’s

Their rating systems are graded from “excellent” or “superior” on the high end, to “poor” or “distressed” on the low end. Each level is associated with an alphabetical grade that varies across ranking firms, with AAA (or A++) being best and C or D grades representing the lowest.

The insurer is rated on both quantitative and qualitative elements. This means an insurer would be assessed for specific items like their long-term credit and their balance sheet, but also more subjective elements like their loss reserves and risk management strategies, as well as potential outside affecting factors like parent company credit ratings and any potential currency transfer risks in the international market. As a result, these ratings are opinions and are intended to be used as guidelines, not necessarily predictors of actual outcomes. Nonetheless, knowing the rating of a prospective insurer can help protect you and your property from potential unpaid claims.

Get the Most from Your Property Insurance

By understanding the meaning and nuances behind common insurance terms like rates, premiums and insurance ratings, you become better empowered to pull the property data you need, make better decisions, and secure the policy that works for you.

For more information on the property data insurance companies look for to calculate rates and premiums, fill out the form below and a member of our team will be in touch!

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