Insurance for buildings may be costly, and is therefore a major construction consideration. This is particularly the case in commercial structures.
The insurance industry uses the following criteria to evaluate the loss potential of buildings:
- Occupancy load (type of business)
- Exposure (possible risk of loss)
- Construction type (wood, steel, or concrete)
- Special hazards
- Protection (sprinklers, fire alarms)
Occupancy loads and exposure are the two primary decision factors for insurance companies because these factors in particular influence the risk of loss. The construction type (e.g. post frame, steel frame, etc.) portion of the rate does not typically vary by more than 5% from the most combustible to the least combustible designation for larger commercial/industrial buildings. This is based on research performed in the Midwest.
Bert Cohn Associates, Inc., 1992, “Insurance Rate Comparison for Selected States, Tentatives and Lost Cost Basis Rates.” Prepared from Specific Commercial Property Evaluations Schedule, July 1990 Edition, by ISO Commercial Risk Services, Inc. Compilation and graphics by Bert Cohn Associates.
In addition, buildings of three stories or less are often underwritten using a global or class rate system which does not even differentiate by construction type. Increased building protection from sprinklers, periodic security checks, fire alarms connected to the fire department, etc., can dramatically lower insurance rates because of the reduced possibility of large fire losses.
Insurance ratings are often building-specific. They are based primarily on the statistical loss experience and loss severity of the building type as it pertains to specific geographic regions. In some cases, insurance companies use the global Insurance Services Office (ISO) loss statistics. In other cases, they use their own loss experience. Both influence the ultimate insurance rate quoted.
All of this means the cost of insuring a post-frame building should be comparable to the cost of insuring a steel-frame building. The key to getting the best insurance rate is to get several bids from different insurance brokers using different insurance companies. It is also helpful to add fire detection and protection systems to get the lowest possible rates.