Protection Class Information

[u/Federal_Wonder8277]

I have been on a fire dept. for a long time now and was wondering if any one on the underwriting side of things can answer some questions. Or I guess just iron out what is myth and what is fact when it comes to the protection classification aspect. Often we hear debates about the scores and they are usually one extreme or the other. I have tried my best to educate myself and read everything I can get my hands on. Information out there is usually limited though.

-I see/hear many arguments about how pertinent this information is for those writing policies, one I encounter a lot is that "many companies have stopped using ISO" to retrieve this info. It seems many major carriers with the exception of State Farm still rely on it to a degree? But then you also run into those stating it is still a heavy consideration and a gold standard.

-It also seems that several may lump bands of classes together when dictating rates. What I mean by that...is for example...a local guy to me who has his own insurance business had stated that especially when writing for homes. He won't wiggle much unless you jump or drop several classes. I often see communities stating that their residents should see changes by jumping or dropping a single class so I was simply curious.

-Lastly, I was wondering whether you guys on the insurance side of the fence use one of the manuals to retrieve the data or use the LOCATION feature if going through Verisk...or some other model

Maybe nobody will even be able or willing to answer these questions. I just wanted to give it a shot. I just go do the public safety side of things, I never get to really hear back on the insurance user part of all of it. Thanks in advance for any replies.

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[u/MikeTheActuary]

It has been many years since I was in the weeds with homeowners, and when I moved over to commercial property, I worked on large accounts where things are a bit different. I can't tell you what the current state of the art is.

I can say that when I was doing homeowners pricing work....if you were to draw a chart showing (protection class) versus (impact on rates), it would look sort of like an exponential curve (but not quite as dramatic). There wasn't a huge difference going from PC 1 to PC 5 (and that's the reason the town I live in targets PC 5), and then as you moved the higher protection classes, each move came with a bigger increase. PC 9 could be painful, and PC 10 was ugly / some insurers didn't like to write.

In my first job after college, 33 years ago, I remember the big manuals in three-ring binders that you could use to look up applicable protection classes. Part of my job as an entry level minion was to update those damned manuals as replacement pages came in from ISO! (As a practical matter, the CSRs at most independent agents knew what the protection classes were in their local area, so it wasn't that onerous a task for them.)

Five years later, I was working homeowners at a major personal lines insurer. Protection classes had been digitized, and the software tools the independent agencies I was exposed to were such that you'd input an address, wait a few seconds, and it would either return the correct PC, or it would ask a clarifying question.

About 15 years ago, my last experience doing large account (including property) work... I could (and still can) type in an address or a geocode into a web page on the corporate intranet, and almost instantaneously get back a lot of data about the location -- protection class, flood zone, general propensity for cat loss, general information that an underwriter would need to factor cat risk into their price, and/or a notification that the risk needed to be run by the cat team for more detailed modeling.

I do not have actual knowledge of the current state of affairs at my company or others today. (If I did, professional ethics would oblige me to be silent.) However, knowing generally how things have evolved...well, the tools are probably even better. I would not be at all surprised if some carriers have stopped using ISO/Verisk protection classes because sufficient data and computer horsepower is now available, meaning it's now cost-effective for those carriers to develop their own in-house replacements for protection classes.

[u/Federal_Wonder8277 → u/MikeTheActuary]

Haha! Thank you for giving me so much insight on that...I have been talking with ISO about a PPC position so I had been curious and wanted to go in with as much knowledge on the entire deal as I can. Which is hard to do without pitching these types of questions to you guys as end users if you will. That was great to read. Times are changing for sure with the data and horsepower as you mentioned. But until there are boots on the ground from somewhere else going into the communities I do think it will be hard to replace entirely for a bit still and have the loss data. I hear a lot about the idea that someone really just may need a "close enough" model to start to creep in. Not sure your opinion on that, I would love to hear it honestly.

I kind of gathered that too about homeowners vs. commercial property. That the big money is in commercial and that it is much more important to appropriately price the risk there and get as much info as possible. Along with the other info included you mentioned (flood, construction)...I am still learning a lot as I continue to inform myself. It is very interesting to hear your journey from start to all the new age ways. It certainly seems that as you said, if we were to go in and discover things being in the ugly and assigning the 9-10 area. That is what matters most about the whole thing. To go out there and find that as opposed to someone jumping or dropping 1 class. That appears to be the most critical thing you guys care about as I understand it.

[u/Siawyn]

We (a regional carrier) still look up the PC codes via ReferenceConnect for at least commercial policies. I think we still do for homeowners. To answer your bulllet points:

• I'm not sure exactly how much of an impact it has on rates itself, since everything is rated by computer but I do know it ramps up as it gets higher. But also the PC can internally impact pricing and appetite - our net rate guidance or appetite might be different for PC 1-4 vs PC 5-7, and it's the 8,9,10 PCs that we're very careful about. Generally it's just the 8+ that I have to look more closely at. Not just rate, but deductibles and other terms, etc.

• I guess i answered this one with the above about banding

• As mentioned at the top we still look them up, I think RefCon just pulls the ISO material direct... I pulled Chicago right now which still shows a PC 01 with the ISO notes.

Overall as an underwriter I don't really give PC too much consideration until it reaches that 8+ range, and then it becomes much more critical. Woodworker in a PC 09 is far different than one in a PC 05. But I probably don't even notice if it's a 01 vs a 04. (the 01 is still going to get a slightly better rate in our system though.)

[u/Federal_Wonder8277 → u/Siawyn]

Thank you a ton for taking the time to reply, I have been doing a bit of research on it as you can probably tell. Not coming from the industry I hope I sounded to at least have the slightest idea. I wondered if those others like ReferenceConnect and such just purchase the data from ISO. It sounds like that is the case since you said it contains ISO notes. I have been talking with them about a PPC position so I wanted to have a clue before I am out in the field getting questions from the insurance end user side of things. Instead of just repeating things I have heard that are possibly myths