C.O.P.E. and the Commercial Risk

Last week, we introduced our series on commercial insurance for personal lines agents and underwriters. One concept that may be familiar to all property/casualty insurance agents is C.O.P.E. Today, we will discuss C.O.P.E. as it relates to commercial property and provide some examples of how an agent may use the concept in their discussion of an account. Let’s look at the acronym and break down its four components:



Construction refers to the building materials and features of the building that the insured is operating in. Is the building frame, masonry, joisted masonry, or some combination of materials? How big is the building? What kind of roof is in place? How old is the building? Have updates been made to it? These characteristics will give the agent an indication of the insurable value of the building, and they will indicate the biggest risks to the building. For instance, if the building is frame as opposed to masonry non-combustible, the agent will recognize that there is a higher fire risk. It is important to keep in mind that the construction of the building is relevant in underwriting the account, even if the insured does not own the building but is requesting contents coverage.

Image via fireengineering.com



The occupancy of the building will provide the agent with more details as to what hazards may exist based on the operations being performed in the building. For instance, a restaurant will have more fire concerns than a retail store, which will have more theft concerns than an attorney’s office. In addition, when discussing occupancy, the specific insured’s housekeeping and habits can be considered: A restaurant with owners who exhibit pride of ownership by maintaining their kitchen to the highest standard will present a more favorable risk than one whose kitchen has layers of old grease on the fryer.

Image via knudsensgaard.dk



Protection refers to both systems in the specific buildings and public protection, i.e. distance from fire department. Risks that are more likely to experience theft losses should consider security systems. Risks with higher probability of fire losses should install sprinkler systems and dust collections systems, as appropriate. ISO protection classes will provide information on public protection available at the building.

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Exposure refers to the hazards presented by the area in which the insured’s building is located. Many businesses are in industrial parks or strip malls. Understanding what is in the buildings or units that are adjacent to the insured will provide insight as to whether there is a higher risk of fire or other type of loss. If there is a concern, it will be important to determine if measures can be taken to mitigate it. As an example, if a clothing store is in a strip mall, and the neighboring unit is a restaurant whose kitchen shares the wall with the retailer, is the appropriate firewall installed? Does the neighbor have adequate hood and duct and sprinkler systems?

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Of these four concepts, Occupancy and Exposure are likely the two that will be most different from the discussions that agents have with their personal lines customers. Understanding them and being able to discuss them can be of high value in consultations with potential or existing commercial clients. If the agent truly understand what the potential insured is doing and what hazards their operations present, she may advise the client on how to mitigate or avoid certain common risks inherent in this type of operation. Understanding the Exposure concerns that external hazards present will allow the agent to make similar recommendations in protecting the business from damage caused by the surrounding area.

As our readers commented after the first article in the series, commercial clients often view their insurance agents as a true partner, and commercial agents have the opportunity to create a valuable experience for the insured by helping them improve their business practices to avoid unnecessary risk.

This article is a brief overview of a popular underwriting concept and a good tool for agents to use to clarify their thoughts on a property risk.

About Carly Burnham

Carly Burnham began her insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. She got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how she fell in love with the industry. She saw firsthand the good that insurance consumers experienced by having the proper protection. When Carly moved to Des Moines in 2010, she decided to commit to the industry, and she completed her CPCU in one year finishing it in 2012 and attending commencement in New Orleans. She completed her MBA at Iowa State University in 2014. During this time, she and Tony founded a Gen Y Associate Resource Group at Nationwide in Des Moines. After they had both left Nationwide, Tony recruited Carly to co-author and manage InsNerds.com. She has the difficult task of keeping his constant flow of crazy ideas focused and helping to flesh them out into useful articles. Carly enjoys sharing knowledge and ideas about the future of the industry and finds the website a good outlet for this passion. Carly is involved in the the CPCU Society Underwriting Interest Group. She also writes "Next Wave" a monthly column in the "Perspectives" section of Best's Review.

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