Fire Insurance Ratings

1. Fire Insurance Ratings Dan Petersen, Fire Chief Jackson County Fire District 3 Chair of OFCA Fire Insurance Task Force Laura Cali, Insurance Commissioner Oregon Department of Consumer and Business Services, Insurance Division

2. 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

3. 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.

4. OFCA Taskforce goals • Gather ISO Experiences • Provide member support • Evaluate ISO • Identify Options • Establish supervision

5. 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

6. 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

7. 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

8. If you did not exist… • Insurancefor $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.

9. HauledWater 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.

10. 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.

11. 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.

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

13. 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

14. 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

15. Oregon Regulations • Division of the Department of Consumer and Business Services • Laura Cali, Insurance Commissioner

16. Oregon Insurance Division Mission 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.

17. 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.

18. 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

19. 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

20. 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)

21. 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

22. 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

23. 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

24. 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

25. 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.

26. Questions? Dan Petersen, Fire Chief Jackson County Fire District 3 Chair of OFCA Fire Insurance Task Force danp@jcfd3.com Laura Cali, Insurance Commissioner Oregon Department of Consumer and Business Services, Insurance Division laura.n.cali@state.or.us