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Thread: Insurance companies that have stopped using ISO

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    Default Insurance companies that have stopped using ISO

    I'm trying to find out if anyone has ever done their own research, or perhaps can point to a source, on what major insurance companies have gone away from using ISO fire ratings in determining their rates. I know that the nation's largest insurance company, State Farm, stopped using ISO back in 2000. It sounds like many other companies are focusing more on distance to a fire station rather than ISO ratings. What experiences have others had?

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    I've not heard of any others besides State Farm, ditching ISO. I would think that would be a very difficult thing to do without being able to use historical data to predict risk. By using distance alone they'd be saying no FD is better or worse than another, likely a losing strategy when it comes to minimizing payouts. It would be interesting to hear how State Farm assigns risk values to different communities or areas?

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    Supposedly State Farm uses their own formula for coming up with a risk factor based on a combination of things like distance to nearest fire station and historical fire loss data for that area. I'm told a lot of insurance companies have gone to similar proprietary assessment methods, while others utilize a combination of ISO and their system. Unfortunately trying to get information out of insurance companies about how they assess fire insurance rates is like pulling teeth. Most of them simply refuse to give out such information unless you happen to be personally insured through their company.

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    When researching here in northwestern PA, I talked with Nationwide, Erie, insurance, and State Farm. All of them are using their own formulas and not just going with ISO. I am not sure if this is company wide or a regional thing, but for the local agents, none use ISO.

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    Quote Originally Posted by HuntPA View Post
    When researching here in northwestern PA, I talked with Nationwide, Erie, insurance, and State Farm. All of them are using their own formulas and not just going with ISO. I am not sure if this is company wide or a regional thing, but for the local agents, none use ISO.
    I guess it's their money, but I'd hope the state regulators would require some sort of validation process of assigning risk and then setting rates based on said risk assessment. There's plenty of towns with very little historical fire data as opposed to larger areas, that are now seeing a more new housing starts due to people leaving the "urban areas" in search of cheaper living.
    Last edited by RFDACM02; 01-09-2014 at 01:20 PM. Reason: keyboard caused misspelled words

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    Quote Originally Posted by RFDACM02 View Post
    I guess it's their money, but I'd hope the state regulators would require some sort of validation process of assigning risk and then setting rates based on said risk assessment. There's plenty of towns with very little historical fire data as opposed to larger areas, that are now seeing a more new housing starts due to people leaving the "urban areas" in search of cheaper living.
    That's true, but I do have to say I'd appreciate a more all encompassing approach to assigning fire rating than what ISO uses. We have a residential sprinkler requirement, and as a result we get nearly zero fires. In 5 years, I think we've had about 3 working structure fires of any type. But because ISO says we should have these unattainable staffing level on our engines (given our budget), we're likely going to get a significant points hit when they evaluate us. Personally, I like the State Farm method a bit better.

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    While it is true that State Farm does not use just the ISO rating for the area, they do purchase that information along with other data from ISO for their own determination.

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    Quote Originally Posted by Chief_Roy View Post
    That's true, but I do have to say I'd appreciate a more all encompassing approach to assigning fire rating than what ISO uses. We have a residential sprinkler requirement, and as a result we get nearly zero fires. In 5 years, I think we've had about 3 working structure fires of any type. But because ISO says we should have these unattainable staffing level on our engines (given our budget), we're likely going to get a significant points hit when they evaluate us. Personally, I like the State Farm method a bit better.
    I guess I take the insurance racket as the: What if it does happen? With that "model" they don't account for the number of fires, but the potential for the communities systems (dispatch, FD, water supply) to minimize their losses. If you have sprinkler ordinances/laws (Kudo's), they should be addressing that with a specific break on the fire portion of the homeowners bill. In our state the Fire Marshal's Office verified that every insurance company gave a discount to property owners who had properly installed residential sprinklers, albeit a meager one ranging from 5-20% off the fire portion of the bill.

    I'm not a big supporter of ISO in the general sense, but I do think that the US Fire Service needs one standard by which to be judged, so the taxpayers understand the true costs and benefits of properly funding fire protection services. When there is no comparable standards, the people who want to pay less point to the all volunteers and say "see how cheap a FD can be" and those who suffer a loss wonder why we don't get FDNY quality service.
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    In the last month we have had calls from two different insurance compaines, Allstate and Liberty Mutual. They asked several questions such as our engine pump size, how much water we carry, if we could maintain a certian flow for a period of time, etc. Before this they only things they have ever wanted were either copies of run reports or if so and so lived in our response district. Funny thing was they never asked our ISO rating, I should have asked if they still used it but didn't think about it at the time. The other thing was the calls weren't from the local agents they were from out of state, maybe more are moving away from solely using ISO. I did ask our Local State Farm agent several years ago about them not using ISO and he stated they used actual fire loss by zip code in determining their rates.
    Last edited by ca3ture; 01-10-2014 at 10:48 PM.

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    If you want to affect a change in the way the insurance industry determines fire insurance rates it will need to be accomplished at the legislative level. The majority of the state legislatures mandate that ISO, or more specifically Verarisk, data must be used in determining insurance risk. As far as what insurance companies no longer utilize ISO data there are a few with the largest being State Farm. What I can tell you is that even State Farm changes its rates based on a community’s ISO rating. If they didn’t, they would lose out on sales when a community improves their ISO rating. I know this for a first hand fact. I have been insured with State Farm from going on 40 years. I can tell you when I worked with the local fire department to improve their ISO rating from a Class 7/9 to a 3/3, my personal insurance rates from State Farm decreased by almost $600 a year. State Farm is following industry standard. They save the millions of dollars a year it would cost to purchase the ISO information and then follow the industry standard to sell insurance. If the rates are increasing due to regressions in ISO ratings then they adjust their rates up. If the insurance rates improve, they adjust their rates down. It’s the power of the free market place…. If Chevrolet started selling all of their vehicles for $10,000…. Don’t kid yourself into thinking that Ford would keep selling them at $40,000.

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    Since my original posting, we've asked some of our staff to contact their own personal insurance agents to see if they could find out what data their companies are using. The ones who could get an answer from their agents reported that the vast majority of the companies aren't using ISO at all, or if they are using it they're using it in conjunction with their own formulas. Relying on the "historical fire loss by zip code" data apparently has become quite popular. Only one of our staff reported that his agent still relied heavily on ISO ratings in determining rates, but he also stated the agent said that they consider ISO ratings of 4-7 to be "all the same."

    I get that ISO still has some level of relevance. I would think/hope that at some point they'll start relying heavily on things like historic fire loss data as well when it comes to calculating fire rating.

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    Quote Originally Posted by Chief_Roy View Post
    I get that ISO still has some level of relevance. I would think/hope that at some point they'll start relying heavily on things like historic fire loss data as well when it comes to calculating fire rating.
    I'm pretty sure that in Maine ISO 1,2&3 are in the same rate band as 4-7, and then 8&9. My understanding is that this is "set" (agreed upon?) by the State office that oversee insurance issues?

    On the above quote, I can only ask: What if you have very few fires over the historical period viewed? How does that translate to how well you'll fight the next fire? many small towns in our area would have very few fires to determine use for stats, so the FD will look great and risk will seem low, but that means little about how they fight the fire in the McMansions that area being built as people migrate out of the cities.

    Again, ISO may not be close to perfect, but historical data is often lacking in smaller communities. Anytime you have a small sample to use, you have a much greater margin of error. I doubt too many insurance companies want to get "burned" by bad conclusions?

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    I was doing some research one time several years ago and asked several insurers in my area a similar question. If I recall correctly, State Farm and Allstate were two that do not rely on ISO, but instead on their own formula. There were approximately 5 insurers in the Iowa area that use their own formula, some of them stating that it is similar to ISO.

    My personal carrier uses ISO.

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    Quote Originally Posted by RFDACM02 View Post
    On the above quote, I can only ask: What if you have very few fires over the historical period viewed? How does that translate to how well you'll fight the next fire? many small towns in our area would have very few fires to determine use for stats, so the FD will look great and risk will seem low, but that means little about how they fight the fire in the McMansions that area being built as people migrate out of the cities.

    Again, ISO may not be close to perfect, but historical data is often lacking in smaller communities. Anytime you have a small sample to use, you have a much greater margin of error. I doubt too many insurance companies want to get "burned" by bad conclusions?
    You bring up a very good point, and I'm not certain the best answer. I guess maybe using some combination of ISO and historical fire data might be the best route until somebody develops a better system. Let me give you a sort of reverse hypothetical, however: Let's say we have a mythical city that's managed to reduce their fires to one every 10 years due to strict residential sprinkler codes that even required the retrofitting of every single structure in the municipality. As a result, the city gradually reduced their staffed engine companies from four to one. Even the number of fire stations were reduced to one. ISO comes in to town for an evaluation, and decides based on population, demographics, etc, that the city needs to have at least five fully staffed engines located in 5 different stations to stay within the required "road miles" of a first due engine. Depending on other factors, this agency could quite likely end up with a pretty dismal ISO rating.

    Again, this is just for discussion. I don't begin to claim my agency is anything like this imaginary one. I'm just trying to highlight the potential downsides of weighing too heavily on ISO ratings. Sure, a commercial airliner could crash in to the middle of this town and instantly create a situation that their one engine company and one fire station would have almost no chance of mitigating, but few agencies can afford to budget and staff for every possible scenario, nor do I think they should.

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    Quote Originally Posted by Chief_Roy View Post
    You bring up a very good point, and I'm not certain the best answer. I guess maybe using some combination of ISO and historical fire data might be the best route until somebody develops a better system. Let me give you a sort of reverse hypothetical, however: Let's say we have a mythical city that's managed to reduce their fires to one every 10 years due to strict residential sprinkler codes that even required the retrofitting of every single structure in the municipality. As a result, the city gradually reduced their staffed engine companies from four to one. Even the number of fire stations were reduced to one. ISO comes in to town for an evaluation, and decides based on population, demographics, etc, that the city needs to have at least five fully staffed engines located in 5 different stations to stay within the required "road miles" of a first due engine. Depending on other factors, this agency could quite likely end up with a pretty dismal ISO rating.
    I know I wouldn't want that one fire to be at my house. I think given your hypothetical the real issue would be the lack of proper incentives from insurance companies for the sprinklers that would offset and fire insurance costs. I'm still believe a FD must be capable of properly fighting a fire.

    It's my understanding that insurance companies already ignore ISO FD ratings to determine risks for commercial buildings with sprinklers, maybe the formula used on them should be applied to sprinklered homes.

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    Quote Originally Posted by LVFD301 View Post
    While it is true that State Farm does not use just the ISO rating for the area, they do purchase that information along with other data from ISO for their own determination.
    This is the most recent information I have received. We just had an ISO inspection and I asked the inspector about State Farm. He said State Farm buys their information, compares it to their own, and makes a determination of risk. There are others who do the same thing.
    Jason Knecht
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    Checked with local insurance provider.....in NJ, ISO is still heavily used/relied on. Even by State Farm. Wonder if its part of the NJ State insurance requirements? Do states have the power to decide what insurance companies do/don't use for their data to provide coverage in the state?
    "This thread is being closed as it is off-topic and not related to the fire industry." - Isn't that what the Off Duty forum was for?

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