Executive Development. The Insurance Service Office (ISO): Do. Insurance Companies Still Use It and What. is It s Impact on Insurance Rates?

The Insurance Service Office 1 Running head: DO INSURANCE COMPANIES UTILIZE ISO Executive Development The Insurance Service Office (ISO): Do Insurance Companies Still Use It and What is It s Impact on Insurance Rates? Chief Mark A. Foulks Greeneville (TN) Fire Department January 2007

The Insurance Service Office 2 Certification Statement I hereby certify that this paper constitutes my own product, that where the language of others is set forth, quotation marks so indicate, and that appropriate credit is given where I have used the language, ideas, expressions, or writings of another. Signed:

The Insurance Service Office 3 Abstract The issue of whether the Insurance Service Office (ISO) is still utilized by insurance companies to determine property insurance rate was investigated. This was accomplished using the descriptive method of research and resulted from the problem of a lack of understanding of the ISO classification system and its impact on communities. The study sought to define the ISO s public protection classification system and to determine how insurers in Greeneville determine property insurance rates. It also sought to determine how a change in Greeneville s ISO classification would affect business and residential insurance rates. Questionnaires were sent to local insurance agents seeking information regarding this study. The results of this study determined that the ISO public protection classification system has a significant impact on residential and business insurance rates in Greeneville. The author recommended that fire chiefs and municipal and county administrators develop a better understanding of the ISO public protection classification system and its implications on a community. It was also recommended that planning should include ISO recommendations along with other national standards and guidelines. The author also recommended that the Greeneville Fire Department should seek to improve its current ISO classification of 4 to Class 3 because of the positive impacts on insurance rates for its citizens and the lack of benefit of seeking classifications lower than Class 3.

The Insurance Service Office 4 Table of Contents Page Certification Statement. 2 Abstract 3 Table of Contents. 4 Introduction.. 5 Background and Significance.. 6 Literature Review. 8 Procedures 10 Results.. 12 Discussion 17 Recommendations 20 References 23 Appendix A Insurance Agent Questionnaire 24 Appendix B Table of Residential Property Questionnaire Results.. 27 Appendix C Table of $500,000.00 Business Property Questionnaire Results. 28 Appendix D Table of $1,000,000.00 Business Property Questionnaire Results.. 29

The Insurance Service Office 5 Introduction Fire Chiefs and Municipal Administrators are constantly striving to provide the highest possible level of service at a reasonable cost for their citizens. Industry standards, accreditation standards, and third-party recommendations are evaluated based on their validity, impact, and cost. Budgets are tight and Chiefs must determine when to replace aging equipment, what equipment to buy, how many personnel are needed, how personnel are deployed, etc. Taxpayers demand accountability for their tax dollar (as they should), so elected officials and department heads must determine how to utilize tax revenue in the most appropriate manner. The cost of following or not following a standard or recommendation can be very costly, due vigilance must accompany the decision making processes. The problem this research will address is that the lack of understanding of the use of the Insurance Service Office (ISO) classification system by the fire department may result in significant insurance rate hikes for businesses and residents in Greeneville. The purpose of this study is to determine if insurance companies use the ISO Public Protection Classification (PPC) system and the potential impacts that the ISO classifications have on business and residential property insurance rates. The research method for this study is the descriptive research method. The research questions are: 1. What is the ISO public protection classification system? 2. How do insurers in Greeneville determine property insurance rates for business and residential properties? 3. How does a change in the ISO public protection classification affect business and residential insurance rates in Greeneville?

The Insurance Service Office 6 Background and Significance Greeneville is a city in upper East Tennessee which is rich in history and is approximately 14.04 square miles in size with a population of 15,198. The most significant source of employment is manufacturing industry, several industrial parks and large plants lie within the city limits of Greeneville. The second leading area of employment is healthcare and education. The Greeneville Fire Department is comprised of forty-two (42) paid uniform body personnel and thirteen (13) auxiliary (paid, on-call) personnel. The department currently has three personnel assigned to administrative positions including the Chief, Training Officer, and Fire Marshall. Thirty-nine personnel are assigned to Operations, thirteen personnel per shift on a 24/48 shift schedule. The department has four stations and seven apparatus, four front-line and three reserve apparatus. Minimum staffing is currently two per apparatus and a shift commander. Like many other fire departments around the country the Greeneville Fire Department has significant issues related to National Fire Protection Association (NFPA) and Insurance Service Office (ISO) recommendations. The primary issues are derived from poor documentation, an aging fleet of apparatus, and lack of manpower. Similar to most any other community in the country, the Town of Greeneville strives to provide the best available services to its citizens in a fiscally responsible manner. As with most other communities the fire department competes with other city departments for funding and the elected officials must weigh the needs of the community and allocate resources in an appropriate manner. The challenge that fire departments and government officials face is to understand how much of an impact that national standards can have on both the department and the

The Insurance Service Office 7 community. The validity of industry standards and accreditation guidelines weigh heavily versus the costs of implementing many of the recommendations. One organization that has affected how fire departments deploy resources and allocates funding has been the Insurance Service Office. The primary reason that departments have paid close attention to ISO recommendations is its affects on insurance rates for both homeowners and businesses. This reasoning has recently been challenged; at least one major insurance company has departed from ISO Public Protection Classifications (PPC )(Gassaway, 2003). This has left many Fire Chiefs, Administrators, and government officials with a lack of confidence in the validity of the recommendations and questioning the use of precious taxpayer funds to achieve the recommendations. This Applied Research Project (ARP) is related to the Executive Development course curriculum as it establishes effective and efficient leadership using applied research as its foundation. The application of this research will help facilitate change management by utilizing accurate, concise, factual data to base decisions regarding the future direction of the fire department. This Applied Research Project is linked to the United States Fire Administration objectives to promote within communities a comprehensive, multi-hazard risk-reduction plan led by the fire service organization and to respond appropriately in a timely manner to emerging issues (NFA, 2003, pp. II-2). This research will allow our community to more accurately plan for manpower, equipment, and deployment issues related to emergency response. This research also addresses the emerging issue of the cost versus benefit of meeting recommendations that are placed upon fire departments.

The Insurance Service Office 8 Literature Review The Insurance Service Office (ISO) was founded with the intent to inform insurance companies how well municipalities were prepared to stop major fire conflagrations (Davis, 1985). The ISO started in 1889 as the National Board of Fire Underwriters (NBFU), which first assigned classes to municipalities based on complex numerical computations of the municipalities functional areas. The NBFU later became known as the American Insurance Association which in the 1960 s became the Insurance Service Office. (Bland, 2001) This is an example of private agencies becoming organized and empowered to evaluate public fire defenses. Its impetus is also based on the need of insurance underwriters to have an understanding of the municipal fire service to better assess their risk in a particular community. (Davis, 1985) ISO (2001) states that virtually all US Insurers of homes and business property us ISO s Public Protection Classification (PPC ) in calculating insurance rates, and that 97 % of fire chiefs surveyed believe that the PPC system is important in helping the community save lives and property. ISO uses its Fire Suppression Rating Schedule (FSRS) to assign points in three areas of municipal fire protection, which include water supply, fire alarm and communications systems, and the fire department. Based on the points awarded ISO assigns a public protection classification which is a number from one to ten. Class One indicates the best public fire protection and Class Ten represents less than minimum recommended protection. (Straw, 2004) ISO in recent years began evaluating a communities building code effectiveness. The Building Code Effectiveness Grading Schedule (BCEGS) assesses the building codes not only for fire prevention measures but also for mitigation of losses from natural disaster. This code uses the same

The Insurance Service Office 9 1-10 rating scale as the PPC with the variation that credits apply to communities in ranges of 1-3, 4-7, 8-9, and 10. Insurers are provided the BCEGS classifications, advisory credits, and related underwriting information. Insurers that receive the PPC information also receive the BCEGS information. (ISO, 2000) Many fire departments proudly display or advertise their ISO PPC rating, including the Plano, TX Fire Department that uses their Class 1 rating as a major emphasis of their economic development program (Bland, 2001). Communities with high quality fire protection often find attracting new business is easier (Christopherson, 2003, December). Gage (2004) states that insurance companies recognize the connection of quality fire protection and lower insurance losses, thus they offer lower rates to communities with better PPC ratings. The value of a good ISO rating to a fire department and community would appear to be obvious. After all, communities with better classifications experience noticeably lower fire losses that communities with poor classifications. Communities often save money on their insurance premiums when a fire district improves its classification. (ISO, 2001) A national fire service accreditation organization even offers a provision for concurrent evaluation with ISO (Strawderman, 2001). Opposing view points exist regarding the significance of ISO and its affect on insurance rates. At least one Fire Chief has been in the anti-iso camp for several years after his township did not experience a drop in insurance premiums (Flynn, 2005, January). Gassaway (2003) states that he and his department spent a great deal of time and resources to improve the ISO rating only to realize that there would be no affects on insurance rates for the citizens of his community. Questions have arisen in recent years as to whether the ISO PPC system is inaccurate or flawed (Pesta, 2004). Entire systems

The Insurance Service Office 10 have expressed concern that ISO is being phased out therefore time and money should not be wasted on its recommendations (Strawderman, 2001). The concerns seem to stem from at least one major insurance company going completely away from ISO (Gassaway, 2003), and the fact that homeowners often see no change in insurance rates due to a reclassification (Flynn, 2005, January). While weighing both sides of this issue it is important to point out some critical points concerning ISO. ISO s customers are insurers, reinsurers, agents, brokers, self-insureds, risk managers, insurance regulators, fire departments, and other government agencies (ISO, 2001), this fact alone shows that ISO is still well utilized around the country. While residential customers may not often see a change in insurance rates, business customers often experience insurance savings (Christopherson, 2003, December; Flynn, 2005, January). This would definitely influence economic development within a community. While elected officials and some insurance representatives continue to debate the merit of ISO, fire is still the leading cause of loss for personal and commercial properties (Christopherson, 2003, December). Even with these points, the experiences of others tells us that ISO should not be the only benchmark used for the evaluation of the fire department (Strawderman, 2001), and that we should weigh the cost of the recommendations to ensure that they are not too high of a price to pay for the return (Flynn, 2005, January). All of the above mentioned considerations created the impetus for this applied research project. The author desires to apply this to and obtain accurate information based on his community. Procedures

The Insurance Service Office 11 The primary procedure applied to this research is a comprehensive questionnaire concerning the variation in insurance rates with regard to a change in the ISO Classification. A copy of this questionnaire is included in Appendix A. This questionnaire was sent to ten agents in Greeneville with two of the agents representing multiple insurance companies. This resulted in thirteen different insurance companies receiving questionnaires. This questionnaire was sent to insurers based on a list of market share leaders and based on insurers who appear to be local market leaders. A list of insurance companies was requested from the State of Tennessee Commerce and Insurance department related to which companies comprise the bulk of market share in East Tennessee. Information was obtained from John E. Duncan who is a manager in the Tennessee Department of Commerce and Insurance (J.E. Duncan, personal communication, August 8, 2006) which included a list of companies who were market share leaders in the State of Tennessee. Local or regional information was not available related to market share. Questionnaires were returned and the numerical results of the questionnaire were entered into a spreadsheet. This information was used to determine the percentage increase or decrease based on PPC changes for the same type of property. Three property types were utilized for this study; a $150,000.00 single family dwelling, a $500,000.00 business property, and a $1,000,000.00 business property. The data is based on percentage increase or decrease due to the fact that rates vary greatly across various agents and companies and some companies use other factors in determining rates. Two different comparisons are derived from this data the first compares classifications from one classification to the next classification on the questionnaire, the second compares

The Insurance Service Office 12 ISO PPC 4 against all classifications. Measuring percentage data ensures that the study will derive results without limitations from factors other than the PPC ; such as deductible amount, loss data, credit history, etc. The percentages are computed for total average for the comparative classification. The PPC classification of 4 was compared against various classifications for the reason that the Greeneville Fire Department s current classification is 4. Questions relevant to the insurance agent s professional opinion are also in the questionnaire along with questions about banding insurance rates across classifications. Limitations of this study are various, with the most significant limitation being the lack of insurers that insure commercial properties. Most insurers in Greeneville either do not offer a commercial classification of insurance or it is offered through the home office or a third party underwriter. Another limitation is that some companies do not offer rates within each ISO classification and some companies use ISO relative to other factors such as credit history, zip code, loss data, etc. The final limitation is the sample size of the questionnaires. Greeneville is a relatively small city and the number of agents and companies offering insurance is limited, especially commercial offerings. Results The results of this study will be disseminated in four ways, first the general concepts of the questionnaire will be conveyed such as the number of questionnaires answered, variations in data, insurer s professional opinion, banding of rates, comments, etc. Then the three sets of data based on the insured properties will be presented. General Results

The Insurance Service Office 13 Ten questionnaires were returned with usable data, of which only four questionnaires presented data regarding business properties. One insurance agent informed the author that it is against company policy to answer questionnaires related to how this company handles insurance rates. This agent and the author did discuss the fact that this company does not use ISO PPC ratings. She stated that her company uses various factors such as loss history, zip code loss data, and other items but does not subscribe to or utilize ISO. One other variance presented by the questionnaires is the fact that one agent, who represents ten insurance companies, averaged the results across his companies to come up with the requested data. None of the companies this agent represents were among those listed as leaders in market share but this agency is a very popular agency in the community so the author feels this data will be useful. All insurance agents who returned questionnaires answered yes to the question Does your company use the ISO s PPC as a primary means of determining business and residential property insurance rates?. Although the companies use ISO as a primary means, three of the companies use other factors in addition to ISO to determine insurance rates. The only factor used by one company is the distance to the nearest fire station. Another company uses the following factors: type of construction, loss history, and credit history. The third company uses type of construction and for business ratings uses the basic business owner s classification and type of business (i.e.: mercantile, restaurant, manufacturing, etc.). All insurance agents, who returned the questionnaire with this question answered, answered yes to the question In your professional opinion would a change in the ISO classification for the Greeneville Fire Department result in a noticeable change in rates

The Insurance Service Office 14 for your customers?. One agent states on his questionnaire that an upgrade in classification would best help with the attraction of new business. Another agent states on his survey that If the Greeneville Fire Department could be upgraded to a PPC 3, this would mean substantial savings for many of the Greeneville residents and that PPC Classifications are a big factor when calculating insurance premiums. Banding of classifications occurs when the rates are the same for two or more classifications in the same category. When asked Does your company band ISO classifications together (i.e. Class 1-3 = same rates)? four out of seven agents answered no. Although the data reveals that six out of those seven banded at least two or more classifications with the same rate and all three companies, that did not answer the banding question, do band classifications together for rates. The most common occurrence of banding is in the lower classification (i.e. 1-2, 3-4, or 1-4, etc.), in every case but one classifications above PPC 5 were not banded whatsoever. Residential Property Results The affects of ISO classifications on residential insurances rates in Greeneville is significant. The most significant impact of the classifications on insurance rates is at PPC 7 and above. Smaller impacts on rates occur when lower classifications are involved but the variations are still significant. The data reveals an average rate decrease of 13% for a change from a PPC 7 to a PPC 5 and an average decrease of 27% for a change from a PPC 9 to a PPC 7. A change from a PPC 10 to PPC 9 results in an average 28% rate reduction. (see Figure 1) The lower ISO classification (1-5) impacts insurance rates much less when comparing against single classification changes. The data reveals that a change from

The Insurance Service Office 15 PPC 5 to PPC 4, and from PPC 4 to PPC 3 only result in a 2% decrease in rates. There is no change in insurance rates when the ISO classification improves from PPC 3 to PPC 2. One unanticipated result reveals that when an improvement in classification to a PPC 1 results in insurance rates actually increasing 1% on average from a PPC 2. (see Figure 1) A comparison of the data related to the Greeneville Fire Department s current PPC 4 reveals that homeowners see the largest rate increase when the PPC increases to 9. This involves a 55% increase in insurance rates from PPC 4 to PPC 9. There is a variation of 40% more than the change of PPC 4 to PPC 7 and 25% when compared with the variance of PPC 4 to PPC 10. A change of classification from PPC 4 to PPC 10 results in an average 80% increase in rates, a low of 38% and high of 142%. A change from PPC 4 to PPC 7 results in an average 15% increase, with changes as low as 7% and as high as 29%. The impact is much less when the classification changes from 4 to 5 where there is only an average 2% increase in rates, with ranges from 0% to 14%. Improving the PPC from a 4 to 3 or from 4 to 2 results in the same 2% decrease in rates, ranges of this category are 0% to -15%. Again, this study reveals that a change in classification from 4 to 1 results in an average 1% increase in insurance rates, with a range of -2% to 7%. Although it should be noted that three insurance companies do not give rates for PPC 1 or PPC 2 and two others do not quote rates for PPC 1. (see Figure 2) $500,000.00 Business Property Results Results were obtained from only four insurers regarding the $500,000.00 business property category. This obviously significantly limits the study due to the amount of

The Insurance Service Office 16 information obtained but the data derived was similar to the data from the residential property results. The data also reveals that the most significant impact is related to the higher ISO classifications. A classification change from PPC 10 to PPC 9 results in a 32% decrease in insurance rates, while changing from PPC 9 to PPC 7 results in a 17% decrease. Rate differences are markedly less below PPC 7. Changing from a PPC 7 to PPC 5 results in a 7% decrease in rates, while changing from PPC 5 to PPC 4 results in a 4% decrease. There is only a 1% decrease from PPC 4 to PPC 3 and no change in rates from either PPC 3 to PPC 2 or PPC 2 to PPC 1. (see Figure 3) A comparison of rate changes related to the Greeneville Fire Department s current ISO Class 4 reveals data similar to the above. A change in classification from PPC 4 to PPC 3 results in an average 1% reduction in rates, ranging from 0% to -2%. Changing from PPC 4 to PPC 2 or PPC 4 to PPC 1 makes no difference regarding insurance rates. However a retrograde classification change of PPC 4 to PPC 5 results in an average 4% increase with ranges of 2-5%. PPC 4 to PPC 7 results in an average 10% increase in insurance rates with ranges of 7-16%. The largest affect results from a change of classification from a PPC 4 to PPC 9 (29%) with ranges of 15-56%. More significantly though is the change from PPC 4 to PPC 10 (67%) with ranges of 49-111% higher insurance premiums. (see Figure 4) $1,000,000.00 Business Property Results The data gathered in this category is also somewhat limited by the fact that the only three of the insurers surveyed quote insurance in the $1,000,000.00 business property category.

The Insurance Service Office 17 The data gathered is similar to the data obtained in the other categories but is limited in scope because of the lack of responses. There is no measurable change regarding insurance rates for any of the following classifications PPC 4 to PPC 3, PPC 3 to PPC 2, or PPC 2 to PPC 1. Insurance rates decreased an average of 3% for PPC 5 to PPC 4 (-2% to -4%), and 8% (-5% to -12%) for PPC 7 to PPC 5. Insurance rates decreased the most in the higher ISO classifications. A drop in the ISO classification from 9 to 7 decreases insurance rates 27%, and 28% for PPC 10 to PPC 9. (see Figure 5) The relation of ISO classification changes relative to the Greeneville Fire Department s PPC 4 is similar to the results for the other categories. There is no measurable change in rates for changes in the following classifications PPC 4 to PPC 3, PPC 3 to PPC 2, or PPC 2 to PPC 1. A retrograde change of ISO classification from PPC 4 to PPC 5 results in insurance rates increasing an average of 3% (2-4%), while a drop from PPC 4 to PPC 7 results in an average 11% increase (7-16%). Rates increase 41% (15-56%) when the PPC 4 drops to PPC 9 and 73% (53-111%) when the PPC 4 drops to PPC 10. (see Figure 6) The data presented justifies the insurer s responses regarding the relevance of ISO classifications related to insurance rates. The rate changes are significant across all categories from residential to both categories of business but the changes are more profound in the residential category. Discussion The results of this study are conclusive and reveal that ISO Public Protection Classifications have an affect on insurance rates. Only one company, out of more than a

The Insurance Service Office 18 dozen, does not use ISO in some format. ISO s contention that most all insurers use the PPC system (ISO, 2001) is supported by this research. The implication revealed in the literature review that ISO is antiquated or is being phased out (Strawderman, 2001) is not supported by this research. However the issue of improving the ISO rating and not seeing an affect on insurance rates (Flynn, 2005, January) is justified by this study. The reason for this justification is that the differentiation in rates between any classification better than PPC 4 may be so negligible it may not be noticeable or it may not lower the rates at all. The exact opposite is true when compared to classifications above PPC 4. Gassaway (2003) states that time and money were wasted when there were no affects on insurance rates for the citizens of his community. This affect is most profound if a community is attempting to lower its ISO rating from a PPC 3 to a PPC 2 or a PPC 1 where little affect will occur on insurance rates. This study reveals that achieving ISO Class 1 may actually have a negative impact on insurance rates. Christopherson s (2003, December) contention that attracting new business is easier for communities with high quality fire protection is justified. One Greeneville insurance agent stated that improving the ISO rating will help attract new business and the affects on insurance rates appear to justify this. Percentage savings have a more profound affect on business rates because the premiums are much higher than residential premiums. Insurance agents do recognize the relationship of quality fire protection and lower insurance losses (Gage, 2004) this is evidenced by the results of the study in which all of the agents stated that a change in the ISO rating will affect insurance rates.

The Insurance Service Office 19 ISO states that 97% of fire chiefs surveyed believe that the PPC system is important to help a community save lives and property (ISO, 2001). The research supports the basis that fire chiefs must pay attention to the recommendations of ISO not only because it potentially saves lives and property but because it can have a major impact on the economic viability of a community. Community leaders and especially fire chiefs must realize that not following ISO recommendations can result in severe economic affects on a community. Even small percentage changes, such as the 2% decrease in rates from PPC 4 to PPC 3 can be huge when applied to an entire community. That 2% difference may only mean $20 to $40 savings to an average homeowner but when that savings is applied to 10,000 households the impact is much more substantial. Impact is more severe when the ISO classifications are above PPC 5. More significant is the impact when a community receives a retrograde classification resulting in homeowners and businesses realizing higher insurance premiums. This can occur when administrators fail to recognize the impact of ISO and ignore or downplay the impact of ISO recommendations. The results of this study are directly relative to Greeneville and the Greeneville Fire Department. The positive impact of improving the rating from the current PPC 4 to a PPC 3 will be substantial. Greeneville would see an average 2% decrease in residential property insurance rates and a 1% decrease in business property insurance rates. While the savings per residence or per business is not substantial, when applied to the entire community the costs savings add up. On the flip side of this equation, should Greeneville realize a retrograde classification such as PPC 4 to PPC 5 it would result in significantly higher insurance costs to residents and businesses. This increase would be

The Insurance Service Office 20 approximately 2% for residential rates and 4% for businesses. The impacts of rate changes can be significantly higher or lower than above depending on the insurance company. Recommendations Fire Chiefs, Municipal, and County administrators, including elected officials, should develop a better understanding of the ISO Public Protection Classification System and its implications on property insurance rates. This along with other national standards or guidelines can have a huge impact on economics and liability for a municipality. Specifically, fire chiefs should educate themselves regarding the various aspects of ISO s grading scale and take the initiative to educate community administrators and leaders. Although some of the aspects of ISO s grading system are outside of the scope of the Chief, he or she can educate administrators regarding the 911 system or water distribution system s affects on the ISO ratings. Issues such as property annexations can have a major impact on a community s ISO ratings. Items such as this should be planned in advance to make sure that the annexed locations have adequate water supply, fire coverage, and 911 service. ISO s implications on a community s insurance rates as well as economic well being should be understood and utilized for the enhancement of the community as a whole. Fire service chiefs or administrators should utilize current ISO, Occupational Safety and Health Administration, and National Fire Protection Association guidelines to plan for current and future needs of his or her department. This planning should entail such items as station locations, apparatus replacement or purchase, equipment allocation, personnel, training, dispatch protocols, standard operating guidelines, and more. Planning performed

The Insurance Service Office 21 consistent with national standards and guidelines should keep the fire department in a proactive state regarding the needs of the community. This will ensure that ISO public protection classifications offer the community quality fire protection and lower insurance rates. The Greeneville Fire Department should prepare to improve its current PPC 4 to a PPC 3. This improvement in classification will lower insurance rates for residents and businesses in Greeneville and will work to enhance economic development through future recruitment of business and industry. The Greeneville Fire Department should strive to achieve this upgrade in classification first through changes that have little to no costs associated with them. Items that the Greeneville Fire Department needs to improve on and have little to no cost affects include: increased training to meet the minimum required hours, perform day and night training drills as recommended by ISO, perform pre-fire planning functions more often, develop and implement a comprehensive standard operating guideline, and develop structured dispatch procedures and protocols. Another area that the Greeneville Fire Department needs to improve is its record-keeping processes, including purchase of a software system capable of compiling training, preplan, incident, equipment, and personnel data. Adequate records are essential in assuring that guidelines are met. The above mentioned changes along with long-term planning considerations for proper resource and capital deployment will ensure that the Town of Greeneville puts its citizens and business in the most advantageous position regarding reduced insurance costs and more importantly saved lives and reduced property losses. Readers of this study who wish to apply this to his or her community should apply the template of the study to gauge the impact on their own community. One should also

The Insurance Service Office 22 educate their self regarding ISO and its implications, both positive and negative, on the community.

The Insurance Service Office 23 References Bland, J. A. (2001). What is Public Fire Protection Classification? [Electronic Version]. Retrieved March 14, 2001 from http://www.hfd.ci.houston.tx.us/features/. Christopherson, B. L. (2003, December). A Strategic Approach: Improving the city's public protection classification as measured by the Insurance Service Office's (ISO) fire suppression rating process. National Fire Academy, Emmitsburg, MD. Davis, L. W. (Ed.). (1985). The First No Nonsense Guide to Small Community Fire Protection. Ashland, Mass: International Society of Fire Service Instructors. Flynn, T. (2005, January). A Detailed Analysis: Improving the city's ISO rating. National Fire Academy, Emmitsburg, MD. Gage, D. (2004). The ISO's Public Protection Classification Program. Fire Engineering(January 204), 130-131. Gassaway, R. B. (2003). Working to improve your ISO rating may be wasting your department's time, effort and money. Minnesota Fire Chief(March/April 2003), 12-13. ISO. (2000). Evaluating building-code effectiveness: answers to your questions. New York, NY: Insurance Service Office. ISO. (2001). ISO's Public Protection Classification Program: Helping to build affective fire-protection services. Jersey City, NJ: Insurance Services Office. NFA (Ed.). (2003). Executive Fire Officer Program, Operational Policies and Procedures Applied Research Guidelines. Pesta, J. P. (2004). Do you know your ISO rating? Fire Engineering(January 2004), 128-129. Straw, E. F. (2004). How To Improve Your ISO Classification. Firehouse, June 2004, 70-71. Strawderman, S. (2001). Evaluating ISO improvements for Prince William County, VA fire and rescue system. National Fire Academy, Emmitsburg, MD.

The Insurance Service Office 24 Appendix A Executive Development Applied Research Project 2006 Mark A. Foulks Title: The Insurance Service Organization (ISO): Do Insurance Companies Still Use It and what is It s Impact on Property Insurance Rates? Questionnaire: 1. What is the name of the company for which you are an agent? 2. Does your company use the Insurance Service Office s (ISO) public protection classification system as a primary means of determining business and residential property insurance rates? Yes No (If yes, please go to question 4.) 3. If your company does not use the ISO public protection classification please briefly describe what method is used to determine rates (i.e. loss history by zip code, building codes, etc.) 4. What is your current rate for $150,000.00 single-family dwelling using the following ISO classifications? PPC 1 PPC 2 PPC 3 PPC 4 PPC 5 PPC 7 PPC 9

The Insurance Service Office 25 PPC 10 5. What is your current rate for a business property valued at $500,000.00 using the following ISO classifications? PPC 1 PPC 2 PPC 3 PPC 4 PPC 5 PPC 7 PPC 9 PPC 10 6. What is your current rate for a business property valued at $1,000,000.00 using the following ISO classifications? PPC 1 PPC 2 PPC 3 PPC 4 PPC 5 PPC 7 PPC 9 PPC 10 7. In your professional opinion would a change in the ISO classification for the Greeneville Fire Department result in a noticeable change of rates for your customers? Yes No

The Insurance Service Office 26 8. Does your company band ISO classifications together (i.e. Class 1-3 = same rates)? Yes No 9. If question 8 is yes, does your company do this for business, residential, or both? 10. If you have any additional comments that would benefit this research please list. Thank you for completing this survey. Your information will be valuable to the completion of this research project. If you would like to receive a copy of the completed Applied Research Project check here and list your mailing information below.

The Insurance Service Office 27 Appendix B Insurance Rate Change for $150,000 Residence Due to Change in ISO Classification Percentage of Change 5% 0% -5% -10% -15% -20% -25% -30% 1% 0% -2% -2% -13% ISO Classification Change -27% -28% 2 to 1 3 to 2 4 to 3 5 to 4 7 to 5 9 to 7 10 to 9 Figure 1 Insurance Rate Change for $150,000 Residence Due to Change in ISO Classification Relevant to ISO Class 4 Percentage of Change 100% 80% 60% 40% 20% 0% -20% -2% -2% 1% 2% 15% 55% 80% 4 to 3 4 to 2 4 to 1 4 to 5 4 to 7 4 to 9 4 to 10 ISO Classification Change Figure 2

The Insurance Service Office 28 Appendix C Insurance Rate Changes for $500,000 Business Due to ISO Classification Change Percentage Difference 0% -5% -10% -15% -20% -25% -30% -35% 0% 0% -1% -4% -7% -17% -32% 2 to 1 3 to 2 4 to 3 5 to 4 7 to 5 9 to 7 10 to 9 ISO Classification Change Figure 3 Insurance Rate Changes for $500,000 Business Due to ISO Classification Change Relevant to ISO Class 4 Percentage Difference 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -1% 0% 0% 4% 10% 29% 67% 4 to 3 4 to 2 4 to 1 4 to 5 4 to 7 4 to 9 4 to 10 ISO Classification Change Figure 4

The Insurance Service Office 29 Appendix D Insurance Rate Change for $1,000,000 Business Due to Change in ISO Classification Percentage of Change 0% -5% -10% -15% -20% -25% 0% 0% 0% -3% -8% 2 to 1 3 to 2 4 to 3 5 to 4 7 to 5 9 to 7 10 to 9-30% -27% -28% ISO Classification Change Figure 5 Insurance Rate Change for $1,000,000 Business Due to Change in ISO Classification Relevant to ISO Class 4 Percentage of Change 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% 0% 0% 0% 3% 11% 41% 73% 4 to 3 4 to 2 4 to 1 4 to 5 4 to 7 4 to 9 4 to 10 ISO Classification Change Figure 6