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COMMERCIAL REAL ESTATE Our Market Individuals or business organizations that own premises, buildings and related structures for the principal purpose of leasing or ... – PowerPoint PPT presentation

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Our Market
  • Individuals or business organizations that own
    premises, buildings and related structures for
    the principal purpose of leasing or rental of
    space for occupancy as offices, retail, service,
    light manufacturing or industrial and warehouse

Eligible Risks
  • This classification is broadly described as
    Owners of non-residential buildings primarily
    engaged in the leasing and/or rental of buildings
    to others. SIC Code 6512. This SIC code includes
    a wide range of business. Farmers is only
    interested in the non-residential buildings found
    on the next screen.

Eligible Building Types
  • Office Buildings
  • Retail Shopping Centers
  • Manufacturing, Industrial, Assembly, Processing
    or Service Buildings
  • Warehouses, Private Commercial
  • Mixed Occupancies Office, Retail, Light
    Manufacturing, Industrial, Assembly, Processing,
    or Service Buildings

Office Buildings
  • Office Buildings are usually divided into smaller
    units which are rented or leased to a tenant(s)
    or lessee(s) for their occupancy and use as
    private offices or work areas including lobbies,
    conference rooms, storage and restrooms. A snack
    bar, sandwich shop, or cafeteria may be present.

Retail Shopping Centers
  • We are interested in
  • Buildings leased or rented to, and occupied by
    one or more retail stores and/or shops each of
    which sell a single product line.
  • Restaurant buildings or service type
  • Adjacent parking lots maintained for the
    exclusive use of the customers and employees.

Light Manufacturing, Industrial, Assembly,
Processing or Service Buildings
  • Farmers desires buildings leased and occupied by
    one or more businesses engaged in light
    manufacturing, industrial, assembly, or
    processing activities. Service type occupancies
    are also permitted.

Light Manufacturing Means
  • Light manufacturing is defined as those
    manufacturing, industrial, assembly or processing
    operations that do not require open flame, high
    heat, furnace, foundry, or smelting processes to
    cast, mold, form or extrude metals or
    plastics.(Low temperature plastic extrusion or
    molding is acceptable.)

Mixed Occupancies
  • Farmers is interested in the following types of
  • Buildings leased or rented and occupied by two
    or more businesses for office, retail store, or
    for manufacturing, industrial, assembly,
    processing or service purposes.
  • The occupancies must qualify under the rules of
    the individual industry profiles shown on
    previous slides, otherwise they are not eligible.

Warehouses, Private Commercial
  • These buildings are leased to a single business
    entity for warehousing or storage of their
    non-hazardous business property. These warehouses
    will typically have a small office area,
    restrooms, a receiving and loading dock, freight
    elevators, and open storage areas.

Desirable Characteristics
  • The Commercial Real Estate program is designed to
    attract and retain potentially profitable quality
    accounts that will continue to renew over a long
    period of time. These accounts share the
    following characteristics
  • Experience in this type business
  • Financially successful
  • A concern for loss prevention and safety.

Desirable Characteristics (Continued)
  • A well-maintained premises
  • Low turnover of tenants
  • Low hazard tenant operations

Insurance To Value
  • Your customer must maintain a minimum amount of
    insurance which is at least 80 of the current
    replacement cost of the building and contents
    values to be eligible for coverage under this

Maximum Insurable Value
  • The maximum value Farmers will write on one
    building is 10,000,000.

Maximum (PML)
  • The Probable Maximum Loss (PML) for any one
    policy cannot exceed 40,000,000.

Ineligible Characteristics
  • Buildings more than seven stories in height.
  • Building(s) at a location in which less than 70
    of the total combined square footage is
    occupied. Area pertaining to service or
    maintenance of the building such as heating/air
    conditioning, electrical, mechanical, elevator,
    janitorial, lobby and security station rooms may
    be disregarded.

Ineligible Characteristics (Continued)
  • Newly constructed building(s) at a location in
    which less than 70 of the total combined area
    of the insured buildings are occupied, are Submit
    for Approval (SFA).
  • Detached smoke stacks, radio or TV
    Towers or Remote Transmission Stations
  • Risks located in Town Class 9 or 10.

Ineligible Characteristics (Continued)
  • Buildings known to have asbestos or plastic foam
    insulation, such as polyurethane or polystyrene.
  • Buildings and premises that are not well
    maintained or in compliance with all critical
    loss control recommendations.

Ineligible Characteristics (Continued)
  • Buildings over 40 years of age that have not been
  • Note Renovated indicates the building has been
    substantially reconstructed. This means that all
    new wiring, plumbing, heating, air-conditioning
    systems, and roofing materials have been replaced
    meeting all current building codes for the type
    of occupancy. Buildings which meet this
    description can be considered a new building for
    determining building age using the renovation
    completion date.

Inherently Hazardous Occupancy or Operations
  • The following occupancies are considered
    inherently hazardous and are not eligible
  • Handling, storing, producing, or using
    significant quantities of combustible or
    flammable liquids, gases, dust, explosive, or
    use of urethane foams, fiberglass, pyroxylin, or
    combustible fillers, glues or laminates.
  • Examples of these occupancies would be chemical
    manufacturers or dealers and tire recapping.

Inherently Hazardous Occupancy or
  • Premises where large numbers of persons assemble
    or reside, such as schools, hotels, motels,
    theaters, lodges or resorts, recreational
    facilities, auditoriums or playhouses, bars and

Submit for Approval
  • The following risks are not to be bound and must
    be submitted for approval. A loss control survey
    or inspection will be ordered by the underwriter
    as part of the procedure.
  • Buildings more than 30 years of age unless
    completely renovated to current building codes.
    Note Buildings over 40 years old that have not
    been renovated are ineligible.

Submit for Approval (Continued)
  • Risks which within the past three years have had
    their insurance coverage canceled or non-renewed,
    or were without insurance coverage for a
    substantial period.

Submit for Approval (Continued)
  • Building Owners who require tenants to maintain
    the boiler, heating, plumbing and electrical
  • Inexperienced Building Owners with less than one
    (1) year of ownership, unless management of the
    property is contracted to a professional property
    management company.

Inherently Hazardous Occupancy or
  • Manufacturing, industrial or fabrication
    industries producing primary metals or plastics
    that require the use of open flame, high heat,
    extensive welding, foundry molding, forming or
    extrusion processing.

Inherently Hazardous Occupancy or Operations
  • Storage or processing operations involving
    electroplating, fusion, thermal coating or
    concentrations of combustible, toxic,
    flammable, explosive, corrosive or other such
    materials, such as with wood working or
    refinishing, lumberyards, feed, hay or grain,
    boat marinas, diesel truck repairs, dismantling,
    salvage or junk, public or freight handling

Inherently Hazardous Occupancy or Operations
  • Occupancies located near highly controversial
    businesses or organizations such as abortion
    clinics, trade unions or halls, or political or
    campaign offices.

Submit for Approval
  • Business operations conducted on the premises by
    the Insured. A complete description of the these
    business operations is required in the remarks
    section of the application or attached with the
    new business submission. Evidence of insurance
    for the other business operations must be

Submit for Approval
  • Buildings occupied for any manufacturing
    purposes. Full description of the activities,
    operations and products must accompany the
  • Newly constructed building(s) at a location at
    which the total occupied area is less than 70
    can be submitted for approval (SFA).

Submit for Approval
  • Buildings with highly unusual construction
  • Requests for coverage in heavy windstorm or
    coastal areas
  • Requests for earthquake coverage

  • Farmers Commercial Real Estate policy is based on
    the Standard ISO Businessowners contract which
    you studied earlier. If you desire to review that
    contract, refer to the Retail/Service materials.

Primary and Premier Options
  • Farmers offers both a Primary and a Premier
    coverage option to commercial real estate owners.
  • Each of these packages includes property and
    liability coverages. The Primary coverage package
    is included on all policies. The Premier coverage
    package is an extra cost option.

Coverage Differences
  • Most of the differences between the Primary and
    Premier coverage options relate to coverage
    limits. For example, the Premier coverage option
    provides 25,000 in Money and Securities
    coverage. The Primary coverage option provides
    only 10,000.

Coverage Differences
  • In addition, the Premier coverage package offers
    four coverages not available on the Primary
    coverage program. These are
  • Equipment Breakdown Coverage
  • Extended Replacement Cost Coverage
  • Tenants Move Back Coverage
  • Extended Premises Boundary

Limits Differences
  • Coverage Primary Premier
  • Pollution 10,000 25,000
  • Clean-up
  • Outdoor Signs 10,000 25,000
  • Premises
  • Boundary
  • Definition 100 feet 1000 feet

Limits Differences
  • Coverage Primary Premier
  • Accounts
  • Receivable 5000 10,000
  • Valuable
  • Papers 5,000 10,000
  • Money
  • Securities 10,000 25,000

Limit Differences
  • Coverage Primary Premier
  • Employee
  • Dishonesty 10,000 25,000
  • Fire Extinguisher
  • Recharge 2,500 5,000
  • Lock Replacement
    100 per lock 100 per
    lock 5,000
    total 10,000 total
  • Computer
  • Coverage 10,000 25,000

Optional Coverage Summary
  • Earthquake Coverage
  • Earthquake sprinkler leakage
  • Building Ordinance or Law Coverages
  • Mine Subsidence (Indiana or Illinois)

Optional Coverage Summary
  • Outdoor Fences and Walls
  • Non-owned and/or Hired Auto coverage if not
    included with insureds Business Auto Coverage
  • Glass Deductible Buyback

Optional Coverage Summary
  • Employee Benefits Liability
  • Employers Liability (Stop Gap)
  • Fine Arts Coverage

Optional Coverage Summary
  • Aggregate Limits Per Owned Location
  • Additional Insured Endorsement
  • Owned Auto

Coverage Descriptions
  • In this section we will discuss some special
    coverages which have been included in the
    Commercial Real Estate program, but are not found
    in the ISO Businessowners policies. These unique
    coverages add value to our contracts and
    distinguish them from our competitors.

Extended Replacement Cost
  • Up to 125 of the Property Coverage Limits of
    Insurance is provided by the Premier Package
    Endorsement to pay the repair or replacement of
    the building(s) at the described premises if the
    buildings(s) were insured to 100 of their
    replacement cost.

Extended Replacement Cost
  • The insured must accept each annual adjustment in
    the building(s) limits and notify us within 90
    days of the start of any physical changes,
    additions or remodeling to the building(s). This
    coverage does not apply to earthquake, outdoor
    signs and other outdoor property, or enforcement
    of ordinance or law.

Back-up of Sewers and Drains
  • The Primary Package Endorsement will pay up to
    1,000 per occurrence at each described premises
    for loss or damage caused by water backing up or
    overflowing from a sewer or drain, or from sump
    pump or other systems designed to remove
    subsurface water. Limits up to 5,000 are
    available under the Premier Coverage endorsement.

Tenants Move Back Coverage
  • Will pay up to 10,000 per occurrence for
    expenses the insured incurs to move displaced
    tenants back to the described premises after
    completion of repairs made necessary because of
    loss or damage by a covered cause of loss to the
    building. This coverage is a part of the
    Commercial Real Estate Premier Package

Employers Liability-Stop Gap
  • This endorsement may be attached for those
    policyholders who have employees located in
    states where private carriers cannot write
    Workers Compensation. This insurance pays
    damages the insured is legally obligated to pay
    up to the limits of insurance from bodily injury
    by an accident to an employee of the insured. The
    bodily injury must arise out of and in the course
    of employment during the policy period in the
    state listed in the schedule.
  • Bodily injury includes disease if it results from
    an accident or is caused by conditions of the
    employees employment during the policy period.

Employee Benefits Liability
  • This coverage form will pay damages because of
    any negligent act, error or omission committed by
    the insured in the administration of the employee
    benefit program (as an example, failure to enroll
    an eligible employee). The occurrence must be
    after the retroactive date shown in the
    Declarations and before the expiration of the
    policy. Expenses and costs in connection with
    claims or suits, judgment and prejudgment
    interest will also be paid. An automatic extended
    reporting period of 60 days is allowed after
    expiration of the policy, if no subsequent policy
    is purchased.

Non-Owned and Hired Auto
  • Non-Owned Auto Coverage provides Bodily Injury
    and Property Damage protection to the named
    insured arising out of the use by others of any
    non-owned autos in the course of the business.
    This includes autos owned by employees or members
    of their households.
  • Note
  • This coverage does not apply to use of the
    auto by the named insured, nor does it benefit
    the owner or operator of the auto.

Aggregate Limits of Insurance
  • Applies the aggregate limits of insurance for
    business liability and medical expenses
    separately to each of the owned locations.

Company Placement
  • This plan has eligibility requirements which
    determine proper placement of the risk in either
    Mid-Century Insurance Company, Truck Insurance
    Exchange or Farmers Insurance Exchange. Refer to
    the Three Company Marketing Plan Placement Guide.

Mid Century Insurance Company
  • Risks that represent the lowest potential for
    severe losses and the highest probability of
    underwriting gain will be eligible for placement
    in Mid-Century Insurance Company. In order to
    attract these Ultra-Preferred accounts, pricing
    will reflect Ultra-Preferred underwriting

Truck Insurance Exchange
  • Preferred policyholders that do not meet the
    Underwriting Rules for Ultra-Preferred placement
    may be eligible to be written in the Preferred
    Program in the Truck Insurance Exchange.

Farmers Insurance Exchange
  • For those acceptable quality risks that do not
    meet the guidelines of the Preferred or
    Ultra-Preferred programs, but otherwise meet
    Underwriting eligibility requirements, coverage
    will be available under the Standard Program.
    Risks acceptable to the Standard Program will be
    issued in the Farmers Insurance Exchange, but
    must be eligible and meet quality standards.
    The Standard program does not accept substandard

Mid Century Quality Criteria
  • All risks accepted for placement under this plan
    will be graded using quality criteria which looks
    at the following
  • Building Age (Non-Modified) --15 years or less
    Actual age
  • Age of roof--10 years or less
  • SIC of Occupancy (Tenants occupation)--All
    tenants are eligible for Farmers placement

Mid Century Quality Criteria (Continued)
  • Supporting Business (Product Density)-- Other
    Farmers commercial policies written, or three
    years of personal lines for client
  • Premier endorsement-- Purchases Premier
  • Professional Management Company -- Professional
    management company

Mid Century Sizing Criteria
  • Property Value (Building Contents) (1,000,000
    or more)
  • Number of locations (Three or more)

Truck Quality Criteria
  • All risks accepted for placement under this plan
    will be graded using quality criteria which looks
    at the following
  • Building Age (Non-Modified) -30 years or less
    Actual age
  • Age of roof-20 years or less
  • SIC of Occupancy (Tenants occupation)All
    eligible occupancies as defined in Real Estate
    Business Guide

Truck Quality Criteria (Continued)
  • Supporting Business (Product Density)-Other
    Farmers commercial policies written, or three
    years of personal lines for client
  • Premier endorsement- Purchases Premier
  • Professional Management Company - Professional
    management company

Truck Sizing Criteria
  • Property Value (Building Contents)- 500,000
    or more
  • Number of locations (Two or more)

Farmers Placement Criteria
  • Must meet minimum underwriting requirements for
    risk quality. No other criteria apply.

Premium Modification Plans
  • Premium Modification plans are filed with state
    regulatory authorities to recognize
    characteristics of individual risks based on
    their loss experience, premium size, management,
    employees, dispersal of the risk and type of

Premium Modification Plans Available
  • Premium Size Credits
  • Individual Risk Premium Modifications (IRPMs)
  • Commercial Automobile Package Discount
  • Profitability Discount

Premium Size Credit
  • This plan automatically applies a credit (in
    states where permitted) based on the total
    premium developed for a Commercial Real Estate
    policy. The greater the premium, over a minimum
    level, the larger the percentage credit applied.
    See the Rules, Rates and Territories, or the AIMs
    On-Line Reference program, for premium size
    percentage credits.

Premium Size Credit
  • Example
  • In one state, the premium size credit starts at
    1 at 750 in premium. It grows to 20 when the
    premium reaches 24,001. (Please refer to the
    premium size credit table applicable to your
    state ).

Individual Premium Modification Plans
  • Underwriters have overall final responsibility
    for assigning the modification. However, those
    agents with Commercial Real Estate Field
    Underwriting authority will be authorized to
    determine the modifications to be applied on the
    new business policies that are rated and bound by
    the agent in the field. The Individual Risk
    Premium Modification Plan WorksheetCommercial
    Real Estate (Worksheet 1 for 25 States 31-3096
    or Worksheet 2 for 40 States 31-3096) must be
    completed and submitted with the application.

Individual Risk Premium Modification Plan
  • When the IRPM worksheet is used to evaluate a
    Commercial Real Estate account, you will use the
    following sections
  • Management
  • Premises
  • Protection
  • Building Features

  • When evaluating the management of a Commercial
    Real Estate account, we consider
  • Safety Activities
  • Business Experience
  • Management Experience
  • Loss Prevention Attitude

  • When evaluating the premises of a Commercial
    Real Estate account, we consider
  • Extent of Hazards (Compared to hazards expected
    for the class)
  • Housekeeping (Interior and exterior)
  • Lighting (Interior and exterior)
  • Traffic Control (Vehicles and pedestrians)

  • When evaluating the premises of a Commercial
    Real Estate account, we consider
  • Control of Hazards (Guarding or reduction of
  • Fire Protection (Extinguishers)
  • Safety Self Inspections (Extent frequency
  • Security Hardware, Alarms Watchmen

Building Features
  • When evaluating the building features we
  • Construction Materials Used
  • Workmanship
  • Comparison to Current Building Codes
  • Intended Occupancy Use

Profitability Discount
  • New business and renewal policies for
    policyholders who have owned the buildings 3 full
    years and who provide verified prior insurance
    loss history for that period, are eligible for a
    Profitability Discount.

Profitability Discount
  • The Factor shown in the table on the next screen
    will be applied to policies with premium of
    2,000 or more (prior to application of this
    credit and the Individual Risk Premium
    Modification), except premium from
  • Earthquake
  • Auto
  • Mine Subsidence
  • Employers Liability

Profitability Discount Table
  • Accounts producing the following loss ratios
    would receive these discounts
  • 3-Year Loss Ratio Factor
  • 0 - 10 0.85
  • 11 - 20 0.90
  • 21 - 35 0.95
  • 36 Over 1.00
  • Loss Ratio includes all paid and reserved
    losses including allocated loss expense during
    past 3 years.

Auto Package Discount
  • A 5 package discount applies to commercial
    automobiles written in conjunction with any
    Commercial Real Estate policy.

IRPM Worksheet Guidelines
  • The proper application of the premium
    modification plans is an extremely important
    aspect of pricing a risk. Each risk
    characteristic applicable must be evaluated and a
    debit or credit applied as warranted. Debit and
    credit factors are then totaled and may result in
    an increase or decrease in the premium.

IRPM Worksheet Guidelines
  • Each characteristic must be documented and
    retained as a permanent part of the underwriting
    file. Improper or arbitrary application of
    credits or debits could result in serious
    penalties for violations of state regulations on
    discriminatory pricing. It is important that the
    modifications not be applied as a competitive
    rating tool.

Marketing Support Materials
  • Farmers has developed a number of marketing
    materials for your use in rating and producing
    Commercial Real Estate Business. As you proceed
    with your solicitation and presentation efforts,
    please refer to the following materials.

Marketing Support Materials
  • A Premier Program Designed for Commercial Office
    Building Owners
  • Visual 33-1152
  • Folder 33-0152

Marketing Support Materials
  • Farmers Insurance for the Retail Center Building
  • Visual 33-1154
  • Folder 33-0154

Marketing Support Materials
  • A Premier Insurance Program Designed for the
    Industrial Building Owner
  • Visual 33-1153
  • Folder 33-0153

Self-Inspection Check Lists
  • The Office Building-A Property Owners Loss
    Prevention Program (51-0690)
  • The Retail Center- A Property Owners Loss
    Prevention Program (51-0689)
  • The Light Industrial Park- A Property Owners Loss
    Prevention Program (51-0691)
  • The Hidden Cost of Loss (33-0139)