AAIS CONTRACTORS SPECIAL POLICY RATING CONSIDERATIONS

(July 2023)

INTRODUCTION

The American Association of Insurance Services (AAIS) Artisans Program Rating Manual provides full instructions for rating the Contractors Special Policy. This analysis concentrates on the rating areas common to all or most businesses eligible for this program.

Rating the AAIS Artisans Program Contractors Special Policy is a five-part process:

• Develop the basic liability premium
• Develop the basic building premium
• Develop the basic business personal property premium
• Develop premiums for any liability and property coverage options
• Develop the final premium

Note: All charges at the beginning are loss costs that must be modified by individual company loss cost multipliers.

RATING STEPS

Classification

The first step in rating is classifying the risk. The liability rate group and a property rate group, along with the classification code and ERP, are in the classification section. If the classification is incorrect, everything else in the rating process will also be incorrect.

Example: Bennington Painting is an eligible Painting Class. Its code is 10215, the Liability Rate group is 04, the Property Rate group is 01, and the ERP is S.

Number of Employees

Employees who work more than 120 days per year are considered full-time employees. The number of part-time employees is a calculated number. It is not the actual number of part-time employees who work for the named insured. The number of part-time employee is determined by adding all hours the part-time employees worked during the year, dividing that number by 120, and rounding it to the nearest whole number.

Example: Bennington Painting has three full-time employees. Bennington used a total of 12 different part-time employees during the past year. However, the number used for part-timers must be calculated. The 12 part-time employees worked a total of 853 hours during the year. 853 divided by 120 equals 7.1. As a result, Bennington Painting is rated using 7 part-time employees.

Loss Costs

All charges are based on loss costs that are then modified by the specific company’s loss cost multipliers.

Note: All examples given or statements made in this section assume that the loss cost multiplier has been applied to the loss cost.

Developing the Basic Liability Premium

Liability Charge per Full-Time Employee (Based on Rate Group and Limit of Liability)

X Number of Full Employees

= Full-Time Employee Premium

Liability Charge per Part Time Employee (Based on Rate Group and Limit of Liability)

X Number of Part Time Employees

= Part Time Employee Premium

Full Time Employee Premium + Part Time Employee Premium = Basic Liability Premium

Example: Bennington Paintings Basic Liability premium is calculated as follows:

$216 X 3 = $648

$72 X 7 = $504

Total Premium = $648 + $504 = $1,152

This premium can be modified by other factors based on coverages and deductible selected.

Developing Basic Coverage A–Building Premium

Protection Class

There are three fire protection classes:

• Protected means the risk location is within 1,000 feet of a fire hydrant and less than five road miles from a responding fire department.
• Partially Protected means the risk location is more than 1,000 feet from a fire hydrant and less than five road miles from a responding fire department.
• Unprotected means the risk location does not meet either the Protected or Partially Protected criteria.

Construction Classifications

There are seven construction classifications:

• Frame
• Joisted masonry
• Non-combustible
• Masonry Non-combustible
• Modified Fire Resistive
• Fire Resistive
• Mixed construction

Per Building Structure Premium

Property Rate (Based on territory, construction, and protection classification)

X Interior Protection factor

X Other coverage factors

X Limit of Insurance (Per $1,000)

= Basic Building Premium

Example: Bennington owns a small-joisted masonry building it uses to store equipment and supplies. The building is located in an unprotected area. It is rated as follows:

6.78 (based on Territory, Construction, and Protection)

X 1.00 (no discount factors)

X $25,000

= $170 Basic Building Premium

Each building premium must be developed separately and then added together for a total building property premium.

Developing Basic Coverage B–Business Personal Property Premium

Per Building/Structure Premium

Business Personal Property Rate (based on Territory, Construction, and Protection classification)

X Interior Protection factor

X Other coverage factors

X Limit of Insurance (Per $1,000)

=Initial Business Personal Property Premium

Business Personal Property Charge (Based on Rate Group and Personal Property Limits)

X Interior Protection Factor

X Other coverage Factors

= Business Personal Property Charge

Initial Business Personal Property Premium + Business Personal Property Charge = Business Personal Property Premium

Example: Bennington keeps $30,000 in equipment and supplies in the building.

6.64 (based on Territory, Construction, and Protection classification)

X 1.00 (no discount factors)

X $30,000

= $199 This is the Initial Business Personal Property Premium

$65 (Based on Rate Group 1 and $30,000 limit)

X 1.00 (no discount factors)

= $65 This is the Business Personal Property Charge

$199 + $65 = $264 This is the Basic Business Personal Property Premium

The Business Personal Property premium must be developed separately at each location and then added together to arrive at the total Business Personal Property premium.

Optional coverages, endorsements, and factors

Other coverages are available. The manual outlines the methods used to calculate their premiums. Credits and debits may be available for a particular risk based on its unique characteristics.