ISO ratings: Do they really matter

There has been some concern lately over the ISO ratings of the local fire departments. ISO stands for Insurance Services Offices and is a for-profit service to insurance companies that analyzes risks for many different types of insurance. The ISO classifies fire districts according to criteria designed to tell how well a fire department is able to handle structural fires, residential and commercial, in the district.
The Public Protection Classification ranges from very good (Class 1) to inadequate (Class 10). The classification ratings are sold to insurance companies and agents and are not made available to policy holders or to the general public.
Insurance companies potentially use these classifications to evaluate their risk in insuring a property that is serviced by the rated fire department.
Three main areas are considered as part of the rating: fire department staffing and equipment, community water supply and the dispatch system.
The fire department component makes up 50 percent of the rating. Departments must document the type of training sessions and maintain an up-to-date roster of fire department members. Also, testing and maintaining the equipment and apparatus is evaluated.
The staffing situation of the fire department is also a factor. Some fire districts have firefighters full time on duty. They are available at the fire station for immediate dispatch should an emergency occur.
Other departments have firefighters on duty, but they may be performing other civic duties and may not even be in or around the fire station during working hours.
Volunteer fire departments are those whose members do not receive salaries and are typically not on duty at the fire station.
Still other departments are staffed with a combination of these types.
The community water supply amounts to 40 percent of the classification score. The rate of water flow throughout the community is measured. For example, for a fire department to get a rating of 1-8, the fire department would need a system that is able to deliver 250 gallons per minute or more for two hours, beginning within five minutes of the first engine’s arrival at the scene. Also in the equation is the number, condition and maintenance of the fire hydrants in a community.
The remaining 10 percent of the score relates to how well the emergency dispatch system works. What happens when someone dials 911, how many operators handle the calls and how many telephone lines come into the dispatch center are considered in the ISO rating.
In general, according to the website, the price of fire insurance in a community with a good classification is substantially lower than in a community with a poor classification, assuming all other factors are equal.
The ISO maintains that there should be a financial benefit to those communities that invest in their local fire departments with training opportunities, communication upgrades and improving water supply.
The Insurance Federation of Minnesota Vice President of Public Affairs Mark Kulda said that the insurance industry depends heavily on the ISO ratings.
“If you considered a house in a city with a professional fire department and the same-sized house in a rural area with a volunteer department, it would be easy to see how response time and available water relates to costs of fire damage,” Kulda said.
Kulda said homeowners might want to look into sprinkler systems as a way to reduce fire insurance costs, especially for new construction in rural areas. Most insurers, he said, provide substantial savings for residential sprinkler systems.
The value of the classification rating is debatable, however. Erik Soule, from Princeton Insurance Agency in Princeton said only about half of the 20-plus companies the office writes for use the ISO rating when figuring the homeowners premium. Half of the companies do not even use the ISO rating.
Curt Van Oort of State Farm in Princeton says they haven’t used ISO ratings for many years.
“I think, because of the size of our company, we have a lot of claim data. We choose to use data rather than depend on the ISO ratings,” he said.
Even those who disagree on whether the ISO is a meaningful measurement of fire damage risk can agree on this: It is not fire risk that is driving the higher costs of homeowner’s insurance.
“Storm losses are really what is driving up the costs of insurance, not fire damage,” Kulda said.
Van Oort agreed saying, “the extent of storm damage within the last five to 10 years has had a much greater impact on our rates than fire losses.”