By and large, installing a home alarm system can lower your home insurance premiums. Yet something that's largely out of your control -- your community's ability to fight fires -- also can affect how much you pay to insure your home.
ISO, an organization that tracks property and casualty insurance risk, evaluates and rates a community’s ability to handle fires. Many insurers factor that information into the formulas they use to come up with your home insurance premium. The thinking behind using ISO ratings is this: The better equipped a community is to fight fires, the less likely it is that homes and businesses in your area will sustain major fire damage.
Under the ISO program, called the Fire Suppression Rating Schedule, communities can score between1 and 10, with Class 1 being the most exemplary and Class 10 being the least. Historically, residential communities with the worst ISO ratings have had fire losses that were more than twice the amount of losses in communities with the best ratings, according to studies conducted by ISO.
To come up with the ratings, ISO evaluates three areas:
• 50 percent of the score looks at your local fire department, including staffing, training, geographic distribution of firehouses and adequacy of the fire equipment.
• 40 percent of the score takes into account the community’s water supply, including the placement and condition of fire hydrants and the amount of water that's available to put out fires.
• 10 percent of the score measures the efficiency of emergency communications, such as the 911 system and the number of emergency dispatchers.
A benchmark for communities
Not only does the ISO rating help insurers measure a community’s risk of fire damage, but it helps cities and towns improve their emergency preparedness. “The program provides an objective, countrywide standard that helps fire departments in planning and budgeting for facilities, equipment and training,” says Joseph Masington, assistant vice president of ISO's Risk Decision Services.
Orlando, Fla., is one city that has benefited from an improved ISO rating. In 2007, it went from a 2 to a 1, the highest possible rating.
To get there, the city added fire stations and 60 personnel, as well as fire engines and other equipment. The city also relocated some of its firefighting equipment to areas of the city with greater needs, and kept better track of equipment maintenance, firefighter training and inspection records, says Frank Cornier, deputy chief of the Orlando Fire Department.
The ISO ratings “are a measuring point,” Cornier says. By zeroing in on areas that needed improvement, “the city made the commitment to protect the citizens properly,” he says.
Like Orlando, other communities can improve their ratings by making changes in the three evaluated areas.
ISO requests updated information from communities at least every two years, Masington says. In areas of the country experiencing explosive population growth, the request is made at least once a year. ISO also invites communities to let it know about substantial changes have happened since the last evaluation.
Consumer payoff not clear
Consumers always should shop around for the best deal on home insurance, regardless of what a community’s ISO rating is, experts say. If your community's rating goes up, it may or may not make a difference in your home insurance premium, says Jason Moon, a spokesman for the Michigan Office of Financial and Insurance Regulation.
Some insurance companies don’t use the ISO ratings in their calculations of premiums, while others use the ratings along with a number of other factors such as the age of a home and the type of roof. And while a better ISO rating could lead to a premium reduction, changes in the home’s replacement costs or blemishes on the homeowner’s credit history could offset that, according to the Kansas Insurance Department.
When insurers do use ISO ratings and a rating improvement occurs, changes to premiums typically are calculated when policies come up for renewal. It’s unlikely that a homeowner would be offered a lower premium during a policy term. But that actually can benefit the consumer if the community receives a less favorable ISO rating, since that could cause your premium to jump, says Jim Newins, director of the Property and Casualty Division at the Kansas Insurance Department.
With so many variables involved, it’s nearly impossible for consumers to predict how much money an improved ISO rating could save them, but they should be aware of any factors that might make a difference.
“The consumer should really work with a licensed agent to see if any changes that happened from year to year can lead to a better rate,” Moon says.