Public Protection Classification (PPC) Oversight
Amendments to the Texas Addendum to the Fire Suppression Rating Schedule
Questions and Answers About the
Public Protection Classification (PPC) System
What is the Public Protection Classification (PPC) system?
Where is the PPC system used?
What is ISO?
How does the PPC system grade local fire protection?
What does a dual PPC like 7/9 mean?
Does ISO automatically penalize communities for having volunteer fire departments?
What does the PPC system mean to me?
Do PPC ratings vary from company to company?
In general, how do Texas communities stack up?
Can you give examples of how differences in PPC ratings affect individual homeowners' rates?
What about companies whose rates are not regulated?
Why did Commissioner Bomer replace the key rating system with the PPC system?
Are insurance companies profiting from the switch from key rates to the PPC system?
Where will the greatest rate impact be felt during the transition period?
What was the fringe rule?
How are "fringed" communities rated under the new system?
What about homes in remote locations?
Has the Texas Department of Insurance done anything to minimize "rate shock" for communities that benefited from fringing under the key rate system?
If my town makes improvements and seeks a re-evaluation, how soon will the improvements affect my homeowners' Insurance rate?
Does TDI oversee ISO to assure that PPC ratings are accurate and fair?
Are ISO inspection reports and lists of PPC ratings open records?
What is the Public Protection Classification (PPC) system?
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It is the countrywide classification system used by the Insurance Services Office (ISO) to reflect a community's local fire protection for property insurance rating purposes. The public fire protection of a city, town or area is graded using ISO's Fire Suppression Rating Schedule to develop the community's classification.
Where is the PPC system used?
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The PPC system in some form is used in all 50 states. Texas was the last to adopt it. Commissioner Elton Bomer replaced the old key rating system with ISO's Fire Suppression Rating Schedule and related Public Protection Classification system, effective February 1, 1998.
What is ISO?
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ISO is a New York-based advisory organization that serves the property and casualty insurance industry by providing inspection services, insurance coverage form development and statistical services. ISO has Texas offices in Dallas and Austin.
How does the PPC system grade local fire protection?
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ISO classifies communities from 1 (the best) to 10 (the worst) based on how well they score on the ISO Fire Suppression Rating Schedule, which grades such features as water distribution, fire department equipment and manpower and fire alarm facilities. ISO field representatives use the schedule when surveying a community's fire protection capability. The score that is determined from applying the Fire Suppression Rating Schedule is translated into a public protection classification. A perfect score in Texas is 106.5. It consists of 50 points for fire department capabilities, 40 points for water supply and distribution, 10 points for receiving and handling fire alarms and 6.5 points for a "Texas Addendum" that grades fire safety education, building code enforcement, fire prevention code enforcement and fire investigation capabilities.
Texas Addendum to the Fire Suppression Rating Schedule.
How does a community's score translate into a PPC rating?
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The following table shows the number of points required for each PPC Class:
| Class |
Points |
| 1 |
90 + |
| 2 |
80 to 89.99 |
| 3 |
70 to 79.99 |
| 4 |
60 to 69.99 |
| 5 |
50 to 59.99 |
| 6 |
40 to 49.99 |
| 7 |
30 to 39.99 |
| 8 |
20 to 29.99 |
| 9 |
10 to 19.99 |
| 10 |
0 to 9.99 |
What does a dual PPC like 7/9 mean?
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The first number is the PPC for buildings within 1,000 feet of a fire hydrant and five road miles of a recognized fire department. The second number is for buildings more than 1,000 feet from a fire hydrant but within five road miles of a recognized fire department.
Does ISO automatically penalize communities for having volunteer fire departments?
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No. Canyon's all-volunteer fire department, for example, has a rating of 3.
What does the PPC system mean to me?
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Every city, town or area that provides fire protection services is subject to being graded to establish a PPC. Individual buildings -- including your house -- are subject to the community's PPC. The PPC has a direct bearing on the cost of insurance for each building in the area. When calculating property insurance premiums, insurance companies apply a factor that reflects a particular community's PPC.
Do PPC ratings vary from company to company?
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No. A PPC provided for a specific area remains the same for all buildings located within the area, no matter which insurance company provides coverage.
In general, how do Texas communities stack up?
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Larger cities, which tend to have the best fire protection, generally are rated 3 or 4. A few are rated 2. Small towns tend to cluster in the 4-to-7 range. A number of previously uninspected areas that returned ISO questionnaires about their fire fighting capabilities are rated 7 or 9.
Does my community's Public Protection Classification significantly affect my homeowners insurance premium?
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Although homeowners' insurance rates are driven mainly by your area's claim experience, your community's PPC rating also is important. For rate regulated companies, the premium on a brick veneer house is 39 percent higher in an area rated 10 (worst) than in one rated 1 (best). (This range is even greater for frame houses.) A brick veneer home's rate difference from one class to the next ranges from 1.5 percent to 9 percent.
Asbestos Clad and Stucco Percentage Change from Current PPC to Other PPC.
Brick Percentage Change from Current PPC to Other PPC.
Brick Veneer Percentage Change from Current PPC to Other PPC.
Wood Frame Percentage Change from Current PPC to Other PPC.
Can you give examples of how differences in PPC ratings affect individual homeowners' rates?
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Consider a $100,000 brick veneer house in three different communities in the same rating territory. Each is covered by a HO-B policy with a one percent deductible, $60,000 in "replacement cost" personal property coverage, $25,000 in liability coverage and $1,000 in medical payments insurance.
The first house is in a city with a PPC rating of 4. The second is in a town with a rating of 7. The third is in an "unprotected" area rated 10.
A rate-regulated insurance company's benchmark rate in the city graded 7 is 15 percent higher than the one in the town with a PPC rating of 4.
The owner of the house in the "unprotected" area rated 10 pays about 25 percent more than the one in a city rated 4.
What about companies whose rates are not regulated?
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Companies that are not rate-regulated (Lloyds companies and reciprocal exchanges) make up around 80 percent of the homeowners insurance market. They also use PPC ratings but may apply them differently from the rate-regulated companies when determining premiums.
Why did Commissioner Bomer replace the key rating system with the PPC system?
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For several reasons:
- Modernization. The key rating system, adopted around 1918, was obsolete. It did not recognize modem fire suppression technology or the dispersed nature of today's cities. Instead, key rating assumed a central mercantile district, surrounded closely by residential areas, and looked mainly at preventing "conflagrations" (such as the Chicago fire) in which flames might spread from building to building and consume the core city. Reflecting this premise and its assumption of virtually uniform density, key rating was population based (i.e., so many fire stations for so many people, etc.). Today, however, most retail areas are away from downtown, homes are more fire-resistant and cities are less generic. The modem approach, embodied in the ISO system, is based on each city's particular fire suppression requirements.
- Insurance Availability. Texas was the only state that didn't recognize the ISO system. Insurers had to use a different rating methodology in Texas than in other states. This difference cost them money and might have kept some property insurers from entering Texas.
- Non-Duplication. ISO already was evaluating Texas cities and providing classification-rating information to insurance companies for underwriting purposes and for use in rating commercial buildings. In effect, Texas had two different systems for grading fire protection for insurance purposes -- key rating for residential property and PPC rating for commercial property. This was inefficient, costly and unnecessary. Now we have a single uniform system.
- Rate Responsiveness. The PPC system tends to respond faster, in terms of homeowners' rate changes, to improvements in a community's fire protection system. This is because the PPC has 10 different classifications; each separated from the next by 10 points on a survey score. For example, a town that raises its inspection score from 56 points to 60 points improves its classification from a 5 to a 4. This saves homeowners between 4 percent and 5 percent on their insurance rates. Key rating, by contrast, used five broad brackets. Unless a city's key rate already was at the low end of a bracket, the town could cut homeowners rates only with very substantial improvements in fire protection. Fringe rating also was based on the assumption that larger cities would automatically provide fire services outside their boundaries. This assumption, however, no longer is valid. Many cities confine fire services to within their own city limits.
- Fire Protection Incentives. The change to PPC eliminated the "fringe rule" (see below) that let smaller communities piggy back on the key rate of nearby cities that had better fire protection -- even if they were as much as five miles apart. Fringing, in effect, lowered rates in areas with poor or non-existent fire protection at the expense of communities whose taxpayers were paying for good fire protection. By eliminating this subsidy, the PPC system offers a strong financial incentive to improve fire protection. Several local fire chiefs testified in favor of the change at a September 11, 1996, TDI hearing.
Are insurance companies profiting from the switch from key rates to the PPC system?
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The change, by design, is revenue neutral and should not make extra money for the insurance companies. Rate increases attributable to the change in some areas are offset by decreases in others.
Where will the greatest rate impact be felt during the transition period?
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In areas and communities that benefited from the "fringe rule."
What was the fringe rule?
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The rule gave homeowners in "unprotected" communities -- those with unfavorable key rates of 81 cents or higher -- the advantage of basing their premiums on the key rates of nearby cities with better fire protection so long as certain conditions were met. Those conditions were:
- The neighboring city (the one being fringed off) had to have a key rate no worse than 40 cents, a rate achieved by many small towns.
- The home being insured had to be within five miles of the city limits of the neighboring city with the good key rate.
- To get the neighboring city's full key rate, the home had to be within 500 feet of a fire hydrant. Homes between 500 and 1,000 feet from a fire hydrant got the neighboring city's key rate, plus 10 cents.
(NOTE: A fringed community did not necessarily get the same rate as the neighboring city it fringed off. For rate calculating purposes, cities were grouped into brackets based on 50 percent of their key rates. Fringed areas, however, were bracketed based on the full key rate of the neighboring cities they fringed off. In many -- but not all -- cases, this meant the fringed areas had higher homeowners' premiums than their neighboring cities with better fire protection.)
How are "fringed" communities rated under the new system?
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Eventually each will have a rating based on its ISO inspection score. Pending inspection, they have transitional ratings of 7 or 10. Previously unrated communities or volunteer fire departments that have returned ISO questionnaires as the first step in the grading process are rated 7. Those which have not returned the ISO questionnaire are rated 1O until they provide ISO with the information needed to start the grading process. Some formerly fringed communities have been surveyed by ISO and have received PPC ratings as low as 4.
What about homes in remote locations?
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Any building more than five road miles from a fire station or outside the boundary of a fire protection area, such as a city or volunteer fire department service area is rated 10. An exception is an area that has an "automatic aid agreement" with a recognized and rated fire department to respond to fires in that area. In such cases, ISO assigns the area a rating after evaluating the agreement. Use of the assigned rating will depend on the distance of individual buildings from fire stations.
Has the Texas Department of Insurance done anything to minimize "rate shock" for communities that benefited from fringing under the key rate system?
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Yes, when Commissioner Bomer set the benchmark rates that took effect February 1, 1998, he capped homeowners insurance benchmark rate changes attributable solely to the switch to PPC at ±1O percent for the first year and ±21 percent for the second year. Renters insurance rate changes were capped at ±20 percent the fiat year and ±44 percent the second year. This, in effect, gives local governments and volunteer fire departments in fringed areas until the year 2000 to make improvements and be inspected by ISO. In addition, TDI negotiated ISO's agreement to improve from 9 to 7 the temporary ratings of 72 formerly fringed communities that returned ISO's questionnaires but had not been inspected as of March 1, 1998. As a result, in these communities, rates for brick veneer houses will be 6.5 percent lower and rates for frame houses will be 29 percent lower than they would have been.
How can I learn my community's PPC rating?
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- Ask your SFMO/TDI contact, the PPC Oversight Representative at 512-305-7941.
- Ask your city manager.
- Ask your insurance agent.
- Call ISO Customer Service at 1-800-444-4554, menu option 2.
If my town makes improvements and seeks a re-evaluation, how soon will the improvements affect my homeowners' Insurance rate?
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ISO publishes evaluations quarterly. For several reasons, including the fact that homeowners policies are written for a year at a time, it may take a year or longer for a re-evaluation to affect an individual homeowner's premium.
How can my community get a better PPC rating?
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By asking ISO for a re-evaluation based on improvements since last inspection. If your community has never been inspected, it needs to start by returning ISO's questionnaire if it has not already done so. City officials can make inquiries by calling ISO Customer Service, 1-800-444-4554 or TDI's PPC Oversight Representative at 512-305-7941. For a re-evaluation, ISO requires a letter from the fire chief or city official.
Does TDI oversee ISO to assure that PPC ratings are accurate and fair?
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Yes, TDI has a PPC Oversight Representative that reviews each proposed new classification rating. This review may take no longer than 30 days, including 10 days for local officials to comment. If the new rating appears reasonable, TDI authorizes ISO to publish it for use by insurance companies.
Are ISO inspection reports and lists of PPC ratings open records?
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Yes, inspection reports may be viewed at ISO's office in Austin (3000 S. IH 35, Suite 225, telephone 512-440-9900). The current ratings list and certain other documents such as grading sheets and inspections summary sheets are on file with TDI as open records. The Public Protection Classification Office also has copies.
For additional PPC information, contact Jesse Williams, PPC Oversight Representative, at 512-305-7941.
For more information about the ISO, PPC, and ISO Mitigation, visit www.isomitigation.com.
For more information contact: Fire.Marshal@tdi.state.tx.us
Texas Department of Insurance
