How big is your zip code? (Follow up on State Farm...)

[Dalmatian90]

As another recent post has mentioned, State Farm has begun in certain states to rate properties based on loss experience by zip codes.

Now, thinking more about it and reading some other posts, I realized once more sometimes there's differences in the country that may make the perspective look different!

How big (square miles?) is your zip code? Are there multiple fire departments in it?

In my area of New England there is a fairly close relationship in zip code coverage and fire department coverage (i.e. multiple FDs not under the same zip). A large loss in one isn't likely to affect another fire department under straight zip code rating (by straight I mean one zip, one loss history...if they average multiple zips that would be a different situation)

[S. Cook]

Our county is 429 square miles and has 5 zip codes. The two largest zip codes probably have over 60% of the land mass and 90% of the populated area.

[80FIRE]

We are a small rural department only covering aprox. 80 sq miles. After reading these posts I started counting zip codes and came up with 7 in our fire district. None of these are ALL in our district. At least 6 other departments also cover parts of these zip codes. Several have a poorer ISO rating than ours.

[One-L]

Zip codes in this part of the country (Pacific NW) generally do not conform with city/fire district boundaries. This will be a bonanza for State Farm, and a disaster for ratepayers if it actually happens like State Farm wants it to.

Consider this hypothetical: let's make up a zip code, 12345. 95% of zip code 12345 is covered by an ISO class 1 department with minimal annual fire loss. The remaining 5% of 12345 is covered by an ISO class 9 department that consistently loses houses right and left and generally does a terrible job.

Under State Farm's new policy, will the people living in the area protected by the class 1 low loss department reap the benefits of such protection on their insurance bill? No. They'll pay through the nose because of the ineptitude of the class 9 department, even though it's not their own department and they have no control over what it does.

Change the hypothetical any way you want, but the bottom line is this: the residents of a zip code that buy State Farm insurance will now be paying insurance based on the department that has the highest loss in their zip code, whether that department is their own or not.

All this decision by State Farm does is make sure that if you're doing a good job and keeping fire losses to a minimum, it doesn't matter. They'll find the place that is doing the worst job and losing lots of property in a particular zip code or geographic region and judge everybody else on that, even the departments that are doing a good job.

This isn't meant to bash State Farm, because they're doing exactly what they should be doing: finding a way to make as much money as possible. But that doesn't mean that the fire service has to accept their actions, and they shouldn't.

[S. Cook]

Thanks One-L, You took the words right out of my mouth. I've been trying to think of a way to phrase my similar thoughts since I posted.

In our immediate 2 zips we have us, a 3/6 and other depts, one a 6/9, one a 7/9 and four 9/10.

We have a low loss in the city, but the city zips extend way out into the county where mfg homes and no code construction abound. (The county would like to have a code, but under current TX law, we are too small to adopt or enforce one.)

[Halligan84]

The zip code for my town represents parts of 5 of the 6 districts in our township and also 2 other townships in another county. Parts of my district are covered by a zip from a different municipality. Im thinking confusion here!

[AVF&R452]

Just a few thoughts,

1. If the ISO FSRS Rating was an accurate indicator of risk, I do not think State Farm would be in any hurry to change.

2. The FSRS does not address loss due to theft, wind/storm damage, vandalism, hurricanes, tornadoes, floods, or any other types of loss. It only rates fire departments on their ability to meet specific, given criteria. An ISO Class 1 does NOT guarantee minimal fire loss.

3. Apparently, State Farm realizes that the majority of their losses are NOT due to fire.

4. Disasters over the last few years such as hurricanes, wildfires(Which were not managable by any single FD regardless of size or ISO Rating), floods and other occurences have been hard on the profit/loss statements of all of the insurance companies.

5. Could it be that State Farm realizes that the Fire Service as a whole, In spite of all of its problems, does a fair job of managing the fire problem in this country?? I'm NOT saying that we cannot do more, WE CAN AND WE SHOULD!!

6. State Farm will only make money if they sell insurance. In order to do this, they must remain competitive. They will not be able to raise rates across the board for all customers. There are too many other companies willing to sell insurance to former State Farm customers.

7. I am NOT an insurance agent or an employee of State Farm. I am waiting to see what happens to the rates in my area. Might be time to go shopping for a new insurance company. We will see.

Stay Safe

Jim

[Firekatz04]

How big is MY zip? 5 digits... HAHA!

Sorry, I HAD to go there! I live in a suburb of Philly, Pa. Recently they changed some of the "non-city" areas that had city zips to other non city zips. Ex: I live in 19038 which is a non city (Glenside) zip. Wyndmoor, USED to be a city zip... 19118. Because of home owners and auto insurers complaints, they "dropped" the city zip and became a non city zip (19038).

Now, the fire coverage for the zip of 19038 (Glenside) has gone from 3 stations in 2 twps
to 4 stations in 3 twps. (now folks will be REALLY confused)!

[S. Cook]

"The FSRS does not address loss due to theft, wind/storm damage, vandalism, hurricanes, tornadoes, floods, or any other types of loss."

True these aren't covered under the FSRS, but ISO does address these areas in other divisions of ISO. The first guy to come and do our first rating 2 years ago worked in ISO's flood division.

[This message has been edited by S. Cook (edited 02-17-2001).]

[Dalmatian90]

Random thought/point,
I don't think any standard homeowner's policy covers flood damage...that's the purvue of flood insurance.

(Now try convincing the bank that just because part of my 12 acre property sits in a flood zone...that my house itself isn't! So I pay for a seperate flood insurance policy as part of the mortgage agreement)

[AVF&R452]

Matt,

I stand corrected on the flood issue.

Cook,

I agree, The ISO has sections that address all types of loss. I was simply saying that basing rates for TOTAL loss due to all causes in a particular zip code seems to make sense for several reasons. First, the company HAS the information, They do NOT have to BUY it from ISO. Second, setting rates based on the FSRS does not consider other types of loss, and last, Those that live in areas of high loss SHOULD pay the higher rates. The reasons for the high loss and the resulting high rates should be disclosed to the customer, whether it be due to an excessive fire loss attributed to a substandard FD, excessive losses due to theft/vandalism, or the repeated loss of luxury condos built on a hurricane prone coastal beach.

I am all for the improvement of all fire departments and I certainly recognize the need for a method of evaluating the abilities of each dept.


Stay Safe,

Jim

[ArmyTruckCompany]

Firekatz04- I thought that Glenside was in Cheltenham Twp, which has 5 companies??? Same thing with Abington Twp- 5 companies?? And aren't 600, 700 and 82 all one twp??

------------------
"Loyalty above all else, except honor."

[S. Cook]

"First, the company HAS the information, They do NOT have to BUY it from ISO."

ISO has a great scam going. Wouldn't you agree?

"Second, setting rates based on the FSRS does not consider other types of loss,"

The total premium is not based on an FDs ISO rate, it's just a portion (in Texas). Situations as you described previously are included in the remainder of the premium but seperate from a policys fire insurance portion. Pull out your HO policy and read about all that other stuff.

"and last, Those that live in areas of high loss SHOULD pay the higher rates."

In our zip are several subdivisions with almost 0 crime rate in regards to burglary and theft, while in other areas of the zip where people don't look out for each others stuff or well being.

I agree with you when you say those that live in high loss areas should pay higher rates, and I agree. But why should the people that in the 0 crime rate portion of the zip pay just because another part of their zip code can't keep their kids from breaking in and cleaning out the neighbors' house?

[AVF&R452]

Scott,

Thats why I stated that the reason(s) for the high rates should be fully disclosed. If the reason is an excessive fire loss, I can go to my city/town govt and my local fire dept. Is there a funding problem? Do we have adequate codes? Is the problem a result of poor equipment, lack of personnel, poor training, no hydrants or whatever other reason. If the rates are due to high crime, what about more cops, Whatever the problem is to cause the higher rate, It should be stated up front. In any case the company will need to remain competitive so I don't see a single company or group of companies being able to raise the rates excessively.

Jim

[S. Cook]

"a single company or group of companies being able to raise the rates excessively."

I'm not sure about other states, but in Texas SF (and other regulated companies) has to stay 30% above or below the states' benchmark. If they choose to go outside that, they have to go unregulated. Then they can charge whatever they want and some do. Either way, you can bet it wouldn't be less than the benchmark, they aren't now.

Benchmark rates (averages for $80k home):

class 4 - $527.00
class 9 - 773.50

State Farm Rates (averages for $80k home):

class 4 - $583.00
class 9 - 855.50