MBMA
INSURANCE
BULLETIN
no.
15
... look at the
basic insurance
costs of metal
buildings
compared to
other types
of building
construction.
© 2015 MBMA
HOW METAL BUILDING
INSURANCE COSTS COMPARE
TO OTHER BUILDING TYPES
Contractors who build with other products will compete with
metal buildings based on an assumption that insurance costs
are lower for their form of construction. While this can be
true, it can also be false. Understanding the information in the
various MBMA Insurance Bulletins, as well as the information
in the MBMA Insurance Facts document, will help you clarify
insurance cost, as well as overcome this potential issue in the
eyes of the customer.
In this bulletin we will take a look at the basic insurance
costs of metal buildings compared to other types of building
construction. In the example that follows, we will look at a
typical building that is 12,500 square feet and houses a pump
distribution warehouse and ofces. The building is described
in detail in the attached Property Narrative report that would
typically be developed by an insurance loss control specialist
to assist the underwriter in determining an insurance price.
While occupancy can impact insurance pricing (as described
in MBMA’s Insurance Bulletin No. 7), we will keep occupancy
(pump distribution warehouse) the same for all examples.
As stated in Insurance Facts, construction type is a primary
driver of insurance rates for buildings. The Insurance Services
Ofce (ISO) is the organization supported by the insurance
industry that compiles data used in developing insurance rates.
For rating purposes, ISO categorizes buildings into six classes:
FRAME (Construction Class 1)
These are buildings with exterior walls, oors, and roof of
combustible construction, or buildings with exterior walls of
noncombustible or slow-burning construction with combustible
oors and roof. Also included are buildings with walls and roofs
with composite assemblies which include both combustible
and noncombustible materials.
JOISTED MASONRY (Construction Class 2)
These are buildings with exterior walls of re-resistive
construction rated at not less than 1 hour, or of masonry with
combustible oors and roof.
NONCOMBUSTIBLE (Construction Class 3)
These are buildings with exterior walls, oors, and roof of
noncombustible or slow-burning materials supported by
noncombustible or slow-burning supports. Metal buildings
normally fall into this category.
MASONRY NONCOMBUSTIBLE (Construction Class 4)
These are buildings with exterior walls of re-resistive
construction rated at not less than 1 hour or masonry (not less
than 4” thick) and with noncombustible or slow-burning oors
and roof.
MODIFIED FIRE-RESISTIVE (Construction Class 5)
These are buildings with exterior walls, oors, and a roof
constructed of materials described in Construction Class 6 re-
resistive, but have a deciency in thickness and a re resistance
rating of less than 2 hours, but not less than 1 hour.
FIRE-RESISTIVE (Construction Class 6)
These are buildings with solid (not less than 4” thick) or hollow
(not less than 8” thick) masonry walls or assemblies with a re
resistance rating of not less than 2 hours and oor and roof
assemblies with re resistance rating of not less than 2 hours.
Horizontal and vertical load bearing protected metal supports,
with re resistance rating of not less than 2 hours, including
pre-stressed or post-tensioned concrete units.
In this example, our building is less than 15,000 square feet
so insurance pricing is typically based on building class rates
developed by the ISO as described in Insurance Bulletin No.
4. Buildings larger than 15,000 square feet are generally rated
individually by insurance companies, applying credits and
charges based on building and occupancy characteristics.
Loss Costs are the calculated loss per $100 of insured building
value and are generated by ISO from their database of
premiums and losses.
ISO calculates these by state and within regions of each state
using the historic losses reported to them by all insurance
companies. Most states have adopted ISO Loss Cost
calculations as a basis for re insurance rates in the state.
Losses are aggregated on a state-by-state basis by ISO and
are also aggregated by specic areas within a state when
environmental factors such as high winds or earthquakes are
prevalent. ISO also aggregates losses by building type. These
historic losses are then published for states and insurers to use
in the development of their specic rates. As a result, all states
© 2015 MBMA
... insurance pricing
is typically based on
building class rates
developed by the
ISO as described in
Insurance Bulletin
No. 4...
and insurance carriers using ISO Loss Cost data start with the
same basic information.
Most insurance carriers use the ISO-developed Loss Costs to
calculate the rates they charge.
Each carrier multiplies the ISO-developed Loss Cost rate by
their own loss conversion factor or LCF. LCF’s are led by each
insurance carrier in each state. States vary in procedure, but
they either afrmatively approve the carrier’s LCF or accept it
as led. The LCF includes the insurance carrier’s cost of doing
business and also anticipates a margin of prot. In general,
these LCF’s range between 1.2 and 1.4. What you need to
remember is that, while the underlying ISO rate is uniform
across insurance carriers, the unique LCF for each carrier can
result in a range of prices. When comparing insurance costs
between metal buildings and other competitive types of
building construction, it is important to make sure the premium
pricing used is from the same insurance carrier.
The last variable in the cost of insurance is the actual value
of the building. All ISO rates and the LCF’s used to develop
pricing result in a dollar rate for each $100 of building value.
Let’s take a look at how these variables impact the cost of
insurance on our model building.
In a study completed in 2010, we looked at insuring our model
building in four different states. We also looked at insurance
costs if the model building were constructed in each of the six
ISO building classes. In addition, we compared the insurance
cost for each building type constructed in four different states
with differing environmental exposures.
As noted in the attached report, the four cities where the
model building was priced were:
Bryan, TX 77803
Delray Beach, FL 34444
DuBois, PA 15801
La Mesa, CA 91945
We assumed that, in each state, our hypothetical insurance
carrier had led a loss conversion factor of 1.4.
© 2015 MBMA
The ISO rates for these locations are listed in the table below.
They were provided by insurance carrier representatives
contacted for this study and were modied by the loss
conversion factor stated above.
Since the other important variable in determining total
insurance cost is the value of the building to be insured, we
researched typical building costs using historic, published
RS Means data for each of the six building types in the four
locations. The following table shows the building costs
produced by this research.
Final gross insurance costs for each location can be then
calculated by multiplying the insurance rate by the building
cost divided by 100. The chart below shows the theoretical
annual cost for insurance for each building. This cost is for re
and multi-peril (re, windstorm, earthquake) insurance on the
building only and does not include insurance on the contents in
the building. So what does the data show?
The above table shows that the cost to insure our model
building is less than either frame or joisted masonry in all four
states. It also shows that metal buildings cost less to insure than
any class of building in California. If insurance cost is the only
Location Frame
Joisted
Masonry
Metal
Building
System 1
Metal
Building
System 2
Masonry
Noncombustible
Modied
Fire-
Resistive
Fire-
Resistive
Bryan, TX $0.42 $0.39 $0.33 $0.27 $0.25 $0.14 $0.14
Delray Beach, FL $0.88 $0.86 $0.84 $0.47 $0.46 $0.37 $0.34
DuBois, PA $0.21 $0.18 $0.15 $0.13 $0.12 $0.07 $0.07
La Mesa, CA $0.17 $0.19 $0.10 $0.09 $0.16 $0.12 $0.12
Location Frame
Joisted
Masonry
Metal
Building
System 1
Metal
Building
System 2
Masonry
Noncombustible
Modied
Fire-
Resistive
Fire-
Resistive
Bryan, TX $692,000 $713,000 $756,524 $756,524 $720,500 $764,000 $993,200
Delray Beach, FL $765,500 $783,000 $834,741 $834,741 $800,000 $837,500 $1,088,750
DuBois, PA
$860,500 $875,000 $972,625 $972,625 $893,500 $937,500 $1,218,750
La Mesa, CA
$970,500 $952,000 $1,016,900 $1,016,900 $935,000 $1,016,600 $1,321,580
Location Frame
Joisted
Masonry
Metal
Building
System 1
Metal
Building
System 2
Masonry
Noncombustible
Modied
Fire-
Resistive
Fire-
Resistive
Bryan, TX $2,895 $2,757 $2,522 $2,030 $1,783 $1,098 $1,362
Delray Beach, FL $6,736 $6,708 $7,012 $3,909 $3,653 $3,127 $3,720
DuBois, PA $1,764 $1,531 $1,475 $1,281 $1,028 $672 $873
La Mesa, CA $1,682 $1,793 $1,017 $932 $1,480 $1,220 $1,586
The cost to
insure a metal
building is
signicantly lower
than frame and
joisted masonry
buildings...
factor in a decision regarding building type, metal buildings
would win out over frame and joisted masonry and would
be competitive with all types in California. Metal buildings
are reasonably competitive with Masonry Noncombustible
buildings in all four states.
While annual insurance costs for metal buildings are
signicantly higher than re-resistive buildings, the cost to build
re-resistive buildings typically runs about $200,000 more than
a similar metal building; so it would take many years to recoup
the difference in annual insurance cost for the building owner.
The data also shows that the cost to insure a metal building is
signicantly lower than frame and joisted masonry buildings
while the cost of construction for a metal building is only
slightly higher than the construction cost of both frame and
joisted masonry structures. The higher cost of construction can
be recouped by the building owner of a metal building in a few
short years just from a lower insurance cost on the building.
While insurance cost may be a competitive factor in building
construction decisions, it is only one of several factors that
affect the nal decision. If insurance cost is a major factor in the
decision for the owner, make sure the owner is getting accurate
cost gures from the carrier or agent handling the insurance
and not from the contractor offering a competitive alternative
to a metal building. When authorized by the potential owner,
speak with the owner’s insurance agent to make sure the agent
is familiar with the construction details of the proposed metal
building.
Objections to higher insurance cost for a metal building can
be overcome by looking at initial price, but also other factors
such as maintenance costs, speed of construction, and ease of
future building changes. In some cases, the owner may wish
to consider adding a sprinkler system to a metal building. In
this instance, the insurance cost for the metal building would
be lower than a non-sprinklered re-resistive or modied
re-resistive building. Just considering the insurance cost,
sprinklering a metal building might make nancial sense if the
additional cost of the system is less than the cost differential
between building types. See Insurance Bulletin No. 10 for more
details.
When competing with a building construction type that may
have a lower initial cost than a metal building (such as a frame
building), lower insurance cost, as well as other quality aspects
of a metal building will need to be emphasized to help make
the sale!
© 2015 MBMA
