As Building Code Adoption Increases, Insurance Losses Decrease

Construction firms adhering to the appropriate building codes are experiencing lowered insured losses.

Maintaining a safe and secure building is a major concern for property owners and managers. Due to the important role buildings play in society, architects and engineers begin plotting out the the safety measures and standards well before the actual construction starts. Any problems during the construction phase can lead to major risks down the road when people are inhabiting or working in the building. Not only does this pose a serious problem for guests, residents or workers in these buildings, but it can also lead to a claim or lawsuit against the property owner or managers.

The importance of building codes

In an effort to reduce the chances for causing injuries or other damages, there are several elements that must be incorporated into the building and design to ensure the safety of those occupying or inhabiting it. In addition to physical restrictions, financial limitations and aesthetic preferences, one of the main factors that determines how these buildings are constructed stems from the U.S. Building Codes. These comprehensive codes dictate and regulate the minimum safety features that architects and construction crews must incorporate into the building.

The Building Officials and Code Administrators International, Inc., the Southern Building Code Congress International, Inc, and the International Conference of Building Officials consolidated and created the International Code Council, and the U.S. General Services Administration has adopted the technical requirements of the family of codes issued by the ICC.

The ICC also incorporates a plethora of other standards and codes for the component parts of a building, including, but not limited to:

  • International Fire Code
  • International Plumbing Code
  • International Mechanical Code
  • International Energy Conservation Code
  • International Building Code

As noted by the National Association of Home Builders, due to the high costs associated with drafting and enforcing these building codes, most local and state governments also generally adopt the national building code standards. Because the federal government uses the ICC, most communities around the country also utilize these regulations, with slight variations to reflect local climate, geography and construction practices.

These codes ensure that all builders and construction firms around the country and the globe are operating at the same high standards, which increases the safety level and reduces the types of risks people will be exposed to within the structure.

Architects, engineers and construction firms must follow strict building codes to ensure a safe structure.Architects, engineers and construction firms must follow strict codes to a build safe structure.

Architects, engineers and construction firms must follow strict codes to a build safe structure.Architects, engineers and construction firms must follow strict codes to a build safe structure.

Improving construction standards

Brokers and agents working with building owners and managers have good news when it comes to building codes and safety levels. According to the latest Mitigation’s Building Code Effectiveness Grading Schedule conducted by ISO, a Verisk Analytics business, between 2005 and 2015, 31 states improved their enforcement of the national building code. Meanwhile, three states were unchanged and eight scored poorly. ISO found that due to this enhanced enforcement of the national building codes in more than 70 percent of U.S. states tracked, there has been a marked enhancement of community safety standards and lower insurance loss experience.

“There has been a marked enhancement of community safety standards and lower insurance loss experience.”

With a ranking system that uses a class of 1 to represent exemplary building code enforcement to a 10, which indicates no or worsening conditions, the MBCEGS graded 20,800 communities accounting for 87 percent of the U.S. population. In the 10 years covered by the study, California and Oregon both leapt three levels from Class 6 to Class 3 in both commercial and residential buildings categories and were the most improved states. Pennsylvania and New Mexico jumped from a Class 6 to a Class 4. Meanwhile Delaware, Georgia, Maine and West Virginia improved from a Class 7 to a Class 5.

“We know that municipalities with well-enforced, up-to-date codes demonstrate better loss experience, and insurance rates can reflect that,” explained Dale Thomure, CBO, CFM, manager, ISO Community Hazard Mitigation. “The prospect of lessening catastrophe-related damage and ultimately lowering insurance costs provides an incentive for communities to adopt the most stringent and appropriate code for their area and back it up with rigorous enforcement.”

While the adoption and enforcement of these strict standards can be difficult to adhere to, brokers and agents providing policies for architectural, engineering or construction firms should work with their clients to help them understand how following the codes established and promulgated by the ICC can help create safer structures. However, as the BCEGS data illustrates, the adoption and effective enforcement of these codes reduces the chances for injuries, fatalities, damages and the subsequent insured losses stemming from weather-related incidents or other catastrophes.

The BCEGS has offered up a metric for advising insurance companies on rating programs, including credits for commercial fire and allied lines, business owners, homeowners and welling lines of insurance. With a rating system that consists of classifications broken down into 1-3, 4-7, 8-9 and 10, the BCEGS

The BCEGS developed these credits from gathering extensive data from:

  • Wind damage experts
  • Seismic experts
  • Loss control engineers
  • Storm shutter manufacturers and installers
  • Seismic retrofitters
  • Building officials
  • Consultants

This allowed the ISO staff of actuaries to estimate the various percentages of losses due to natural hazards, both not affected and not mitigated by building code enforcement, and the percentage of natural hazard losses that the building code mitigated.

Expecting the Unexpected

While greater adoption of building code standards is helping to keep down insured losses to properties and buildings, it doesn’t mean that architectural, engineering or construction firms should forsake the crucial professional liability insurance necessary for protecting against the unexpected risks that can arise at any time. McGowan Risk Specialists provide the professional liability, errors & omissions, employment practices liability and much more for the architects, engineers, construction managers involved in the building process.

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