How to Estimate Value Of Department Rating In Insurance Savings
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Have you ever stopped to think how valuable a rated fire department is to a community? We all derive benefits from community services. The most obvious benefit of a fire department, of course, is to put out fires. But there is another value that most people rarely stop to think about.
The fire department, in most communities, is the only service that can actually return money to the residents each year.
In this age of higher taxes and everincreasing costs, a rated fire department can actually save a homeowner money by lower insurance premiums. For example, in an area with no fire protection, which insurance people in New England call 10-F, the annual insurance premium for an average $20,000 home would be $96.60. The annual premium for this same house in an area rated 5-C would be $41.80, or an annual savings of $54.80.
Survey made
To substantiate these findings, a survey was conducted in February 1976 in Colchester, Vt. Colchester is located on Lake Champlain, just north of Burlington. It has the largest area (39,936 acres) of any town in Chittenden County. The population of Colchester is about 10,000, with a substantial increase during the summer months with seasonal campers. Several ground rules were established for the survey:
- Rather than question each property owner about his insurance, the fair market value from the town listers was used.
- The grand list fair market value averages 56 percent lower than the insured value. This information was obtained by some actual comparisons.
- In most homeowner insurance policies, the value of the contents is set at 50 percent of the structure value.
- An assumption was made that 95 percent of the insured property is within the 5-C area. This area is serviced by the town fire departments, has fire hydrants within 500 feet of insured property, and has an acceptable water system capable of handling the fire load in the area.
- Property that is tax-exempt and not on the grand list was entered at its true insured value.
Three types of policies
Table I shows the annual premium savings on three types of fire insurance policies, as supplied by a local insurance office.
Table II shows the survey results. To determine the savings, the insured value was divided by the rate base and then multiplied by the annual premium savings.
The survey was conducted as backup information for the town for budget purposes. The Colchester Center Volunteer Fire Company, Inc., operates two fire stations and supplies equipment for the St. Michael’s department, which operates as an adjunct. The Town of Colchester is serviced by three separate companies. St. Michael’s is owned by the college, but the other two, Malletts Bay and Colchester Center, receive funding from the town. Through this survey, we were able to show the need for such protection and what it is worth to the people and taxpayers of the community. All three departments are staffed by volunteers. No wages are paid but, of course, equipment must be purchased and maintained.
Procedure suggested
If you are interested in conducting a similar survey, the following procedure is suggested:
- Obtain the fair market value of property from the town tax records. This information should be separated by the type of property, i.e., residential, commercial, industrial, and should not include land.
- Obtain the insurance ratings and calculate the difference in premium costs for your area between the totally unprotected and the amount of protection for your specific locality. There should be an agency in the area responsible for setting insurance rates. In New England, this is the Insurance Services Office.
- Determine the difference between the fair market value and the insured value. A few actual spot checks can be made. The premium savings are based on the insured value.
- Consider the findings to be a representation of the savings, not the actual amount.
A survey of this type can be used for several purposes. Some of the more obvious are for budget support, requests for funding or increased funding, selfjustification, or selling the idea of a fire department to town officials or town residents.
There are probably many more, depending on your particular area and need. Whatever the use, however, the findings, though only representative, can be astounding.
