Construction Occupancy Protection Exposure (COPE) Definition

COPE (Construction Occupancy Protection Exposure) is a group of hazards that property insurance underwriters consider when deciding whether to give an insurance policy. COPE enables the insurer to assess the risks of insuring a piece of real estate, which ultimately determines whether or not a policy is produced.

Understanding Construction Occupancy Protection Exposure (COPE)

The identification, classification, and analysis of risks are all part of the insurance underwriting process. COPE is used to discover the elements that could lead to a loss for an insurance firm. When predicting the likelihood of a loss, insurers include these data elements into their valuation models. The following is a detailed description of each of the components that insurance companies must consider when drafting a property insurance policy.

Construction

The insurer can evaluate the likelihood of a building or structure being damaged by analyzing its location, the materials used to construct it, the building's age, and the quality of the systems within the structure.

A wood-framed building, for example, is more susceptible to catch fire. Buildings in hurricane-prone areas must be constructed with materials that can resist high winds. If they are not, the probability of damage or loss increases. Older buildings have been subjected to prolonged structural stress and may have obsolete electrical and plumbing systems. Insurance underwriters must assess every detail of how a structure was constructed in order to factor those variables into the insurance policy.

Occupancy

Insurers investigate who occupies a building and how it is used. A warehouse with a few dozen employees, for example, will have different dangers than an apartment complex with hundreds of tenants. It is also worth noting whether the occupancy is mostly made up of homeowners or renters. Is it for offices, restaurants, or a certain type of manufacturing if it is a commercial property? The type of activity that takes place within a property provides varied degrees of danger.

Protection

If a fire station is not nearby or if local infrastructure makes obtaining appropriate water pressure to fight a fire more difficult, an insurer may deem a multi-family residential complex riskier than a commercial one. It is vital to discover any services that lessen property risk.

Strong water pressure from in-building sprinklers and fire hydrants can indicate more effective firefighting. Protection elements can also lessen the risk to surrounding businesses, residences, and the general public. The significance of protection is determined by the preceding two factors: construction and occupancy. Properties in these locations that are low-risk may require fewer features that fall under the protective category.

Exposure

Insurers may also inspect the surroundings around a structure. This concern extends beyond the building and the occupant to more unpredictable dangers. One example of such an exposure is a property in a flood zone. A structure in a high-risk wildfire area is likewise more vulnerable. Buildings near petrochemical factories or facilities handling combustible materials would likewise be considered dangerous.

Example of COPE

A property owner owns a building and wishes to obtain insurance for it. He contacts an insurance firm, which begins the process of examining his property to determine the type of insurance coverage and the cost of that policy.

The structure is an antique wood-frame structure. It's also in an ancient area with mostly wooden houses and other wooden structures. Two tenants will occupy various floors of the building. The first level will be occupied by a craftsman who creates wooden furniture and trinkets. The second story will be occupied by a glassblower, who creates glassware using tremendous heat and flames. The building lacks a sprinkler system, and the nearest fire station is a long distance away.

It is safe to assume that when the insurance underwriter examines this building using the COPE guidelines, the building will be classified as high risk. The building is made of easily combustible materials, the occupant is a person who manufactures flammable products, and the other works with fire. There is no safety because there is no sprinkler system to put out fires and the fire brigade is far away in case a fire starts. The risk is also high since the buildings surrounding this property are easily flammable, and if they catch fire, the fire could spread to the property.

In this case, using COPE would allow the insurance underwriter to assess the riskiness of this business and draft a policy that is appropriate for a high-risk property given the conditions.

The Bottom Line

COPE is an abbreviation used in the property insurance industry to describe the several forms of risk that underwriters must examine when deciding whether or not to give insurance. COPE is an acronym that stands for construction, occupation, protection, and exposure. Each element represents a particular form of risk, which insurers subsequently incorporate into their valuation models to forecast the possibility of a loss.