Insurance Services Office (or ISO) is an insurance advisory agency that provides statistics and actuarial information for businesses. The ISO is a specialist in property/casualty, which includes both commercial and personal lines. Its customers are insurance agencies, actuaries agents, and brokers as well as government entities such as fire and building codes departments.
Since its inception, ISO has seen significant changes. ISO was formed in 1971 by several rating bureaus that merged to form a non-profit association for insurers. ISO was reorganized in 1993 as an independent for-profit corporation. It created Verisk in 2008 as a new company. The following year, ISO was made public and became a Verisk-owned subsidiary. Insurers no longer control ISO as it is a subsidiary of a public firm.
ISO is a must
Rates are calculated based on future losses. They use past losses to determine probabilities and predict future losses. The more data available, the more predictability of future losses. This means that insurers are able to predict future losses better if they have more loss data.
Some insurers might be able to accurately predict losses using their lost data. However, many cannot. Most insurers are small and cannot generate sufficient data to accurately predict future claims. Many insurers, therefore, rely on ISO to get data.
ISO collects loss data directly from insurers who purchase its products or services. These insurers are known as ISO subscribers. Subscribers report to ISO each year their expenses, losses, premiums, and premiums. Insurers categorize data according to the line of business (types of coverage). An insurer might offer separate data for commercial property, automobile physical damage, and general responsibility.
All data ISO collects is processed and sold back to the insurers. This data is used by insurers to determine the profitability of each type of insurance. They also monitor loss trends. Some types of insurance may have higher losses than others.
ISO used the loss and premium data it received from insurers in the past to publish rates. These rates were used by ISO subscribers to calculate premiums. ISO publishes loss cost data rather than rates nowadays. The loss cost data is used by insurers to determine their rates. An insurer may calculate a rate using the loss cost data and adding administrative expenses, taxes and profit.
Policy writing is an important service that ISO offers to insurers. It is expensive and time-consuming to create new policies. Pre-printed ISO forms can be used by insurers to avoid this tedious task. You can also avoid the risks involved in policy writing. Insurers may interpret policies differently than they intended. ISO forms are generally less risky because a lot of the policy language is already analyzed by courts.
Many of ISO’s policies are the industry standard. These forms are used as benchmarks to compare and analyze policies from different insurers. The ISO Commercial General Liability Coverage Form, for example, is the industry standard. Insurers have created policy forms that go beyond the ISO standard. These insurers highlight the areas where their form is more extensive than the ISO standard in marketing materials.
Insurance policies are issued by some insurers using endorsements and ISO forms. Others use ISO language to create their own policies. Many forms and endorsements available in the market contain a mixture of standard ISO language as well as proprietary words from insurers.
Rating and Underwriting Rules
The Commercial Lines Manual is an essential product that ISO offers to insurers. This manual contains guidelines and instructions to help you evaluate and underwrite the ISO policy forms’ coverages. It includes separate sections for general liability and commercial auto.
Both underwriters and brokers use the Commercial Lines Manual. This manual explains the use of various ISO forms. The Commercial Auto section, for example, describes the types and coverages that can be provided by a business automobile policy. This manual includes instructions for calculating premiums, including rating rules, classification tables, and territory descriptions. The manual also explains when endorsements are needed to be added to policies to modify, add or remove coverage.
ISO offers many other services than those listed above.
- Financial Reporting ISO offers products that insurers can use for filing their annual financial reports to state insurance regulators.
- Workers Compensation reporting ISO provides tools to make it easier to file rates, rules, and forms for state workers’ compensation authorities.
- Property Inspections ISO conducts physical inspections on buildings that are subjected to a specific rating.
- Fraud detection ISO collects claim data from multiple insurers and stores it within a central database. The database can be accessed by ISO subscribers to detect insurance fraud across the industry.
The ISO is an administrative backbone for insurance companies and a guiding resource. The company’s vast database of over 19 billion records is updated annually with the addition of a few billion records each year. It provides unique information about insurance details and risk management that allows it to offer the necessary products and services for insurers.