Commercial Output Policy (COP)

What is 'Commercial Output Policy (COP)'

Commercial Output Policy (COP)- is an insurance policy that provides both commercial property and inland marine coverage. A commercial output policy, or COP, is an updated version of the manufacturer’s output policy, or MOP, which was first provided in the 1950s. The word “output” in commercial output policy refers to items that are processed or created through the business’ manufacturing process.

BREAKING DOWN 'Commercial Output Policy (COP)'

Companies depend on keeping their goods damage-free throughout the entire production process, but must also consider the potential for damage as the goods are shipped outside of the factory walls. Businesses that operate in multiple locations may consider a commercial output policy in order to protect against risk exposures associated with transporting output between different facilities, as well as transporting to customers. Types of businesses that may purchase a commercial output policy include manufacturers, wholesalers, distributors, and other companies that process and assemble goods.

Business Insurance

The output of the business will determine the type of coverage and limit that it will need. A manufacturer will want to ensure that the equipment it uses to process its output is covered from breakage, while a produce distribution company will want to insure against fruits and vegetables spoiling while in transit.

Commercial output policies help businesses avoid gaps in insurance coverage as they move the goods that they produce around, whether to other facilities or to the market. The inland marine coverage component provides property coverage for goods that are in transit, including transit via non-water routes. The policy also provides coverage for equipment used during the production process.

Commercial output policies tend to offer a broader range of coverage than commercial package policies (CPPs) and business owner policies (BOPs). A business may find that the amount of coverage offered by a commercial output policy is more than it needs, meaning that it would pay premiums for coverage that is not needed.

Carriers may employ what's known as a deficiency point rating system to price these policies. Deficiency points can range from 0 to 40,000 or more, based on a set of objective criteria, and depending on the type of industry, the goods involved, transport distance, carrier type, etc.

So, for example, a underwriter might assign 10,000 deficiency points, and that points to a loss cost, say, of between .90 and 1.05.  The rating is designed to be based on the entire risk, so there's a lot of room to maneuver in the rating system. The idea is to be flexible with the ratings so that if the risk changes sharply or an underwriter wants more or less of this kind of business, the rating can be adjusted.