What is Construction Occupancy Protection Exposure (COPE)?
COPE is a set of risks that property insurance underwriters review when determining whether to offer an insurance policy. COPE, which stands for Construction, Occupancy, Protection, and Exposure, allows the insurer to evaluate the risks of insuring a piece of real estate, which will ultimately determine whether a policy is created.
BREAKING DOWN Construction Occupancy Protection Exposure (COPE)
The insurance underwriting process involves the identification, classification, and analysis of risks. COPE is used to identify the factors that could cause an insurance company to experience a loss. Insurers build these data elements into their valuation models when predicting the likelihood of a loss, including losses stemming from catastrophes.
Why COPE is used
Analyzing the location of a building, the materials it was constructed with, the building’s age and the quality of the systems within the structure help the insurer determine the likelihood that the building or structure will be damaged. For example, a wood-framed building is more likely to catch fire, and buildings constructed in areas prone to hurricanes need to be constructed out of materials that can withstand strong winds. Older buildings have experienced long periods of structural stress and may have outdated electrical and plumbing systems.
Insurers examine who occupies a building and how the building is used. For example, a warehouse occupied by a few dozen workers will have different risks than an apartment complex with hundreds of residents. An insurer may consider a multi-family residential building riskier than a commercial building if a fire department is not located nearby, or if city infrastructure makes it more difficult to obtain adequate water pressure to fight a fire. It is critical to identify any services that reduce the risk to the property. Strong water pressure can mean more adequate firefighting, both from in-building sprinklers and fire hydrants. Protection features can also reduce risk to nearby stores, homes and the general public. The importance of protection depends on the other two factors: construction and occupancy. Properties that are low-risk in these areas may require fewer features that fall under the protection category.
Insurers may also examine the area surrounding a building. This concern extends outside the building and the occupant to more uncontrollable hazards. A property in a flood zone is one example of such an exposure. A building in a high-risk wildfire area is also an increased exposure. Buildings located near petrochemical plants or facilities that handle combustible materials would also be considered risky.