Occupancy (O): What You Do Matters as Much as What You Build

The "O" in COPE stands for Occupancy, and it represents everything that happens inside your building. While Construction (the C in COPE) determines the building's inherent fire resistance, Occupancy determines the probability that a fire will start in the first place.

Two identical modern office buildings in the same location will have dramatically different property insurance premiums if one operates as a computer consulting firm and the other operates as a woodworking shop. The difference isn't the building—it's what happens inside.

Understanding the Occupancy factor is critical because, unlike construction which is largely fixed, your occupancy is something you control. Changes to what happens in your building create immediate changes to your insurance premiums.

The Occupancy Principle

The fundamental principle of the Occupancy factor is straightforward: activities and materials inside buildings create fire ignition sources and combustible fuel, increasing the likelihood and potential severity of fire loss.

Insurance companies recognize that:

• Some business activities are inherently risky (welding creates ignition sources)
• Some materials are highly combustible (grain dust, wood waste, flammable liquids)
• Some practices are careless (smoking in flammable storage areas)
• Some operations require constant vigilance (hot work operations)

Your occupancy—what business you operate and how you operate it—directly determines your fire risk.

Occupancy Classification System

Like Construction, Occupancy is classified in a systematic way. Insurance companies categorize occupancies based on:

• The primary business activity
• The materials stored or processed
• The fire hazards inherent in that business
• Historical loss experience for that occupancy type

Low-Hazard Occupancies (Lowest Insurance Rates)

Characteristics: Minimal ignition sources, minimal combustible materials, low fire probability.

Examples:

• Office occupancy: Professional services, administrative operations, consulting
• Banking and finance: Banks, credit unions, financial services offices
• Medical offices: Doctors' offices, dentists, health practitioners
• Insurance agencies: Insurance offices and agencies
• Government offices: Administrative government operations
• Educational facilities: Schools, colleges, training facilities (offices/classrooms)
• Data centers: Computer server facilities with fire suppression

Why Low Hazard:

• Minimal combustible materials
• Few ignition sources
• Controlled environments with safety measures
• Professional workforce understanding fire risks
• Good housekeeping standards typical

Insurance Impact:

• Occupancy multiplier: 0.90-1.0
• Example: $1.50/100 base rate stays $1.35-$1.50/100 with low-hazard occupancy

Moderate-Hazard Occupancies (Standard Insurance Rates)

Characteristics: Moderate ignition sources, some combustible materials, normal fire probability for business type.

Examples:

• Retail stores: Clothing stores, department stores, hardware stores
• Grocery stores: Supermarkets, food stores
• Restaurants and food service: Restaurants, cafes, food preparation
• Hotels and hospitality: Hotels, motels, lodging
• Warehouses: General merchandise storage
• Manufacturing (light): Light assembly, packaging operations
• Dry cleaning: Clothing cleaning facilities
• Libraries: Libraries with combustible material (books)
• Hospitals: Hospital operations (non-surgical areas)
• Apartments and residential: Residential buildings with typical furnishings

Why Moderate Hazard:

• Some combustible materials on site
• Some ignition sources (cooking, heating, electrical)
• Normal housekeeping expected
• Standard fire risks for business type
• Professional or semi-professional management

Insurance Impact:

• Occupancy multiplier: 1.0-1.15
• Example: $1.50/100 base rate becomes $1.50-$1.73/100 with moderate-hazard occupancy

Higher-Hazard Occupancies (Above-Average Insurance Rates)

Characteristics: Multiple significant ignition sources, combustible materials, elevated fire probability.

Examples:

• Woodworking shops: Lumber storage, wood processing, sawdust generation
• Furniture manufacturing: Wood furniture production
• Textile manufacturing: Cloth production and storage
• Printing operations: Paper storage, ink use
• Automotive repair: Flammable liquids, welding, hot work
• Metal fabrication: Welding, cutting, hot processes
• Paint and coating: Flammable liquid storage and use
• Appliance manufacturing: Parts and assembly operations
• Electronics manufacturing: Component manufacturing
• Hobby shops: Hobby materials and supplies

Why Higher Hazard:

• Significant combustible materials
• Multiple hot work operations (welding, cutting)
• Flammable liquid or vapor use
• Dust generation (sawdust, lint, grain dust)
• Complex housekeeping challenges
• Ignition sources difficult to eliminate

Insurance Impact:

• Occupancy multiplier: 1.15-1.50
• Example: $1.50/100 base rate becomes $1.73-$2.25/100 with higher-hazard occupancy
• Potential surcharge: 15-50% above standard rate

High-Hazard Occupancies (Significantly Elevated Insurance Rates)

Characteristics: Severe fire hazards, very significant combustible materials, constant ignition sources, high fire probability.

Examples:

• Flammable liquid storage: Fuel, solvents, chemicals
• Grain storage/processing: Grain dust (extremely combustible)
• Lumber mills and sawmills: Continuous wood processing
• Explosives manufacturing: Ammunition, fireworks
• Petrochemical processing: Oil refining, chemical processing
• Hazardous chemical storage: Hazardous material warehousing
• Fireworks manufacturing: Explosive material handling
• Refineries: Fuel and chemical refining
• Plastics manufacturing: Plastic processing (high flammability)

Why High Hazard:

• Severe combustible material quantities
• Constant ignition sources (heat, friction, sparks)
• Explosive potential in some cases
• Extreme housekeeping challenges
• Professional operations with specialized safety protocols required
• Very high probability of significant fire

Insurance Impact:

• Occupancy multiplier: 1.50-3.0+
• Example: $1.50/100 base rate becomes $2.25-$4.50+/100
• Potential surcharge: 50-200%+ above standard rate
• May require special underwriting and approval
• May be uninsurable at standard rates
• Requires specialized insurance market

Premium Impact of Occupancy Hazard

To illustrate the dramatic impact of occupancy, consider identical Class 3 brick buildings with excellent fire protection:

| Occupancy Type | Occupancy Hazard | Rate/100 | Annual Premium ($1M) | |---|---|---|---| | Office | Low | $1.35 | $13,500 | | Retail store | Moderate | $1.55 | $15,500 | | Restaurant | Moderate-High | $2.00 | $20,000 | | Woodworking shop | Higher | $2.50 | $25,000 | | Furniture manufacturing | Higher | $2.75 | $27,500 | | Flammable liquid storage | High | $4.50+ | $45,000+ |

Key Insight: The woodworking shop pays $11,500 MORE annually than the office in the identical building, purely based on occupancy differences.

Occupancy-Specific Risk Factors

Beyond broad occupancy classification, underwriters evaluate specific characteristics of your occupancy:

Flammable and Combustible Materials

Critical Questions:

• What flammable liquids do you store or use?
• What quantity of flammable materials are on site?
• How are flammable materials stored and handled?
• Are materials properly contained and separated?

Impact Examples:

• No flammable materials: Standard rate
• Small quantities, proper storage: Minimal surcharge
• Large quantities, proper storage: Moderate surcharge (15-25%)
• Large quantities, improper storage: Severe surcharge (50%+)

Control Strategies:

• Minimize quantity of flammable materials on site
• Store materials in approved cabinets/areas
• Proper ventilation for flammable vapor areas
• Implement strict handling procedures
• Document and communicate procedures

Dust and Particulate Generation

Dust explosions are among the most severe property losses. Occupancies generating dust face elevated premiums:

Severe Dust Hazards:

• Grain storage/processing: Grain dust is highly explosive
• Wood sawmilling: Sawdust is explosive when airborne
• Textile manufacturing: Lint and fabric dust
• Metal finishing: Metal dust in air
• Plastics processing: Plastic dust

Risk Reduction:

• Dust collection systems
• Regular cleaning and housekeeping
• Proper ventilation
• Grounding and bonding to prevent static
• Explosion-proof electrical equipment

Premium Impact: Buildings with effective dust control can reduce premium by 10-25% vs. identical building without controls.

Hot Work Operations

Welding, cutting, and other hot work creates significant fire risk:

Hot Work Activities:

• Welding and cutting
• Grinding and metal processing
• Soldering and brazing
• Roofing with torch
• Hot tar application

Risk Assessment:

• Frequency of hot work (occasional vs. continuous)
• Location (fixed area vs. mobile throughout building)
• Training and procedures
• Fire watch protocols
• Distance from combustibles

Premium Impact:

• Occasional hot work in designated area: Modest surcharge (5-10%)
• Frequent hot work throughout building: Significant surcharge (25-40%)
• Professional hot work operation: Standard rate with proper procedures

Risk Control:

• Hot work permit system
• Certified operator requirements
• Fire watch requirements
• Safe work distance from combustibles
• Post-hot-work inspection

Smoking Policies

Smoking is a common ignition source. Smoking policies affect occupancy classification:

Full Smoking Ban:

• Lowest occupancy rating for smoking risk
• May earn small credit

Designated Smoking Areas:

• Standard rating
• Areas must be away from combustibles
• Proper receptacles required

Smoking Allowed Throughout:

• Occupancy surcharge (5-15%)
• Increased fire risk from careless smoking

Recommendation: Most properties implement no-smoking policies, both for insurance and employee health reasons.

Building Housekeeping and Maintenance

Occupancy classification also considers how well the building is maintained:

Good Housekeeping:

• Clean floors, minimal debris
• Orderly storage of materials
• Regular maintenance of equipment
• Prompt cleanup of spills
• Organized operations
• Premium Impact: May support occupancy credit of 5-10%

Poor Housekeeping:

• Accumulation of debris and waste
• Disorganized storage
• Deferred maintenance
• Spills not cleaned up
• Cluttered operations
• Premium Impact: May incur surcharge of 10-25%

Control Strategy: Regular housekeeping reduces both fire risk and insurance premium.

Occupancy Changes and Transitions

If you change your occupancy or business operations, you must notify your insurance company:

Changing Occupancy

If you transform your business:

• Office → Warehouse: Likely occupancy change
• Retail → Restaurant: Likely occupancy change with higher hazard
• General warehouse → Chemical storage: Significant occupancy change to high hazard
• Manufacturing → Office: Occupancy improvement with rate reduction

Underwriter Review: Occupancy changes require underwriter review and may result in premium adjustment (increase or decrease).

Important: Failing to disclose occupancy changes can result in claim denial. Always notify your insurer when occupancy changes.

Expanding Operations

Adding new operations to your building:

• Adding woodworking to office: Creates higher-hazard occupancy for entire building
• Adding food preparation to retail: Increases occupancy hazard
• Adding storage: Increases combustible material quantity

Building Impact: Adding hazardous operations to even part of the building can increase entire building's occupancy classification.

New Tenants

If you lease space to tenants, occupancy depends on tenant's business:

• Single tenant office building: Office occupancy rating
• Multi-tenant with office + restaurant: Higher occupancy rating for whole building
• Industrial park with varied tenants: Highest occupancy rating of any tenant

Lease Considerations: It's important to know what businesses operate in your building and their occupancy classifications.

Occupancy and Insurance Coverage

Your occupancy classification affects not just premiums but also coverage:

Standard Coverage

Standard property insurance includes typical business contents and operations for your occupancy.

Excluded Occupancies

Some very high-hazard occupancies are not covered by standard property insurance:

• Manufacturing explosives or fireworks: Typically uninsurable or specialized market only
• Illegal operations: Not insurable under any circumstance
• Undisclosed hazardous occupancy: Claim may be denied if hazard not disclosed

Limited Coverage

Some high-hazard operations have limited coverage:

• Sublimits on hazardous materials: Only partial coverage for certain materials
• Exclusions for certain activities: Some operations may be excluded
• Special conditions: Additional requirements for coverage

Recommendation: Discuss your occupancy in detail with your insurance broker to understand coverage.

Occupancy as a Controllable Factor

Unlike construction (largely fixed), occupancy is often controllable. Ways to improve your occupancy classification:

Operational Changes

• Reduce flammable material inventory: Store only what you need
• Improve housekeeping: Regular cleaning and organization
• Implement safety procedures: Smoking bans, hot work permits
• Train employees: Safety training reduces incidents
• Improve equipment maintenance: Reduces mechanical ignition sources

Business Changes

• Eliminate high-hazard operations: Stop doing risky activities
• Outsource risky operations: Let specialized companies handle them
• Separate operations: Move high-hazard operations to separate building
• Change business focus: Shift to lower-hazard operations over time

Measurable Impact

Well-managed improvements can reduce occupancy surcharge significantly:

• From poor to good housekeeping: 10-25% reduction
• From smoking allowed to smoking ban: 5-15% reduction
• From high-risk to controlled operations: 25-50% reduction
• Comprehensive risk management program: 15-30% overall reduction

Occupancy Communication

It's critical to accurately communicate your occupancy to your insurance company:

Detailed Occupancy Description

Provide specific information about:

• Primary business activity
• Secondary business activities
• Materials stored or processed
• Quantities of flammable/hazardous materials
• Hot work operations (frequency, location, method)
• Number of employees
• Hours of operation
• Staffing and management
• Preventive measures and controls

Supporting Documentation

Document your occupancy practices:

• Procedures: Written procedures for hazardous operations
• Training records: Documentation of employee training
• Inspection records: Regular safety inspections
• Maintenance logs: Equipment maintenance records
• Photos: Visual documentation of housekeeping and conditions

Occupancy Certification

Some insurance companies require detailed occupancy questionnaires or certifications, particularly for higher-hazard operations.

Occupancy and Your COPE Profile

Occupancy interacts with other COPE factors:

Occupancy + Construction

Low-hazard occupancy in weak construction: Occupancy is favorable, construction is unfavorable. High-hazard occupancy in strong construction: Construction helps, but occupancy hazard may dominate.

Occupancy + Protection

Protection becomes more valuable with higher-hazard occupancy:

• Low-hazard occupancy + minimal protection: Still favorable due to low inherent risk
• High-hazard occupancy + excellent protection: Protection critical to controlling risk
• High-hazard occupancy + minimal protection: Very high premiums or potentially uninsurable

Occupancy + Exposure

Occupancy doesn't directly interact with exposure, but they compound:

• High-hazard occupancy + high-exposure area: Premium may be very high
• Low-hazard occupancy + high-exposure area: Exposure surcharge reduced by favorable occupancy

Key Takeaway

Occupancy—the "O" in COPE—determines what fire hazards exist inside your building based on the business activities and materials present. While construction is largely fixed, occupancy is frequently controllable through operational changes, better housekeeping, risk management procedures, and sometimes business decisions.

Property owners and facility managers can significantly reduce insurance premiums by:

• Improving housekeeping and maintenance
• Reducing inventory of hazardous materials
• Implementing safer operating procedures
• Training employees on fire safety
• Eliminating unnecessary high-hazard operations

Unlike construction improvements (expensive, slow, difficult), occupancy improvements can be implemented quickly and often at low cost, generating immediate insurance savings while simultaneously improving actual fire safety.

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Ready to evaluate and improve your building's occupancy classification? The Volare Risk Management team can conduct an occupancy assessment and recommend specific improvements that will reduce insurance costs while enhancing fire safety.