CMP vs BOP policy

Greetings Goactuary.com! Welcome to my first post!

My question pertains to the differences between the commercial Business Owners Policy(BOP) and Commercial Multi Peril(CMP) and specifically, what drives the differences between the two policies.

Both policies cover property and liability. Why would you purchase one over the other?

Is a CMP policy really one policy? Or is it more along of the lines of all underlying policies, priced and underwriten individually, except that they each qualify for a material discount because there’s another policy.

Till all are one,

Epistemus

BOP is designed for small businesses (in general), it falls under CMP.
BOP is a single policy, that outlines coverages for both property and liability, sometimes with other endorsements as well (like auto). It may or may not be split rated, as in, you know what the PP/premium is for property and liability separately.

To add to what JSM posted . . . a lot depends on who is selling the coverage.

If one is using a broker, CMP could be such that your property coverage (and corresponding business interruption coverage) is place with Company X, CGL coverage is with Company Y, and your products liability coverage is with Company Z.

BOP will always be a single policy that covers “all perils” (except for professional liability and possibly products liability).

Thanks VA(think AO ever comes back btw?)

That’s an interesting take on a CMP policy that different portions would be placed with different carriers. For reference, i’m referring tot he an insurance carrier who distributes through agents offering both BOP and CMP.

Could a BOP policy singularly cover property damage to the structure, but also liability for GL, Premises/Operations, and products/completed operations?

Or would those be covered under a CMP policy?

Come to think of it, the property damage component of these policies is easier to “get” this is just physical damage to your structure. the liability is where things become complex. In a BOP policy, would the GL, prem/ops, prod/comp ops be lumped into one generic “liability?”

For JM, couldn’t CMP also be for small policies? Not to be harsh, but how is that distinction helpful, or is more background knowledge of “Who do we generally expect and target to purchase these types of policies?”

“Commercial Multiperil” is somewhat of a throwback to older times (think early 20th century and earlier) when an insurance company could only sell a policy that covers one “peril”. So your typical “homeowners” policy would generally cover only damage due to fire. You would need a separate policy to cover water damage. And other to cover personal liability (e.g., damage to someone else’s property because your tree fell during the windstorm).

When multiperil policies were allowed, that sort of revolutionized the industry (certainly in the personal lines). Commercial coverages tended to lag a bit, but “CMP” would be coverage geared toward commercial enterprises; especially since it would often include “loss of income” coverage (aka Business Interruption) that isn’t part of a personal lines coverage. However, rating of CMP (regardless of how the policy was structured) was still done “by peril”: premium determined separately for Building coverage, Contents (aka Personal Property) coverage, Business Interruption, CGL, products, completed operations (sometimes, these last two were combined), etc.

BOP was a single premium for a set package of coverage that might be tied to insured building amount (if the insured location is owner occupied) or contents amount (if the insured location was leased). This single premium included all (basic) coverages; sometime with an option to buy up coverage that might be deficient in some other way. That is, BOP became analogous to the personal lines type policy rating for commercial exposures.

But I think now-a-days, BOP is aligned more with small businesses (that are more likely to be leasing their business location) and CMP being more aligned with medium-sized businesses.

BOP is akin to homeowners insurance, in that it has both property and liability coverages. Sometimes the insurer doesn’t even distinguish the loss, and rates it on a single pure premium, and thus a single premium.

CMP in my view, distinguishes the coverages a lot more, sometimes combines what would be several policies into a single policy. Can small businesses buy this? Sure. But if you’re a business owner, BOP is much easier to quote and buy, otherwise you go through the underwriting process for Property, GL, and maybe get some sort of package discount after you combine them, but it’s far too tedious for your small business owner, especially if you’re just one of the thousands of hair salons that basically have the same type of risks.

BOP is likely the commercial “bread and butter” for an agent that generally specializes in personal lines, but wants to get some of that added commission for a business policy.

Average premium for a typical BOP is likely to be quite a bit larger than the average premium for a typical personal lines (property) policy

My experience is mostly in the large account world, and I have mostly dealt with stand-alone GL, property, auto, etc.

I think of CMP as a package of coverages for companies small enough that they don’t want to separately negotiate the premium and other details on each coverage. It’s a standard package, but it’s still flexible, and some details can still be customized.

I’ve only barely touched BOP, which I think of as “homeowners for small businesses”. It usually has filed rates instead of having a negotiated premium. It’s a standard policy that works for most small businesses, just like homeowners is a standard policy. But yes, what it covers is pretty similar to what CMP covers.

For what it’s worth, I think of “Commercial Multi Peril” as strictly an Annual Statement Line of Business, not a product. My company offers Commercial Lines only to small to mid-sized accounts (no experience rating). The BOP is one product with both property and liability coverages included and suits most of our accounts. Common coverages are built into it. We also offer a “Commercial Package Program” (CPP) which is more flexible and suits accounts that are on the large end for us, or with unusual exposures. It allows more tailoring of what is and isn’t covered.

Both are considered CMP for annual statement purposes.