WILL A SPRINKLER SYSTEM PAY
FOR ITSELF IN RATE SAVINGS?
Properly engineered automatic sprinkler protection has many
selling points including increased underwriting desirability,
lower re insurance rates and, of course, superior re
protection. However, other things being equal, the owner’s
interest still comes down to: How much is it going to cost me?
Will the sprinklered system actually pay for itself in insurance
premium savings?
The Specic Commercial Property Evaluation Schedule
(SCOPES) of the Insurance Services Ofce (ISO) does include
provisions for rating both properties protected with automatic
sprinklers and non-sprinklered properties. Sprinklered rates will
vary based upon several factors including construction type,
occupancy hazards, whether the sprinkler system is supervised
and has a central station, remote, proprietary or local alarm
service, and whether the water supply is a single or dual
source. The standard sprinkler system is assigned a grading of
100 points. Any deciencies from standard are deducted from
those 100 points and affect the rate accordingly.
To illustrate, let’s assume that a typical metal building system
has a single source water supply sprinkler system and is
assigned a grading of 90. Also, for this example, assume that
only local alarm service is provided.
If we then compare the metal building system examples used
in MBMA Insurance Bulletin No. 5 with the same building
sprinklered, we have the following:
MBMA
INSURANCE
BULLETIN
no.
10
© 2015 MBMA
Building Rate Contents Rate
Building
Non-
Sprinklered
Sprinklered
Non-
Sprinklered
Sprinklered
Metal building system
(glass ber insulation
or composite foam
core assemblies
meeting slow burning
requirements)
1.08 0.285 1.400 0.373
Metal building system
with 1- or 2-hour
re resistive wall
construction
0.39 0.154 0.692 0.220
Metal building system
with unprotected or
unlisted foam core
panels
1.55 0.370 1.605 0.475
Properly engineered
automatic sprinkler
protection:
• Increases underwriting
desirability
• Lowers re insurance
rates
• Offers superior re
protection
Let’s now assume values for these buildings and contents and
compare annual premium costs.
Obviously, the higher the building value, the greater the
dollar savings will be for sprinklered buildings. In other cases,
installation of a sprinkler system in a metal building may
produce a lower annual insurance cost than a competing non-
sprinklered class of building. The key question is this: Does the
addition of a sprinkler system allow you to compete in terms of
building price, as well as insurance cost, both in the rst year
and subsequent years?
Payback time for the investment required by the sprinkler
system must also be considered. In the example above, here
is how long it would take to pay for the sprinkler system
investment.
© 2015 MBMA
Building
Building
Value
Contents
Value
Non-
Sprinklered
Premium
Sprinklered
Premium
Annual Premium
Savings
Metal building system
(glass ber insulation or composite
foam core assemblies meeting
slow burning requirements)
$500,000 $325,000 $9,950 $2,637 $7,313
Metal building system with
1- or 2-hour re resistive wall
construction
$500,000 $325,000 $4,199 $1,216 $2,983
Metal building system with
unprotected or unlisted foam core
panels
$500,000 $325,000 $12,966 $2,746 $10,220
Building Sprinkler
Annual
Premium
Savings
Years to
Payout
Metal building system (glass ber
insulation or composite foam core
assemblies meeting slow burning
requirements)
$31,250 $10,070 3 1/2
Metal building system with
1- or 2-hour re resistive wall
construction
$31,250 $3,658 8 1/2
Metal building system with
unprotected or unlisted foam core
panels
$31,250 $13,270 2 1/2
Of course, pay back would depend on other factors such as
method of nancing, interest rates, depreciation method, taxes,
etc.; but the sample does show that sprinkler protection will pay
for itself in a reasonable period of time in some cases. In other
cases, sprinkler protection must be justied by the increased
protection of assets.
These comparisons are based on generally applied insurance
evaluation principles as of the date of publication. Some local
building and/or re codes require sprinkler systems in certain
structures. The building owner’s design professional must
determine and specify applicable local requirements.
For purposes of this example, we have assumed the internal
sprinkler system to cost $1.25 per square foot. These costs vary
and can be materially higher in locations with poor public water
supply. Costs for connection to the public water supply would
be additional.
© 2015 MBMA
What is ISO?
The Insurance Services Ofce, Inc. (ISO) is
a subsidiary of Verisk Analytics, and provides
data, underwriting, risk management and
legal/regulatory services.
Sprinkler protection
can affect the
maximum square
footage permitted by
the building code for
different applications.
See MBMA’s Fire
Resistance Design
Guide for details.
