Commercial Output Policy (COP)

What Is a Commercial Output Policy (COP)?

A commercial output policy (COP) is insurance that provides both commercial property and inland marine coverage. An updated version of the manufacturer’s output policy (MOP), it is designed to ensure that a company’s product, or “output,” is protected against financial loss all the way through to the point that it reaches its final destination.

Understanding a Commercial Output Policy (COP)

Sometimes standard commercial property insurance, which covers a company’s real estate and equipment from such perils as fire, theft, and natural disaster, is not enough. Businesses 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.

Commercial output policies (COP) help companies avoid gaps in insurance coverage as they move the goods that they produce around, whether to other facilities or to the market. This box is ticked by the inland marine component, which provides property coverage for items that are in transit via non-water routes. 

Businesses that operate in multiple locations might consider a commercial output policy (COP) in order to protect against risk exposures associated with transporting output between different facilities, as well as shipping to customers. The types of companies that may purchase a commercial output policy (COP) include manufacturers, wholesalers, distributors, and other companies that process and assemble goods.

The decade commercial output policies (COP), or manufacturer’s output policies (MOP) as they were then known, first became available.

Types of Commercial Output Policies (COP) 

Commercial output policies (COP) tend to be flexible. It’s possible to insure a variety of different property and purchase additional optional features, too, catering to specific potential causes of loss such as crime, employee dishonesty, equipment breakdown, and spoilage.

The output of the business will determine the type of coverage and limit that it will need. For instance, a manufacturer will want to make sure 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 Policy (COP) Pricing Methods

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.

An underwriter, for example, might assign 10,000 deficiency points, and that points to a loss cost, say, of between 0.90 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. That means if the risk changes sharply or an underwriter wants more or less of this kind of business, the rating can be adjusted. 

Advantages and Disadvantages of a Commercial Output Policy (COP)

Commercial output policies (COP) tend to offer a broader range of coverage than commercial package policies (CPPs) and business owner policies (BOPs). In fact, a company may find that the amount of coverage offered by a commercial output policy (COP) is more than it requires, meaning that it could pay premiums for protection that it doesn't need.