When property insurers set the premium for an individual building, they do it in two segments. The first is a baseline rate (they call it the basis rate), and it is determined by the amount of public fire protection. An insurance service called the Insurance Services Office (ISO) periodically evaluates the water supply and fire department in every city, and it gives the city a rating of 1 to 10. A 10 indicates that there is no fire department, and the basis rate for this city is the highest. Correspondingly, a city with an ISO rating of 1 has the lowest basis rate.
The second segment is the individual rate for each building, and it depends upon the material used in the structure, the type of occupancy and the built-in fire protection. Fire sprinklers can reduce this part of the premium by 5-20 percent. This is independent of the basis rate, so a building in a city with a high ISO rating can still get an insurance break from sprinklers.
The news is not as good for owners of 1-family homes. In most areas, once the ISO rating drops below 7, homeowners do not get a reduced basis rate, only commercial building owners. In some states, homeowners will get a break down to an ISO 5. On the other hand, lower ISO ratings do not necessarily improve life safety for homeowners. The objective of the ISO rating is to give credit where the risk of conflagration has been reduced. Consequently, the rating schedule focuses on the amount of water available for fire suppression and the firefighters and apparatus needed to pump the desired amount. Homeowners pay for the increased benefit to commercial building owners but do not necessarily get any additional benefit themselves.