Insurance Costs for Steel Buildings: Saving Money with Discounts and Lower Premiums

Published September 11, 2017 by Whirlwind Team

steel building insurance discount

Insuring your property is common sense, especially if you live in an area of the country where weather, fire, or earthquakes are common. That seems to be everywhere these days. Also, if you financed your building, your lender will require insurance.

If you construct your building or home with steel, you can lower your insurance rates significantly, as much as 40% over traditional construction. What you may not know is how insurance companies determine their rates and why using steel is such a money-saver.


Insurance services office (ISO) building classifications

The insurance industry classifies buildings according to the fire resistance of the material from which they are constructed. There are six classifications from Class 1 - least fire resistive to Class 6 - most fire resistive.

  • Frame, Construction Class 1 - includes buildings with exterior walls of noncombustible or slow-burning construction with combustible floors and roof or walls and roofs with composite assemblies that include both combustible and noncombustible materials.
  • Joined Masonry, Construction Class 2 - Exterior walls are constructed of fire-resistive materials rated at not less than one hour or masonry with combustible floors and roof. 
  • Noncombustible, Construction Class 3 - Exterior walls, floors, and roof are constructed of noncombustible or slow-burning materials or are supported by noncombustible or slow-burning supports. Most metal buildings fall into this classification. 
  • Masonry Noncombustible, Construction Class 4 - Exterior walls of fire resistive construction rated at not less than one hour or masonry not less than four inches thick, with noncombustible or slow-burning floors and roof. 
  • Modified Fire Resistive, Construction Class 5 - Exterior walls, floors, and roof constructed of materials described in Construction Class 6 Fire Resistive but there are deficiencies in thickness and a fire resistance rating of less than two hours but not less than one hour. 
  • Fire-Resistive, Construction Class 6 - Solid masonry walls not less than four inches thick or hollow masonry walls not less than eight inches thick or assemblies with fire resistance rating of not less than two hours. The floor and roof assemblies have a fire resistance rating of not less than two hours. Horizontal and vertical load bearing, protected metal supports with a fire resistance rating of not less than two hours. Includes pre-stressed or post-tensioned concrete units. 

You’ll notice most prefabricated metal buildings are considered to be Construction Class 3. Class 3 buildings are not as fire-resistant as Classes 4 through 6, but they cost much less to construct. The difference in insurance rates between Class 3 and Classes 4 through 6 is not significant enough to balance the extra cost of the higher classes of building, so Class 3 is a cost-effective choice for fire resistance.

Insurance rates for buildings less than 15,000 square feet are based solely on these classifications. Rates for larger buildings are individually assessed and rated by the insurance company. Buildings over 15,000 square feet that are constructed with steel still come out with lower rates than those made of traditional materials.

Insurance pricing

The ISO uses the classifications above to set a base rate typically used by all insurance companies in the United States.  Each state has a Loss Conversion Factor (LCF) that is applied to calculate the insurance rate in that state. Most LCFs are 1.2 to 1.4, resulting in a range of prices between insurance carriers.

Individual insurance assessments base rates on a combination of variables:

  • Cost per $100 of insured building value
  • Losses aggregated by state and region
  • Losses aggregated by building type
  • Actual building value

Losses aggregated by state and region are particularly applicable to those areas with extreme environmental conditions such as high probability of seismic activity and high winds. However, insurance companies recognize that steel buildings sustain less damage from fire, earthquake, and high winds than traditional construction materials.

The recognition of lower risk results in lower insurance premiums because the probability of damage is much lower. Obviously, the rate will take into account other building materials used in construction of the steel building, the contents, the use, and the risk of damage from surrounding buildings.

Design features that reduce rates even more

As we mentioned earlier, most prefabricated steel buildings are considered to be Construction Classification 3, Noncombustible. However, you can add elements to your building design to make it more resistant to fire, closer to a Class 5 or 6.

  • Sprinkler system
  • Fire detection system
  • Fire resistant insulation
  • Fire resistant interior and exterior coverings

Adding these elements to your steel building can add to the cost of construction but it won't be nearly as expensive as constructing a Fire Resistive or Modified Fire Resistive building, and you will receive greater savings on your insurance premiums to counter the added expense.

An example of the insurance premium savings you can get from using steel as your construction material of choice comes from MBMA Bulletin 15, How Metal Building Insurance Costs Compare to Other Building Types. The study was completed in 2010.

A building in Bryan, TX (College Station, Home of Texas A&M) had a theoretical annual insurance cost for each Construction Classification of the following: 


Estimated Annual Insurance Costs per 100 square feet

1 - Frame


2 - Joined Masonry


3 - Noncombustible


4 - Masonry Noncombustible


5 - Modified Fire Resistive


6 - Fire Resistive


Metal building systems had lower insurance rates than Classes 1 and 2, were comparable to Class 4, but higher than Classes 5 and 6. 

Insurance is a significant expense for any property owner. The more square footage there is to insure, the higher the cost for repair or replacement. Using a material that lowers the risk of damage or loss also lowers insurance premiums.

Steel buildings are fire-resistant structures that are cost effective to build and own from the perspective of durability, maintenance, and energy efficiency. Steel is a versatile material that allows you to design almost any type of building you need while maintaining its strength and integrity.

Steel also is resistant to the ignition and spread of fire and flames, providing additional time for escape and less damage to the overall structure than a wood-framed building. 

Lower insurance premiums are yet another point in favor of building with steel.

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