Commercial Property Insurance

Commercial property insurance helps businesses protect all property vital to the daily operation of the business, extending not only to buildings, stores, and offices but also equipment, furniture, inventory and any other physical assets important to the company.

Commercial property insurance can cover a variety of losses including building, business personal property, property of others, business income, inland marine, and cargo.

Many premiums are on the rise due to an increase in catastrophic events in 2017 and 2018. According to a recent report, global losses from disaster events in 2017 totaled $144 billion, with hurricanes Harvey, Irma, and Maria causing a combined $92 billion of damage and the California wildfires accounting for a record $14 billion in losses.

In 2018, California wildfires continued to set new frightening standards in commercial property risks, accounting for an additional $845 million in insured losses.

We wrote this guide to help you, the reader, understand both the basics of commercial property insurance as well as some more advanced considerations. Our hope is that you walk away from this article a more empowered buyer, with a better understanding of the risk you can transfer to other parties via the commercial property insurance product.

If you’d like help, we’d invite you to talk with a broker or get started by creating an Embroker account. Our highly experienced insurance experts will work with you to gain a deep understanding of your unique needs before negotiating a customized policy on your behalf. For more clarity on pricing, your business will be benchmarked against similar businesses to identify any unforeseen exposures and premium savings opportunities.

What is Commercial Property Insurance?

Commercial property insurance helps protect against asset loss.

While the terms of a policy and explicit coverage vary from policy to policy, there are virtually no industry-specific differences.

The policy terms, limits, and retentions should be tailored to reflect the assets and acceptable loss thresholds with regards to business property and income.

Who Needs Commercial Property Insurance?

Any business that leases or owns office space, manufactures products, manages inventory, leases equipment, or maintains the property of others should consider commercial property insurance.

Typically commercial property is first secured when a lease is signed. Property owners will want their tenants to own and maintain insurance with limits adequate to repair or restore the building in the event of damage.

leases or owns office space
manufactures products
manages inventory
leases equipment
maintains the property of others

should consider commercial property insurance.

Typically commercial property is first secured when a lease is signed. Property owners will want their tenants to own and maintain insurance with limits adequate to repair or restore the building in the event of damage.

What Does Commercial Property Insurance Cover?

Specific coverage varies from policy to policy. When you set up an insurance policy with your carrier or broker, you should tailor it to protect against the risks most prevalent in your geographic area. A Michigan-based company wouldn’t likely need the same coverage as a company headquartered situated in the middle of Tornado Alley. You should work with your broker to assess risk and put together a policy that makes sense for your business.

Commercial property insurance covers more than just the building where you conduct your business. Your policy should also insure the contents of your building, including any movable property that your business owns. In a warehouse, contents protection might cover essential tools, equipment, vehicles, and storage systems your business uses daily. In a retail environment, it might protect product inventory. In an office, it might cover furniture, computers, servers, or even the re-creation of documents and records.

Property insurance may extend to certain assets outside your building, to surrounding characteristics like your company sign, landscaping, fences, or external structures. All these assets can impact your ability to conduct business regularly. They are a part of your property and could be covered under the policy.

Your insurance policy may even extend coverage to critical business assets when they are used off-premises. For example, say an employee takes a company computer on a trip and the device gets lost or stolen. Depending on your coverage, you may be able to submit a claim to replace the device.

The most important aspect of a property policy is its protection against loss of income or revenue in the case of property loss. These provisions provide net income and continuing expenses during the period of restoration when direct, physical loss is incurred for business income. If your business has to shut down for two weeks due to a fire, your policy might reimburse you for some of the lost earnings for those down weeks.

What Doesn’t Commercial Property Insurance Cover?

When you are putting your commercial property insurance plan together, there is a range of perils that you can choose to include or exclude from the policy. This process should involve a detailed talk with your broker in order to determine what the most appropriate coverage is for your business.

You can make a decision in the end whether you want to be covered against “all perils” or only “named perils.” Naturally, you’re going to have to pay a higher premium to cover “all perils.”

When you have a “named perils” policy it’s just that, a list of every type of possible peril that your insurance will cover.

Actual Cash Value vs. Replacement Cost

How your business assets are valued is definitely one of the most important factors related to getting the right commercial property insurance policy for your business. Generally, there are two options: actual cash value and replacement cost value. Let’s take a look at how they differ:

Actual Cash Value is the amount of money the insurance company will pay you based on the depreciated value of your property. It’s calculated by subtracting the depreciation of your property from the replacement cost.

Replacement Cost Value means that you will receive the amount of money you need to replace the property that was damaged or stolen. This type of policy will get you more than the actual cash value of the property or assets because you’ll get enough money to replace everything you lost.

It should also be noted that the ACV is the depreciated value and RCV doesn’t not include depreciation, which makes RPV more expensive.

Highly-Publicized Examples of Commercial Property Insurance at Work
  • A commercial property owner in Houston filed a lawsuit against the Twin City Fire Insurance Company (Hartford) after its insurance was wrongfully denied. According to the lawsuit, Twin City’s claims-handling process resulted in a wrongful denial that omitted a wealth of facts, physical evidence, obvious wind damage, and meteorological data from Hurricane Harvey supporting the plaintiff’s claim.
    See: Houston Commercial Property Owner Files Hurricane Harvey Damage Insurance Lawsuit
  • A car crash into a utility pole caused a fire at a Naugatuck pizza restaurant. A Toyota Scion driven by a 27-year-old man hit a guide wire then a utility pole. As a result of the crash and the damage to the utility pole, a fire broke out at Mario’s Pizza.
    See: Car crash into utility pole causes fire at Naugatuck pizza restaurant
  • A massive Apple data center in Mesa, Arizona caught fire. The fire was limited to the roof-mounted solar panels above the building, prompting 50 workers at the plant to evacuate. These panels were part of a deal Apple had with the local community to provide power to 14,000 local homes.
    See: A huge Apple building in Mesa, Arizona was just on fire
  • A fire damaged or destroyed about 50 boardwalk businesses in the adjoining neighborhoods of Seaside Heights and Seaside Park. A five-block area went up in flames, including many local businesses that had only recently recovered from Hurricane Sandy.
    See: Jersey Shore Fire a Reminder of the Importance of Having a Tight-Knit Business Community

Commercial Property Insurance Costs

How much can you expect to pay in rates? Frankly, there is no easy one-size-fits-all answer to that question. The cost varies dramatically depending on the characteristics of the property to be insured (COPE), the protective safeguards of the building, and the level of coverage you want.

Other factors can come into play as well, depending on how they increase or decrease your risk level. For instance, if your building was constructed using high-quality, fire-resistant materials, you’d pay less. If your building was equipped with the latest sprinkler systems, alarm systems, and other protections, those elements would also lower your risk, thus decreasing your rates.

Of course, some risk factors are harder to control. If you’re based in a high-crime area, you pay higher rates. Similarly, what your neighboring businesses do might also affect your rates. If you’re located right next door to a business that works with flammable materials, it amplifies your level of risk, which in turn spikes your rates.

Your most significant risk factor, though, is usually the business itself. What your business does, the amount of property you need to insure, and the dollar value of that property are the factors that are going to dictate the ballpark cost of your rates. For example, a factory is going to cost a lot more to insure than a run-of-the-mill office, since there’s a lot more expensive equipment to cover.

To recap, generally, these are the main factors that are going to impact the cost of your commercial property insurance policy:

Geography: Where your business is located, what the land value is, how high or low the local crime rates are, and whether natural disasters are common in your area.

Safety: Does your business or a business located close to it use hazardous or flammable materials? How much have you invested in protecting it?

COPE Data: Looking at the state of your building and equipment – how old and in what condition are they? When was the last time the electrical wiring was checked or changed in your building? In the case of an accident, how much money would it take to rebuild your building to code? How old is your equipment and how hard is it to repair the equipment? Is it easy to find parts for your equipment?

According to a recent report on property insurance, the impact of recent natural disasters will greatly affect commercial property rates in the coming years, particularly when it comes to property and assets located in areas at risk for wildfires, floods, and hurricanes, especially when for multifamily properties.

Getting Started

Whether you’re purchasing insurance for a new business or trying to lower your rates by improving your building with new safeguards, it’s important to understand all the variables discussed above.

Having quality, comprehensive protection for your building and all your property is essential if you are going to avoid expensive property replacements. From fires and burst pipes to high winds and hurricanes, your insurance policy will provide the protection you need to do business while maintaining peace of mind.

With that said, you can easily overspend on business property insurance if you aren’t sure exactly what you need, or don’t know what steps you can take to lower risk levels and costs.

Now that you have a better understanding of commercial property insurance, you may be wondering how all of this affects your business and where to go from here. If you need more help or information you can reach out to our team of expert brokers. If you prefer to get started on intelligent quotes, you can get started by creating an Embroker account today.

Having a quality commercial property insurance policy in place and a broker who can help you navigate the terms and conditions, as well as the claims process, can save you money and, more importantly, time.

Embroker is the easiest way to intelligently insure any business. We’re here to help!