Evidence of Commercial Property Insurance: Types, Coverage, and More

Commercial property insurance is a vital protection for businesses, covering physical assets like buildings, equipment, and inventory.

It provides financial protection against losses due to damage or destruction of property.

There are several types of commercial property insurance, including all-risk insurance, which covers damage from various perils such as fire, theft, and vandalism.

All-risk insurance often includes additional coverage for specific risks like earthquake or flood damage.

Businesses can also opt for named-perils insurance, which covers damage from specifically listed risks like fire or windstorms.

Named-perils insurance typically doesn't cover damage from other risks, requiring businesses to purchase separate coverage for those risks.

Actual Cash Value (ACV) is the most common policy valuation method, but in California, it's considered Fair Market Value unless otherwise defined in the policy.

Commercial property insurance policies often include a provision to determine the valuation method for paying losses, and ACV is a widely used option.

Agreed value policies, on the other hand, waive any coinsurance penalty and pay 100% of the stated amount for any covered loss.

Commercial property insurance is a type of policy that protects your business from loss or damage to its physical assets. This insurance is a must-have for any business owner who wants to safeguard their investments.

The policy has two main coverages: business personal property (BPP) and building coverage. The BPP section covers the building's contents, including furniture and fixtures, machinery and equipment, stock, and all other personal property owned by you and used in your business.

Here are some examples of what the BPP section covers:

It's essential to note that this coverage only applies to personal property in or within 100 feet of the insured building.

A Business Owners Policy (BOP) is a type of policy that combines several types of insurance into one package. It's designed to cover the unique risks faced by businesses, and it's a great option for small to medium-sized businesses.

Business Income and Extra Expense Insurance is a key component of a BOP, covering lost income and extra expenses that can result from a covered loss. This coverage is triggered only when you have a direct loss from a covered cause of loss.

The BOP also includes coverage for lost income and extra expenses, which is essential for continued business survival. A survey by the National Association of Insurance Commissioners found that only 35 percent of small businesses have business interruption insurance.

The Business Personal Property (BPP) section of a BOP covers the building's contents, including furniture, fixtures, machinery, equipment, stock, and other personal property owned by the business. Most commercial property insurance policies only cover personal property in or within 100 feet of the insured building.

Here's a breakdown of the types of property covered under the BPP section:

The BOP is a comprehensive policy that provides peace of mind for business owners. It's essential to understand how your policy is rated and how the policy premium is calculated, as this can affect the overall cost of the policy.

Insurance coverage is a crucial aspect of commercial property insurance. It's essential to understand what's covered and what's not.

Commercial property insurance can be sold separately as an Individual Line policy or as part of a Commercial Package Policy, which combines multiple coverage parts. This policy can cover buildings, business personal property, and the personal property of others.

The basic coverage sections include building coverage, business personal property, and personal property of others. Building coverage includes buildings, structures, and permanently installed fixtures, machinery, and equipment.

Business personal property consists of furniture, fixtures, machinery, and equipment not permanently installed, inventory, or any other personal property owned and used in your business.

Personal property of others refers to property that's in your business's care, custody, and control. This can vary depending on the type of business you operate.

Here's a breakdown of what's typically covered:

These are the essential components of commercial property insurance coverage. It's essential to tailor your policy to protect against the risks most prevalent in your geographic area.

The rating formula for commercial insurance is based on various factors, including square footage, type of construction, and fire protection classification.

The way a policy is rated determines how the policy premium is developed. Rating factors vary based on the line of insurance you are purchasing.

The deductibles selected for your policy will be calculated in the rate, and choosing a higher deductible can bring down your premium cost.

The basic rating equation often utilizes other modification factors, such as experience modifications, schedule rating, or judgment rating.

The causes of loss form in your commercial property insurance policy will determine what perils your building is covered against.

You can find the causes of loss form on your declarations of insurance page, and it will typically list the options of special, basic, and broad.

The type of property limit you purchased will affect how much cash you have to rebuild or replace your property, with options including replacement cost, actual cash value, and functional replacement cost.

Commercial property insurance is a must-have for business owners, as it protects all property vital to daily operations, including buildings, equipment, and inventory.

Faulty wiring or poor installations can cause fires, while lightning strikes can damage business equipment and cause electrical fires. Lightning strikes can also cause fires and electrical damage.

Natural perils like earthquakes, tornadoes, and hurricanes can cause thousands in damages, making it essential to have commercial property insurance.

You may be unlucky enough to be hit by a hail storm, which can damage vehicles and equipment, or experience flooding, which can be devastating to your business.

The damage from these events can be enormous, and having commercial property insurance provides peace of mind, ensuring you can keep your business doors open even in the worst-case scenarios.

Global losses from disaster events in 2017 totaled $144 billion, with hurricanes Harvey, Irma, and Maria causing $92 billion in property damage.

Commercial property insurance helps business owners avoid paying for property damage out of their pockets, which is especially important in areas prone to catastrophic events.

If your business rents or leases its premises, it's essential to review your lease with your insurance agent to ensure your property insurance covers your obligations. This includes being responsible for insuring the building, even if you're the sole tenant.

You may be responsible for continuing to pay rent even if the building is destroyed. This means you'll need to consider the financial implications of a disaster.

The Business Owners Policy (BOP) provides coverage for tenants' improvements and betterments, which are fixtures, alterations, installations, or additions that you've put into the space.

Here are some examples of what the BOP covers under tenants' improvements and betterments:

Most commercial property insurance policies only cover personal property in or within 100 feet of the insured building.

Actual Cash Value (ACV) is the most common policy valuation method, and in California, it's considered to be Fair Market Value.

ACV pays out the current market value of the damaged property, which means you'll receive less money as the property depreciates over time.

There are two other valuation methods: Agreed Value and Replacement Cost.

Agreed Value waives any coinsurance penalty and pays 100% of the stated amount for any covered loss.

Replacement Cost covers the amount it takes to replace your property with new property of like kind and quality up to the limits of insurance, but it's subject to coinsurance.

Businesses purchasing Replacement Cost policies can expect to pay considerably higher premiums since they won't have to deal with property depreciation.

The type of property limit you purchased, such as Replacement Cost, Actual Cash Value, or Functional Replacement Cost, will drastically affect how much cash you have to rebuild or replace your property.

Forms and Endorsements play a crucial role in your commercial property insurance policy. The causes of loss form is the core of which events are covered and which are not. It's usually found on the declarations of insurance page.

You'll typically see three options: special, basic, and broad. The basic cause of loss form insures against 14 specific perils, including fire, lightning, and vandalism.

A sprinkler system can qualify for a discount, but you'll need to ensure it's properly maintained to avoid losing coverage. If you've accepted a discount for a safeguard, but it's not in place at the time of loss, the insurance policy won't pay for damages.

The basic cause of loss form includes the following perils:

A deductible is the amount you pay out of pocket before your insurance company pays a claim. This can be a flat amount or a percentage of the building value, depending on your location and insurance policy.

There are different types of deductibles, including per building and per occurrence deductibles. The per building deductible resets for each building and each damaging event, while the per occurrence deductible is the total amount you'll be responsible for per event, no matter how many buildings were damaged.

Flat deductibles are the most straightforward type, where you're only responsible for a specific dollar amount. For example, a $5,000 deductible means you'll pay the first $5,000 of a claim before your insurance company kicks in.

Percentage deductibles are based on the building value, usually ranging from 1% to 5%. This means that if your building value increases, so does your deductible.

Some commercial property insurance policies have incredibly high deductibles, which has led to a new type of policy called the deductible buy down. This allows you to purchase a policy that pays the difference between your desired deductible and the high deductible amount.

Here are some common deductible types and amounts:

A commercial insurance broker-agent will meet with you to discuss your business operations and the exposures that are specific to your industry and business type. This is a standard practice used to determine the current coverage you have.

They will review your current policy to compare limits, exposure bases, business classifications, exclusions, and endorsements. This helps them identify any gaps, errors, or overlaps that may exist in your current commercial policy.

You don't need to share the premiums you've paid for your current or prior business insurance, but be forthcoming with any other information that affects your business operations. The more credible information you provide, the better the broker-agent can assess specific insurance needs and provide you with the best options to satisfy those needs and protect your business from loss.

To find a reliable broker-agent, start by contacting business contacts you've made, especially those in the same industry as your business or a closely related industry. They can recommend a commercial lines broker-agent.

Professional broker-agent associations, such as the Insurance Brokers and Agents of the West (IBA West) and the Western Insurance Agents Association (WIAA Group), can also assist you in contacting a commercial insurance broker-agent in your local area.

Your broker-agent can be a huge help in the claims process, so don't hesitate to reach out to them. They'll be your first point of contact when filing a claim and can guide you through the process.

It's essential to report all claims in a timely manner to the insurance company, as this allows them to process the claim and conduct their investigation as quickly as possible. This is especially crucial in liability claims, where high dollar amounts are at stake.

Trying to handle a claim yourself can lead to costly litigation from third parties, which can end in a judgment much higher than if an experienced claim representative had handled the claim from the start.

Understanding what damages are covered under a commercial property insurance policy is crucial for business owners. The causes of loss form is the core of which events are covered and which are not.

This form can usually be found on the declarations of insurance page. You can spot differences between a great and not-so-great commercial property coverage by looking at the causes of loss form.

The causes of loss form typically comes in three forms: special, basic, and broad. Each of these forms has a specific meaning for your business.

Special forms cover only certain specified perils, whereas basic forms cover a broader range of perils. Broad forms, on the other hand, cover almost all perils, except for those specifically excluded.

Knowing what perils your building will be covered against gives you peace of mind and allows you to prepare.

Your broker-agent is often your first point of contact when filing a claim, and they can assist you throughout the claims process.

Commercial claims can be complex, so it's essential to report them in a timely manner to allow the insurance company to process the claim quickly.

Failing to report claims promptly can lead to litigation from third parties, which can be expensive and result in a higher judgment than if the claim had been handled by a professional.

Claims loss experience directly affects premium costs, so following your duties under the contract can help keep claims costs to a minimum and lower your premium.

A better claims experience can result in a greater modification allowed to lower your premium, which can be a significant cost savings for your business.

Commercial insurance companies must follow the rules set out in the insurance code regarding commercial insurance cancellation and nonrenewal.

There are separate insurance code sections covering cancellation and nonrenewal for different types of commercial insurance lines, including workers compensation, auto, and ocean marine.

If you're unclear about your rights under the insurance code, contact the CDI for a complete explanation.

The CDI can be reached through the methods listed in the "Talk to Us" section of this brochure.

The California FAIR Plan has been around since 1968, providing basic property insurance to property owners who can't get it in the standard market.

It's not a state agency, but rather an association of property insurers licensed in California, participating according to the percentage of property insurance they write in the state.

The majority of California FAIR Plan business is in areas prone to destructive wildfires, as well as designated urban and inner city areas.

The plan primarily writes policies for personal property holders, such as homeowners, but also writes a small percentage of policies for commercial property owners.

Any broker-agent can help you place a commercial property policy with the California FAIR Plan, or you can request an application and informational pamphlet directly from the plan.

Underinsuring your property can lead to coinsurance penalties that significantly harm your claim outcome. You may end up paying a percentage of the claim that you underinsured.

Coinsurance penalties work by charging you for the amount you underinsured. This can be a significant financial burden.

The level of coinsurance penalty depends on the percentage of the building's replacement value that you insure. You can find this percentage on your property declarations page.

If you insure your building at 80% of its replacement value, you have more room for error in calculating the replacement cost. This means you can underestimate the cost and still avoid penalties.

However, if you insure at 100% of the replacement value, you have no room for error. If you underestimate the cost, you'll face a 100% coinsurance penalty.

The formula for determining how underinsured you are is straightforward: calculate the percentage underinsured, then multiply that amount by the total claim amount. This will give you the amount you're responsible for paying in a claim.

For example, if you have a property with a replacement cost of $1,000,000 and you insure it at $500,000, you're 50% underinsured. If you have a claim for $250,000, you'll owe $125,000.

The type of coinsurance penalty you face depends on the percentage of the building's replacement value that you insure. With an 80% coinsurance penalty, you'll owe 63% of the claim amount. With a 90% coinsurance penalty, you'll owe 56% of the claim amount.

You can purchase an endorsement that waives all coinsurance penalties, known as "Agreed Amount" or "Waived Coinsurance." This means your insurance will pay out the full claim amount, regardless of how underinsured you are.

Inland marine insurance is a type of property insurance that covers damage to or destruction of business property while in transport, including liability exposure for damage to property in your care, custody, or control.

This insurance line is often misunderstood as covering boating transportation, but it actually covers a variety of transportation exposures, excluding ocean marine insurance.

Inland marine insurance covers standard perils such as fire, lightning, windstorm, flood, earthquake, landslide, theft, collision, derailment, overturn of the transporting vehicle, and bridge collapse.

Equipment breakdown insurance, on the other hand, covers specialized machinery and equipment, including heating and air conditioners, refrigerators, electrical systems, CNC machines, boilers and pressure equipment, elevators, manufacturing equipment, motors, and engines.

This type of coverage is essential to protect against perils such as explosions, electrical surges, electric motor burnout, and sudden and accidental damage, which can cause significant losses and business income disruptions.

Here are some examples of equipment that require specialized coverage:

Inland Marine insurance is a specialized type of property insurance that covers damage to or destruction of your business property while in transport. It's not just for boating, as some people might assume, but rather for any type of transportation exposure.

This type of insurance can protect your business from loss due to various perils, including fire, theft, and collision. It's essential to understand that inland marine insurance covers property in your care, custody, or control during transport.

The standard perils covered by inland marine insurance include fire, lightning, windstorm, flood, earthquake, landslide, theft, collision, derailment, overturn of the transporting vehicle, and bridge collapse. These risks can be significant, especially if you have a business that relies heavily on transportation.

Inland marine insurance can help mitigate these risks and protect your business from financial loss. It's worth noting that inland marine insurance is separate from ocean marine insurance, which covers boating transportation.

Here are some key points to consider when it comes to inland marine insurance:

Boiler and machinery insurance is a specialized coverage that can add an important layer of protection to your business. It covers business property, other property losses, and legal fees that may result from the malfunction of boilers and machinery.

This type of insurance is often marketed under names like "systems protector", "systems breakdown", and "machinery breakdown" insurance. Boiler coverage includes inspecting and maintaining boilers, while machinery coverage can include various types of machines used in retail, office, and manufacturing settings.

Some common items that fall under boiler and machinery coverage include heating and air conditioners, refrigerators, electrical systems, CNC machines, boilers and pressure equipment, elevators, and manufacturing equipment.

These types of property face perils that can cause a different kind of loss than you'd expect from a building, such as explosions, electrical surges, electric motor burnout, and sudden and accidental damage.

Here are some examples of items that would fall under boiler and machinery coverage:

This coverage not only repairs or replaces broken machinery but also includes a business income component that pays for lost income while the equipment is non-functioning.

If you're shopping for commercial property insurance, it's essential to know what's excluded from coverage. Flood damage is typically excluded from commercial property insurance policies, as are earthquake, terrorism, war and military action, intentional damage, nuclear hazard, and normal wear and tear.

Some insurance companies may offer limited coverage for specific perils in low-risk areas, but this is rare. Intentional damage and normal wear and tear are risks that commercial property insurance policies will never cover.

You'll need a separate policy to cover exclusions like flood, earthquake, and nuclear hazard. If you have a metal roof, you might consider a cosmetic damage exclusion, which excludes claims for cosmetic damage only.

Here are some common exclusions you might see on a commercial property insurance policy:

Check your policy carefully to ensure you're not excluded from coverage for theft, as some policies may exclude theft even if you have a special form policy.