Selecting the Right Commercial Property Insurance

August 8, 2024

The commercial property insurance market has faced rising premiums since 2017. These challenging market conditions are primarily the result of natural disasters, inflation issues and an increasingly volatile property valuation landscape. Losses stemming from these trends have forced commercial property insurance carriers to continue elevating the majority of policyholders’ premiums and introducing more restrictive coverage terms.

Selecting the right insurance policy for your commercial property is essential, now more than ever, for a well-designed insurance program. While some policies offer extensive financial coverage, it may be more economical to opt for one with lower premiums that still provides sufficient protection. Factors such as property type and annual fluctuations in value can influence the decision.

Understanding your property’s value and choosing a policy that balances protection and affordability is key. Here a several types of commercial property insurance policies:

• Replacement Cost: The amount of money needed to repair your property at today’s prices of building supplies; or replace your personal property at today’s cost of the similar or like item.
  This policy offers more financial protection because it doesn’t consider depreciation when compensating for losses.
• Agreed Value: The insured and insurance carrier agree on the property value at the beginning of the policy period. This options unusually waives coinsurance.
• Actual Cash Value (ACV): Actual cash value policies function in a similar way to replacement cost in that it covers the cost to replace or repair a property. The amount of money needed to
  fix your property, minus the decrease in value of your property because of age or use.
• Functional Replacement Cost: It’s chosen when a “functionally equivalent” building or building materials can replace the damaged ones, reducing premium costs. Functional replacement cost means the amount which it would cost to repair or replace the damaged building with less costly common construction materials and methods which are functionally
  equivalent to obsolete, antique or custom construction materials and methods used in the original construction of the building.

In addition to the policies already mentioned, there is a Coinsurance Clause written into the conditions section of your commercial property insurance. A Coinsurance Clause is a rule in
commercial property insurance policies meant to ensure property owners insure property to its true value. It penalizes underinsured policyholders by making them share the loss. Your policy states a coinsurance percentage (like 80% or 90%) you must maintain, based on your property’s value.

Understanding these and other principles of commercial property insurance is helpful to creating the best insurance program unique to your business needs. Our team at Robertson Ryan is happy to be a resource and help share more with you along the way.