Protecting your commercial properties with the right insurance is critical to ensure you’re sufficiently covered for the risks you might face. Yet, purchasing the right coverage for your needs isn’t always straightforward, and the specifics of commercial insurance can be a bit confusing.
The advisors at B. F. Saul Insurance have worked with countless commercial property owners and investors, helping to identify their risks and find the best coverage to address them. Through our experience, we’ve come to know the most common questions that come up in conversations about commercial property insurance. Below are the FAQs we hear most often and the answers that can help guide you in obtaining the right coverage.
Q: What does a commercial property policy typically include and exclude?
A: For the types of commercial properties that B. F. Saul Insurance works with—such as office buildings, apartment buildings, and retail establishments—we typically obtain what’s called an all-risk policy, which is the broadest form of property coverage available. Under these comprehensive policies, the only items not covered are those expressly excluded. That’s why, when you purchase an all-risk policy, it’s essential to pay close attention to the Exclusions section.
While every all-risk policy is slightly different, the most common exclusions are flood, earthquake, wear and tear, war, and nuclear hazards. The policy might also have limitations on mold and fungus coverage, or these perils could be excluded entirely.
Q: Is it possible to get coverage for items that are excluded from an all-risk commercial property policy?
A: In some cases, your insurance advisor can successfully negotiate with the carrier to add an exclusion back into the policy. For example, some insurers are willing to add an endorsement for earthquake coverage; but for a peril like flood, you’re more likely to need a separate policy, often from a different carrier. With other exclusions, like war and nuclear hazards, it’s simply not possible to obtain coverage. And of course, an insurance company’s willingness to add back an excluded peril will always be influenced by factors like the location of the property and the specific risk exposures.
Q: Besides endorsements that are intended to cover exclusions, are there any other endorsements I should consider for my commercial property policy?
A: Certain types of properties and businesses have unique risks that an all-risk policy might not cover. For example, a historical building might house fine art inside or a modern office building could have intricate artwork on the façade, and neither would be covered by a standard all-risk policy. If you operate a fleet of vans that moves products or equipment from one job site to another, the contents might not be covered by your commercial auto policy, so you might look at adding that coverage as an endorsement to your property policy.
For any commercial enterprise, securing loss of business income coverage (also called business interruption insurance) can be essential to reducing your financial exposure in the event of a loss. If you have a covered loss that shuts down your operations for some period—for example, a fire tears through your strip mall, requiring several businesses to close temporarily—then business interruption insurance will cover some of the lost income during the time it takes to repair or rebuild the damaged property. This type of coverage isn’t typically included in an all-risk policy, so you would need to add it as an endorsement.
Q: How do you determine the right amount of insurance for a commercial property?
A: Making sure that your commercial property is insured to the correct value is vital—because if your property is inadvertently underinsured, you could face large out-of-pocket expenses in the event of a claim. Due to high inflation and rising wages over the last year, it will cost much more to repair or rebuild your property than it might have just a few years ago. So if you haven’t reviewed and updated your policy for a while, it’s likely your property is no longer insured to the correct value.
Another factor that influences the proper insurance value for your commercial property is any insurance requirements that are included in your loan agreement. Since lender insurance requirements have become stricter in recent years, it’s important to know whether your insured value has kept pace with market conditions and will meet those obligations.
Finally, consider whether the carrier is agreeing to pay replacement cost, actual cash value, or agreed value in the event of a loss. Your insurance advisor or the carrier can use software to calculate the replacement value of your commercial property or contract with a third party to perform an on-site valuation survey. If you’re also purchasing business interruption coverage, you’ll need to determine your financial exposure by using worksheets or online calculators. And if you’re covering business personal property, you’ll need to evaluate the cost to replace it and factor that into your coverage amount.
Q: What factors influence the premium on a commercial property policy?
A: Generally speaking, the current market for property insurance is difficult, with many carriers pulling back on what they’ll cover, reducing policy limits, exiting certain markets entirely, and raising their rates.
Within this environment, there are certain characteristics of the property that will affect your premiums, including the year it was built, construction type, location, square footage, number of stories, safety measures such as fire alarms and sprinkler systems, and the claims history. For instance, frame buildings with limited or no sprinkler systems tend to require the highest premiums and carry the most coverage restrictions. If you’re thinking about purchasing a commercial property, it’s important to keep these characteristics in mind and discuss them with your insurance advisor before you sign a sale contract.
Q: Are there any steps I can take to reduce my commercial property premium?
A: While some of the factors that impact your premium are out of your control, there are ways to mitigate your risk and position your insurance advisor to negotiate a better rate on your behalf.
For example, investing in the most up-to-date sprinkler systems, fire alarms, and security systems might reduce your rates and provide a high ROI over time. Keeping the building in good condition by conducting regular maintenance and making necessary repairs might also reduce the premium. Assuming more of the risk yourself by taking a higher deductible—paying more out-of-pocket if a loss occurs—is another common strategy for reducing your premiums.
Q: If I submit a claim for a commercial property loss, how will that affect me in the future?
A: Your property’s claims history will directly impact your ability to obtain or renew coverage, along with your insurance rates. Specifically, insurance companies will consider the frequency of claims and the severity (or total dollar amount) of each claim. That’s why it’s critical to work closely with your insurance advisor before submitting a claim, especially if the dollar amount of the loss isn’t significantly more than your deductible. In some cases, submitting a $5,000 claim might cost you much more in the long run, either through higher premiums or difficulty getting coverage.
The advisors at B. F. Saul Insurance have the expertise and experience to help commercial property owners and investors address these and other questions when buying or insuring office buildings, apartment buildings, retail establishments, and other commercial facilities. With inflation driving up expenses and high interest rates making it more costly to borrow money, we recognize the impact that higher insurance premiums or uncovered claims can have on your bottom line. As your trusted partner, we work closely with you to ensure you have the right coverage for your needs and recommend ways to reduce your rates and minimize losses.
Contact a B. F. Saul Insurance commercial property insurance advisor to learn how we can help!
Looking at buying commercial property? Download our guide for a detailed checklist of considerations to keep in mind.
Jennifer Neal is a Vice President and Account Executive in B. F. Saul Insurance’s Commercial Lines practice. With over two decades of experience in the industry, Jennifer oversees and manages the commercial book of business and assists with agency policies and procedures. She has spent most of her career balancing the producer and account executive roles, working in commercial lines, employee benefits, and personal lines.