Having adequate property coverage has become increasingly important for US businesses over the past several years, especially with climate change exacerbating the frequency and severity of natural disasters, which could have a huge impact on a company’s operations.
Data gathered by the National Centers for Environmental Information (NCEI) has shown that an average of 17.2 weather- or climate-related calamities costing more than $1 billion in economic losses have struck the country annually between 2017 and 2021 – a figure that is significantly higher than the yearly average of 7.4 from 1980, when the agency began compiling the metric. The NCEI also recorded 20 billion-dollar disaster events in 2021 – the highest-ever for a single year – resulting in $145 billion in losses.
Natural catastrophes, however, are not the only instances that pose a huge threat to a commercial property. Man-made events such as fire, burglary, theft, water damage, and vandalism are also some of the main risks that could cause massive disruption to businesses.
This is where commercial property insurance comes into play. This type of coverage helps minimize the financial impact of the damage certain natural and man-made disasters cause to a company’s real estate and on-site physical assets.
Commercial property insurance, also referred to as business property insurance or commercial building insurance, is often purchased as a part of a business owners’ policy (BOP), which also includes general liability and business interruption coverage. It is designed to minimize disruption to a company’s day-to-day operations by providing compensation for damages or losses that happen to the property or building the business operates in, the equipment and technology it uses, and the inventory of products and materials it stores and sells.
According to ConstructionCoverage.com, a California-based information and advisory website for the construction sector, commercial property insurance policies are also more likely to be customizable to insure adequate levels of coverage for particular assets important to a business.
The firm also advises those operating businesses from their homes to obtain commercial property coverage as “a standard homeowners’ policy may not be sufficient to cover all of the harms or damages that a home-based business may face.” Homeowners’ insurance, for example, may not cover business equipment damaged within the business owners’ residence.
Different insurance companies provide a range of commercial property coverage options to address the needs of different businesses. According to Construction Coverage, most commercial property policies cover the following items:
Coverage is also dictated by the policy’s “causes of loss forms,” or simply put, the risks that can trigger a claim, according to the financial website NerdWallet. These forms come in three categories, with each covering different types of damage:
Policy type |
Insured peril |
Basic form |
|
Broad form |
|
Special form |
All potential risks except those that are explicitly excluded in the policy such as damage from wear and tear, insects and vermin, flooding, earthquakes, or war. |
Source: NerdWallet
Some insurance companies, however, do not provide cover for assets that are hard to value or with a unique set of risks. These include electronic data, business records, money, securities, accounts, bills, vehicles, crops, animals, and paved surfaces like walkways and roads.
According to Construction Coverage, the key to determining how much commercial property coverage a business needs is “to strike a balance between the value of your commercial building(s) and other property, your ability to pay to repair or replace property, and your comfort with the risk of a damaging incident.”
“Purchasing too much coverage can leave your business paying unnecessarily high premiums but being underinsured can leave your business at risk in the event that something does go wrong,” the website adds.
These are some of the key factors that businesses should consider when assessing how much coverage they need to obtain, according to the construction intelligence firm:
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Premiums prices are determined by a wide range of factors, so it is often difficult to provide a precise estimate of how much a commercial property policy costs. These factors include:
Because of the crucial role commercial property insurance plays in protecting a business, Construction Coverage advises companies to “shop around and compare options from multiple providers to make sure that you have coverages that meet your needs at the best possible price.” Here are the key criteria that the firm says that US businesses must consider when choosing commercial property coverage: