Last Updated on October 28, 2024 by Admin
Commercial property insurance is just as important as any other property insurance because you can’t predict what the future will bring. You may have great plans for a new purchase, with the option of redeveloping it into something the community will love. Still, if it falls victim to damage, fire, theft, or there’s a potential liability issue on-site, you’ll want that coverage in place. The biggest hurdle for property owners here is the cost of commercial property insurance, which isn’t cheap, and the costs only get higher the more problematic the building is.
Below are some of the factors insurance providers use to determine how much you need to pay. Some of these might not be that big an issue right now, especially for any new builds. Others may be issues you hadn’t thought about. The good news is that many red flags for insurance companies aren’t necessarily permanent issues. You could make changes to improve the property and lower the costs with time. Let’s take a look at what you need to keep in mind and why it’s such a big deal.
Table of Contents
7 Factors Affecting Commercial Property Insurance Costs
1. Property Value
This one may be the trickiest of them all to deal with because the value assigned to a property comes down to the judgment of the insurers. They aren’t looking at any of the work you’ve put into the project or the value of the building when it is used. They’re looking at the value of the materials, the cost of labor, and the cost of demolition should the building ever need to be demolished. Basically, is the property going to be expensive to replace if it were to be destroyed in a major incident? The higher the cost, the higher the premium.
2. Property Age
This one makes more sense when looking at property insurance akin to other forms. Insurers don’t like insuring anything or anyone that’s old and more likely to make a claim because of complications to that age. Therefore, if you picked up a bargain for an older building in a state of disrepair, and there are still some issues to sort out, that might come back and bite you. The higher insurance costs could arise from problems with the wiring and plumbing or anything about the building that isn’t up to code.
3. Property Materials
The materials used to build a property will play a big part in determining cost because of the knock-on effect on other factors. For a start, some of those materials may be outdated enough to raise concerns. Again, this raises questions about a building being up to code. Then, there’s the way that the materials factor into the property value issue mentioned above. Finally, there’s the safety rating of those materials. Modern concrete and metal buildings aren’t going to be as at risk of fire damage as an old renovated wooden structure. There’s also the consideration of any cladding on the side of the building. Is it flame-resistant, or that older cladding that goes up in seconds?
4. Safety Measures
On a related note, there are also concerns about the safety measures in place to handle any potential problems that could lead to a payout. The better the system, the more minimal the damage. The lower the chance of damage, the lower the premium. Naturally, fire safety systems are at the top of the list here. Depending on the scale and purpose of the building, you’re looking at effective fire alarms, sufficient fire suppression tools, and maybe sprinklers. There is also the need for effective security systems. Is there an alarm? Are valuables and areas holding money covered by cameras?
5. Occupancy
This is a really important factor and one that could end up changing depending on the long-term plan for the building. Occupancy basically means who is using the property and what it’s being used for. An example of a low-risk occupant who will lead to lower premiums is an office space. There are still general risks related to damage and theft, but the probability of something catching fire or flooding is low. Then there’s the use as a store. Here, it all depends on the type of store, the items stored in the backroom, the security measures, and so forth. Stores with high-value items and showrooms may be more costly than a grocery store. Then, there’s restaurants. This is where the cost can soar. The main reason for that is you have people cooking with flammable materials and creating dangerous environments. One neglected grease trap could be a disaster. Of course, if you have a store with a cafe attached, that’s another matter.
6. Claim History
This is one of the factors you have no control over moving forward. How many claims were made on the property in the past? Obviously, the fewer claims there were, the lower the premiums. If this is your first time working on this property and getting it redeveloped, you may have an issue with the actions of past owners. If the property is an entirely new build custom-made for your needs, you shouldn’t have a problem.
7. Coverage Limits
Finally, your commercial property insurance costs are also going to be at the mercy of a provider’s limits. Some will have higher limits than others for claims, and you can learn more about that when comparing companies. You’ll end up with higher premiums at higher limits, but there may be some perks.
Find A Provider You Can Trust
With so many variables to consider with these commercial property insurance costs, it’s important to find a reliable insurance agency to get the best deal. Check out some quotes from providers in your area, see how they compare regarding the coverage offered, and make sure you appreciate the payment plans. Also, make sure the provider is someone you can build a strong relationship with. Over time, you will need to adjust your policy in line with the development of the building. As long as you have expert help on your side, you should be able to get a good deal.
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