Commercial Property Insurance – What Insurance Carriers Review Before Writing Coverage

Commercial property insurance is a “first party” coverage designed to protect the assets of a building owner. In simple terms, commercial property insurance protects buildings and contents for losses such as fire, smoke, vandalism, sprinkler leakage, collapse, theft, etc.

If you are a commercial building owner applying for commercial property insurance, carriers look at various physical characteristics of your building when underwriting. They use the “COPE” method which is an acronym that stands for four property risk characteristics:

• Construction (e.g., frame, brick, masonry, etc.)
• Occupancy (how the building is being used)
• Protection (e.g., quality of the responding fire department, adequacy of water pressure and water supply in the community, the presence or absence of smoke alarms, burglar alarms, etc.)
• Exposure (risks of loss posed by neighboring property or the surrounding area, taking into consideration what is located near the property, such as an office building, a subdivision, or a fireworks factory).

Construction type is a major component in property pricing. If construction type is incorrectly identified, the premium pricing will either be too high or too low.

Occupancy is very important to an underwriter because it helps determine the combustibility of a particular building. Each time the occupancy of a building changes, it presents a different underwriting situation and will need to be re-evaluated by an underwriter. Also, common hazards such as the plumbing, heating, roofing, and electrical systems are important factors. Underwriters will want to know when these were last updated or inspected if over 30 years of age.

In addition to evaluating the actual building and contents to be insured, insurance carriers will look at the exposures and occupancies surrounding the building to be insured. An acceptable risk may be affected by the proximity or conditions of exposing properties.

Finally, public fire protection is a key underwriting consideration, as it is the most essential element in controlling a fire once it has started and gained headway.

The pictures below are an example of a commercial building which insurance carriers desire to insure. It is well maintained, has a low-risk tenant, in a nice industrial area, with low-risk neighboring businesses (i.e. – no dynamite manufacturers next door or anything comparable).

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When possible, I prefer to visit buildings first hand before sending to insurance carriers for quotes. This way, I know the exposures when discussing with underwriters.

–JK