In today's fast-paced and competitive corporate world, commercial insurance coverage is a necessary evil that assures and safeguards a business' financial success. To protect itself in the event of injury to employees and/or customers on the premises and against unforeseen property loss of and physical damage to its assets or inventory, small and large businesses should have general commercial liability coverage included in their property insurance plan. When a company or a business such as a ranch or farm suffers a covered peril such as vandalism, theft, hail, hurricane, tornado, earthquake, explosion, windstorm, lightning, or fire, commercial property insurance provides compensation for the replacement or repair of its contents, buildings, and associated structures.
All commercial insurance policies require payment of a deductible, which is the sum that the policyholder is required to pay before coverage of a claim by the insurer kicks in. Businesses can lower their premium costs by raising their policy's deductible. They may also choose between replacement-cost reimbursement and actual cash value (AVC) reimbursement. With the former, the insurance company pays for the actual cost of replacing the property, whereas with the latter, it covers the cost of replacing the lost or damaged property less any physical depreciation. Businesses pay a lower premium for an AVC policy; however, it usually pays out less.
Risk Management for Lower Rates
To assess the odds that a company will file a claim, commercial property insurance companies rely on a process known as underwriting. Based on a business' predisposition to certain types of perils and extent of risk of loss, an insurer fixes its commercial property insurance costs. Companies with property that is low risk pay a lower premium than those classified as high-risk.
One of the leading factors in ascertaining the applicable commercial insurance rates for a business is the risk of loss from fire. The Insurance Services Office offers commercial insurance providers guidelines on premium rates which take into account a host of factors that together calculate a business' risk of loss and its fire rating. The five main criteria utilized in this standard rating system to determine insurance premiums are as follows:
Businesses will pay lower premiums if they are located in towns or cities with adequate fire protection, as opposed to those situated in areas with limited fire protection.
- Type of business structure
Commercial property rates will also hinge on the fire resistance of the construction materials. Businesses who utilize fire-resistant materials are eligible for discounts. For instance, companies can earn a positive fire rating and low premiums if they have fire-resistant doors, floors, and interior walls. Business owners should inquire as to whether remodeling might impact their commercial property insurance rates since adding a new structure could adversely impact their business' fire rating.
- Protective safety measures
The presence or absence of safety measures will also impact commercial property insurance rates. To lower their fire rating or premium, businesses should consider installing fire extinguishers, fire alarms, automatic alarms, and automatic sprinklers. Those with safety devices within a certain number of feet of a fire hydrant can expect to reap considerable savings on their insurance premiums.
- Nearby hazards
A business' exposure and proximity to high-risk areas or fire hazards such as an oil storage tank will increase their commercial property insurance rate. Internal risks that elevate the likelihood of a fire hazard, such as the presence of volatile materials or heavy electrical equipment, adversely impact a company's fire rating and consequently its premium.
- Building's use
The occupancy of the building in question plays an important role in its fire rating. Office buildings are usually charged lower premiums than auto repair shops and restaurants due to the former's lower degree of risk.
Commercial Multi-Peril Policies
These types of policies blend multiple types of coverage, such as commercial auto insurance, inland marine insurance, and commercial property insurance into one plan. Commercial multi-peril policies offer businesses convenience and lower property insurance rates than if they were buying the coverages individually. One type of commercial multi-peril policy is the business owner program (BOP) which is intended for small-business owners. BOP policies provide liability and property insurance coverages in a single policy.
Tips on Cutting Insurance Costs
Businesses may reduce their commercial property insurance premiums in a number of ways including the following:
- Installing security systems such as fire doors, smoke alarms, fire extinguishers, and burglar alarms
- Installing and maintaining safety devices such as sprinkler systems
- Investing in an off-site data storage device for their company's records, accounts receivables, and computer data
- Making duplicates of their records off-site
- Comparison-shopping by requesting multiple commercial property insurance quotes online