Commercial Property Insurance & Rising Costs: Is Your Coverage Keeping Up?

As a business owner, securing commercial property insurance is an essential investment to protect your company from financial losses. In the face of common property damage, theft, liability, or employee injuries, the proper policy could be the difference between a significant financial loss and sustaining long-term business growth.

However, the market for commercial property insurance remains challenging as it experienced the 19th consecutive quarter of premium increases in Q2 2022, according to the Q2 Market Survey 2022 from The Council of Insurance Agents & Brokers. With steady above-average pricing increases, policy holders across small, midsized, and large businesses are seeking affordable coverage amid rising material and labor costs.

Read on to learn how you can ensure your property insurance is keeping up.

Commercial Property Insurance

Savvy business owners know that the right commercial property insurance coverage can limit disruption to operations while covering major financial losses. By protecting your organization’s physical assets such as office space and equipment, furniture, inventory, and other work-related items that support daily business functions, these policies can also safeguard your bottom line.

A standard policy provides coverage for damage resulting from unforeseen events such as heavy storms, explosions, vandalism, theft, damage, and fire. Typical exclusions that are not covered by standard commercial property insurance policies include the following:

Types of Commercial Property Insurance

Requirements for business insurance tend to vary per state. Below, we take a look at common types of commercial property insurance that businesses secure to ensure optimal protection.

Commercial Building Insurance

This type of insurance helps protect the physical assets mentioned above including equipment tools, inventory, and furniture if damage was caused by the perils included within the policy.

Business Personal Property Insurance

By offering financial protection for repairing or replacing your business’ property that might be lost, damaged, or stolen, this type of commercial insurance will deliver peace of mind that you can continue running your business.

Business Income Insurance

Business income insurance, also known as business interruption insurance, can help cover the loss of income from the business if you are not able to operate due to a covered loss, such as a fire. Business income is defined as “any income that would result from regular business activity.” With current supply chain and employment issues, this type of coverage becomes even more important for your business.

What Factors Drive the Cost of Commercial Property Insurance?

Historically, there have been many different factors that directly impact commercial property insurance costs. What’s more, reasons associated with inflation have never been more paramount. Below, we briefly review the top factors currently driving costs.

Size of Business’ Physical Premises

Just as more expansive homes come with higher insurance premiums, so too do larger building spaces. However, exceptions include large warehouses that may have a lower expense per square foot versus a luxury office suite affixed with modern trappings.

Location

Each city and state drive different insurance premiums for commercial policies. Additionally, the risk profile of each business’ physical location informs the likelihood that the building will be damaged as a result of certain events such as natural disasters and other extreme weather events.

Construction of Building

The type of construction for a building plays a large role in how the rate is determined. The main types of building construction are classified 1–6 based on the combustibility and damageability of the materials and structure:

Type of Occupancy

The type of business that occupies the premises also determines how the building is rated. This is based on what the occupant of the building does and how certain hazards are managed. A building used for manufacturing and storage of flammable materials is going to be rated differently than a strip mall with a dentist office and hair salon.

Building Protection

Is there an alarm system? Is the building sprinklered? How far is the nearest fire department? These are all questions that will impact how a building is rated. If the building is sprinklered, has an alarm system, and is less than a mile from a fire station, then these can help bring down the cost of the policy.

The Impact of Inflation on Commercial Property Insurance Prices

In today’s market, inflation is negatively impacting the commercial market as it drives property valuations and building material costs higher and higher. Even properties that are less vulnerable to the risk of property damage are being hit because increasing costs touch all items covered by commercial property insurance policies, including:

• Building materials
• Skilled labor
• Fuel
• Ordinance
• Insurance costs

In fact, according to Chubb, a global provider of property and casualty insurance, premiums for commercial property policies increased by double-digit values in 2021 — and there is no end in sight. Stats like this are staggering and showcase the economic challenges that businesses and investors face.

While inflation and construction costs soar due to skilled worker shortages, worker wage growth, supply chain disruptions, spikes in raw materials costs, and supply shock, the impact of inflation on commercial property insurance includes, but is not limited to, the following:

• Real property value of the building
• Business income
• Policyholder premiums

Are you Covered?

Given that 2021 saw the highest inflation rates in the U.S. in the past 40 years, the market for commercial buildings is not the only one looking for relief. But it’s important to understand that evaluating your unique commercial property insurance needs is critical to preventing a substantial and unexpected financial loss.

How We Can Help

At Doeren Mayhew Insurance Group, our team of trusted insurance advisors can provide the resources you need to ensure adequate coverage.

While we can’t control inflationary trends, our expertise ensures your business is positioned to continue growing, retain the right employees, and serve loyal customers with the right commercial insurance solutions.

Contact us today to learn how we can help make sure you and your business are properly insured.