Working with property managers and complex owners over the past several years, we’ve been able to develop a sense for their primary insurance concerns. Below summarizes the main points and offers some insight:
- Affordable rates – Always a key question for purchasing insurance…What’s the rate? Rates fluctuate with the insurance market and amongst carriers. Insurance companies with a large capacity (ie – a lot of money in the bank) will offer lower rates. Those operating on low capacity (ie – major losses have drained funds) typically charge higher rates. So, regarding ‘affordable rates’, an agent assists in 1) having a strong knowledge of the property insurance marketplace [which markets are performing well] and 2) strong relationships with those markets [Good rapport gives way to favorable pricing/coverages].
- Wind/Hail coverage – In the DFW area, wind/hail coverage is always going to be a big issue. Right now, a 1% to 2% wind/hail deductible is pretty normal. Over recent years we’ve seen ‘deductible buydown’ policies becoming more common. In addition to your commercial property policy, you can purchase a separate policy that reduces the deductible. For example, a policy has a $100,000 deductible, and the insured opts to buy a ‘deductible buydown’ policy, in which another insurance company contractually agrees to bring that deductible down from $100,000 to $25,000, in exchange for a additional premium.
- Insurance requirements for lenders – It’s a real hassle when a lender requires additional coverages…flood insurance, earthquake insurance, business income / extra expense, boiler/machinery, GL, umbrella liability, etc. Many of these coverages require access to specialty markets and specialized knowledge. It’s important to find an agent who’s persistent and works hard to satisfy a these requirements.
- Replacement Cost vs ACV – Property owners sometimes argue that their building is over-valued on their policy because the tax appraisal is a much lower figure. Replacement cost is a completely different appraisal. It calculates the reconstruction costs, using a ‘replacement cost estimator’ to determine the insurable value. ACV (Actual Cash Value) is simply that replacement cost estimation, minus depreciation. Actual Cash Value estimates a lesser value, typically costs less premium, but provides inferior coverage.
- Co-Insurance – Property owners occasionally find themselves shortchanged on a property claim due to a ‘co-insurance penalty’. Here’s an example that illustrates how this might happen – An property owner has a policy containing ‘80% co-insurance’ terms. His building is accurately valued at $1,000,000, but he chooses to insure his building for $500,000 ($300k less than 80%). After a major hail loss, he gets penalized for being under-insured, and receives a fractional claim-payout. Moral of the story – make sure your buildings are adequately insured. Most agents who are property insurance specialists can help you determine accurate insurable values.