Understanding Property Insurance for Niche Markets

While Commercial Property coverage is an integral component of an insurance program for all businesses, the type of coverage secured depends on the niche market served and its exposures. Different policies protect against different risks. Some cover only those risks named in the policy, and others cover all risks except for those that are excluded.

Generally speaking, Property coverage helps business owners protect their valuable assets, such as an owned or leased building; tools, equipment, machinery, or inventory; and property of others against losses due to certain covered events, such as fire, theft, vandalism, or natural disaster. Commercial Property policies can also be designed to include debris removal, pollutant cleanup, preservation of property, fire department service charges, increased cost of construction, electronic data, newly acquired or constructed property, off-premises property, valuable papers and records, outdoor property, and non-owned detached trailers.

Determining the Cost of Property Insurance

The cost of business Property insurance varies depending on the value of the property to be insured, the location and size of the business, the coverage limits and deductible chosen, among other factors. Underwriters will look at whether the property is in a high crime area, if the operations performed on the property involve handling hazardous materials stored in the building, the age of the building, and the type and age of equipment covered. Also, depending on the operation’s exposures, additional coverage may be required, affecting the overall cost of the Property insurance program.  

Customizing Property Insurance Policies

Property policies can be tailored to specific niches to provide the extent and scope of coverages required to properly insure an entity. Here are some examples.

Condos, Co-ops, Brownstones, Apartment Buildings

Condos and co-ops, brownstones and apartment buildings should be insured with Replacement Cost coverage on the Property policy so that if a loss occurs, the cost to repair or replace a building with materials of the same or comparable quality will be covered. It’s also important for some additional coverages to be included, particularly when there is an older building or the building may not be up to date with current zoning or building ordinance requirements.  If a loss requires rebuilding the structure, Property insurance will not cover the additional cost to comply with the new zoning and ordinance requirements without Ordinance or Law Coverage C. In addition, in the case of a partial loss, the ordinance may require the demolition of the affected structure – this is where Ordinance and Law Coverages A & B come into play. Coverage A will provide coverage for the loss in value due to the loss of the affected property.  Coverage B will provide coverage for removal of debris.

Business Interruption insurance including rental value with extra expense should also be part of the Property program.

Community Associations

Comprehensive Property insurance responds in the event of losses to the building due to a fire and other hazards. Insurance for community associations should be extended to cover other structures including gazebos, clubhouses, and garages. Guaranteed Replacement Cost coverage is important to insure the building according to its valuation, so that the insured can rebuild in the event of a loss. Loss of maintenance fees as a result of a covered incident should also be included.

Historic Properties

Historic properties require specialized Property coverage and expertise to properly protect them. One such coverage is Historic Replacement Cost, which gives the organization the ability to repair, rebuild or replace using the same workmanship and architectural materials reasonably available and that resemble the workmanship and materials available at the time of the original building. Additionally, a robust Historic Property program will offer Guaranteed Replacement Cost, which pays an amount equal to the replacement cost of the building without regard to the policy limit; and an Historic Cash Settlement for those insureds who opt to get a cash settlement based on the lesser of the actual cost to repair or replace the damage or the agreed-upon value on the policy. Historic properties should also include Ordinance or Law coverage/increased period of restoration coverage to pay for the extra time, up to a period of time, required to repair or reconstruct the property to comply with the minimum standards of any ordinance or law. This includes the Historic Preservation Act or other landmark regulation in force at the time of loss that regulates the construction or repair, or requires the tearing down of any property.

Buildings Under Construction

The type of Property policy required for commercial and residential construction is Builder’s Risk insurance, which is typically purchased for a set period of time. The period of time can be extended, depending on the duration of the project in question. Most Builder’s Risk policies are written on an “all perils” basis—the loss is covered from any cause, unless specifically excluded by the policy. The policy must be in place before the foundation is poured for new construction, and the premium is based on the cost to complete the renovation or structure.

Builder’s Risk coverage is often required to comply with local city, county, and state building codes as well as a condition of many contractual agreements. Not only should the building under construction be covered but also critical is providing coverage for soft costs incurred as a result of the construction delay. Soft costs can include additional interest both on construction and permanent financing, real estate tax, advertising expenses, insurance, architect fees, extended general conditions, bond and permit fees, legal and accounting and other administrative costs.

Additional Property Insurance

Other forms of Property coverage include Crime and Business Interruption (Business Income) insurance, important for all organizations. Crime insurance can be designed to cover cash, assets, merchandise or other property loss when a third party, including an employee, perpetrates fraud, embezzlement, forgery, misrepresentation, robbery, theft or any other type of business-related crime aimed at the company. Business Interruption insurance covers the loss of income that a business suffers after a disaster. While Property insurance covers the physical damage to the business, Business Interruption insurance covers the profits that would have been earned if the business were operating as usual. It is designed to put a business in the same financial position that it would have been in if no loss had occurred.

Distinguished Programs provides property insurance solutions for several niche markets, including for City Homes, Community Associations, Historic Properties and Builder’s Risk/Remodeler’s Risk.