Your property’s value and future earning possibilities are taken into consideration when calculating your commercial property insurance rate. Then the insurance company conducts the usual risk assessment process, and develop a value that delineates your business’s risk level.
Once that’s done, your insurer will assign a class rating or an insurance rating to your property. The specific rating assesses the construction, occupancy, protection, and exposure (COPE). While a specific rating focuses on your property, class rating depends on property groupings.
To set your insurance premium, insurance companies multiply the risk level value with the value of the building and its contents. Many risk factors affect your insurance premiums, and some of the main factors insurers look at are:
GEOGRAPHY
The location of your commercial property determines the type of environmental risks that your business faces. When your business is in a high-crime activity area, the risk of activities like vandalism and break-ins increases. Unfortunately, this also raises your insurance premiums.
If your business is located in an area that experiences extreme weather conditions, like storms and earthquakes, the risk of physical damage is elevated. The type of businesses close to yours also affects your insurance premiums. High-risk industries like fireworks manufacturers or refineries make your rates higher.
PUBLIC PROTECTION CLASSIFICATION
The Public Protection Classification (PPC) program keeps a community’s fire protection system score. Communities in Class 1 have an excellent fire protection system, whereas those in Class 10 have no protection. The common factors used for classification:
Fire department quality (Equipment available, distribution of fire fighting companies)
Water supply system
Fire alarm and communication system
Insurers rely on PPC scores during risk assessment to determine the insurance rates. A good PPC score indicates a safer community. If your property is in an area with a good score, you will likely pay lower commercial property insurance.
BUILDING AGE AND CONSTRUCTION
The older your building is, the higher your insurance premium. You can cut down the rates through renovation and consistent maintenance. For example, replacing old wiring with updated wires makes your property safer and lower your premium costs.
The material used to construct your building also affects your commercial property insurance rates. Structures built using materials with fireproofing properties such as bricks and stone are less expensive to insure than wood frame buildings.
WOOD IS A HIGHLY FLAMMABLE CONSTRUCTION MATERIAL, AND CONSIDERED A LIABILITY.
TYPE AND AGE OF EQUIPMENT
The cost of your equipment and the dangers of operation factor the cost of your insurance. Heavy and expensive machinery will warrant high insurance premiums.
You are also likely to pay exorbitant insurance premiums if your commercial property uses old equipment that requires regular repairs. If the spare parts are scarce, expect to see those prices go up even further.
NATURE OF OPERATION
The types of activities carried out inside the commercial property play a considerable role in determining insurance risk levels. For example, restaurants that work with open fires, with lots of people accessing the property, create a higher risk compared to companies with employees handling paperwork. The potential hazards that could develop from the operations on your property dictates the insurance payable.
Insurers also consider the inventory in your commercial property, especially when assessing retail stores. Stores that stock expensive inventory such as appliances or electronics pay higher premiums than those with a more budget-friendly inventory.
OCCUPANCY
The general foot traffic in your commercial properties defines the occupancy of the establishment. This includes the employees, customers, and others that move through your property. Businesses that operate for extended hours may incur higher rates.
REPLACEMENT VALUE COVERAGE VS CASH VALUE COVERAGE
Deciding whether to take up the replacement value coverage or the cash value coverage is a very critical decision. Replacement value coverage pays to restore damaged property at current market prices, even if the expense is higher than what you initially paid.
Cash value coverage takes the depreciation of your property and subtracts it from the replacement cost. Whatever residuals are left may not be enough to rebuild your business entirely.
IMPORTANT: REPLACEMENT VALUE COVERAGE DOES COST MORE THAN CASH VALUE COVERAGE.
There are many variables to deciphering your commercial property insurance rate. Your business may have unique needs that require a personal touch from an insurance company like Zupnick Associates. With the help of a professional insurance broker you can make the right decision and save your business from suffering a significant financial loss.
Once that’s done, your insurer will assign a class rating or an insurance rating to your property. The specific rating assesses the construction, occupancy, protection, and exposure (COPE). While a specific rating focuses on your property, class rating depends on property groupings.
To set your insurance premium, insurance companies multiply the risk level value with the value of the building and its contents. Many risk factors affect your insurance premiums, and some of the main factors insurers look at are:
GEOGRAPHY
The location of your commercial property determines the type of environmental risks that your business faces. When your business is in a high-crime activity area, the risk of activities like vandalism and break-ins increases. Unfortunately, this also raises your insurance premiums.
If your business is located in an area that experiences extreme weather conditions, like storms and earthquakes, the risk of physical damage is elevated. The type of businesses close to yours also affects your insurance premiums. High-risk industries like fireworks manufacturers or refineries make your rates higher.
PUBLIC PROTECTION CLASSIFICATION
The Public Protection Classification (PPC) program keeps a community’s fire protection system score. Communities in Class 1 have an excellent fire protection system, whereas those in Class 10 have no protection. The common factors used for classification:
Fire department quality (Equipment available, distribution of fire fighting companies)
Water supply system
Fire alarm and communication system
Insurers rely on PPC scores during risk assessment to determine the insurance rates. A good PPC score indicates a safer community. If your property is in an area with a good score, you will likely pay lower commercial property insurance.
BUILDING AGE AND CONSTRUCTION
The older your building is, the higher your insurance premium. You can cut down the rates through renovation and consistent maintenance. For example, replacing old wiring with updated wires makes your property safer and lower your premium costs.
The material used to construct your building also affects your commercial property insurance rates. Structures built using materials with fireproofing properties such as bricks and stone are less expensive to insure than wood frame buildings.
WOOD IS A HIGHLY FLAMMABLE CONSTRUCTION MATERIAL, AND CONSIDERED A LIABILITY.
TYPE AND AGE OF EQUIPMENT
The cost of your equipment and the dangers of operation factor the cost of your insurance. Heavy and expensive machinery will warrant high insurance premiums.
You are also likely to pay exorbitant insurance premiums if your commercial property uses old equipment that requires regular repairs. If the spare parts are scarce, expect to see those prices go up even further.
NATURE OF OPERATION
The types of activities carried out inside the commercial property play a considerable role in determining insurance risk levels. For example, restaurants that work with open fires, with lots of people accessing the property, create a higher risk compared to companies with employees handling paperwork. The potential hazards that could develop from the operations on your property dictates the insurance payable.
Insurers also consider the inventory in your commercial property, especially when assessing retail stores. Stores that stock expensive inventory such as appliances or electronics pay higher premiums than those with a more budget-friendly inventory.
OCCUPANCY
The general foot traffic in your commercial properties defines the occupancy of the establishment. This includes the employees, customers, and others that move through your property. Businesses that operate for extended hours may incur higher rates.
REPLACEMENT VALUE COVERAGE VS CASH VALUE COVERAGE
Deciding whether to take up the replacement value coverage or the cash value coverage is a very critical decision. Replacement value coverage pays to restore damaged property at current market prices, even if the expense is higher than what you initially paid.
Cash value coverage takes the depreciation of your property and subtracts it from the replacement cost. Whatever residuals are left may not be enough to rebuild your business entirely.
IMPORTANT: REPLACEMENT VALUE COVERAGE DOES COST MORE THAN CASH VALUE COVERAGE.
There are many variables to deciphering your commercial property insurance rate. Your business may have unique needs that require a personal touch from an insurance company like Zupnick Associates. With the help of a professional insurance broker you can make the right decision and save your business from suffering a significant financial loss.
How Are Commercial Property Insurance Rates Determined?
Esther Kamau
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