Website SurveyCommercial Property Insurance(April 2009) Commercial property insurance helps businesses, including farms and ranches, pay to repair or replace buildings, structures, and contents that are damaged, destroyed, or lost because of fires, storms, thefts, or other events outlined in the policy. Business owners can buy commercial property insurance whether they own, rent, or lease a building. If you rent or lease a building, the building owner’s policy probably won’t cover the contents of the building that belong to you. You will need to buy your own policy to insure your on-premises property, including machinery, furniture, and merchandise. The cost of tenant coverage is usually significantly less than building coverage because the policy will only cover contents, not the building itself. Commercial property policies provide either “replacement cost” coverage, “actual cash value” coverage, or a combination of both. Replacement cost coverage will pay to replace your property with new property of like kind and quality, up to the policy’s dollar limit. An actual cash value policy will pay the replacement cost of the property minus depreciation due to age and normal wear and tear. Although replacement cost coverage is more expensive than actual cash value coverage, it might better ensure that your business fully recovers after a significant loss. Note: Typically, business owners can buy a single policy to cover businesses operating at multiple locations. However, you might need separate policies if some locations serve different functions and have different risk profiles. This could be the case, for example, if your business has an administrative office and a separate factory. Types of Commercial Property PoliciesDifferent types of commercial property policies protect against different risks, or “perils.” Some policies will cover only those risks specifically named in the policy. Other policies will cover all risks, unless the policy specifically excludes them. Be sure to read your policy carefully. You may need to buy additional coverages or specialized policies, such as flood, windstorm, or crime coverage, to fully protect your business. Commercial property policies in Texas generally fall into one of three categories:
Most commercial property policies cover damage from windstorms, except in counties on the Texas coast. If your business is in one of Texas’ coastal counties, you’ll probably need a separate windstorm policy. (Refer to the section on windstorm coverage for more information.) Commercial Property CoveragesIn Texas, commercial property policies are not standardized. Insurers must comply with minimum requirements but have a great deal of flexibility to develop their own policies. As a result, coverages and policy terms may vary significantly by insurer and by policy. Commercial multi-peril (CMP) policies combine multiple coverages, such as commercial property, liability, inland marine, and commercial auto, to ensure full protection within the convenience of a single policy. CMP policies typically have lower premiums than purchasing the coverages individually. Business owner program (BOP) policies are a common type of commercial multi-peril policy primarily for small businesses. BOP policies combine property and liability coverage in one policy. Commercial property policies provide various types of coverage, either as part of the base policy or through policy “endorsements.” Endorsements expand or amend a policy’s coverages and usually increase your premium. You can buy certain coverages as separate stand-alone policies. Following are some typical commercial property coverages:
Other Coverages to ConsiderCrime Coverage
A policy may pay losses from crime on either a “loss sustained” or “discovery” basis. Loss sustained coverage pays for losses that occur during the policy period, while discovery coverage pays for losses that occur at any time. Both types of crime coverage require that losses be discovered during the policy period or extended reporting period. Flood Insurance To qualify for NFIP coverage, your business must be located within an NFIP-participating community. These communities have adopted federal building and floodplain management programs to reduce the likelihood of flood damage. “Special Flood Hazard Areas” are areas within NFIP communities that are at high risk for flooding. NFIP requires all structures within these areas to have flood insurance. Note: More than a quarter of all floods in the United States occur in areas designated as low-to-moderate risk. You should consider flood insurance even if your business is outside a hazard area. You can buy flood insurance through licensed insurance agents. For a list of agents selling flood insurance in your area, call NFIP
Windstorm and Hail Insurance along the Texas Coast TWIA is a “pool” of all property and casualty insurers authorized to write property coverage in Texas. The insurers share the claims risk for structures in areas with a high risk of windstorms. Buildings in these areas constructed, repaired, or remodeled prior to January 1, 1988, are automatically eligible for TWIA coverage. Those constructed, repaired, or remodeled after that date must pass a state inspection and receive a Certificate of Compliance (Form WPI-8) before TWIA can issue windstorm and hail coverage. Texas Department of Insurance (TDI) inspectors will inspect your structure free of charge if you notify your local TDI Windstorm Inspection Office before beginning construction or repairs. The inspection will occur sometime during the course of the work. If you request a windstorm inspection after starting construction or repair work, you must hire a Texas-licensed professional engineer approved by the Commissioner of Insurance to inspect your building. You can get a list of approved professional engineers on the TDI website and at Windstorm Inspection Offices. For more information, call TDI’s Windstorm Inspection Division or visit our website
After your structure passes inspection, call TWIA for a list of agents in your area
Shopping for Commercial Property InsuranceCommercial property insurance rates and coverages can vary significantly from one insurer and policy to another. It pays to shop around. The following tips can help you save money or avoid other pitfalls when buying a commercial property policy:
Understanding Commercial Property RatesInsurers use a process called “underwriting” to evaluate the likelihood that a business will file a claim. The greater the likelihood, the higher the premium will be. If an insurer determines that a business poses a high risk for a loss, it may decline to issue a policy entirely. Fire risk is typically the primary factor that determines a business’ commercial property rates. State-licensed fire inspectors contract with insurers to perform inspections as part of the underwriting process. Inspectors use a standard rating system and weigh five factors to determine a structure’s “fire rating.” The five factors are:
To learn the fire ratings of the buildings on your business’ premises, ask your insurance agent. Your agent can access a statewide database of the ratings for all commercial properties. If you disagree with your buildings’ ratings, first try to work with your agent, insurer, and the inspector. If you are still dissatisfied, contact TDI’s Inspections and Fire Safety Office, the state’s final arbiter of disputed commercial property ratings
For More Information or AssistanceFor answers to general insurance questions or for information on filing an insurance-related complaint, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website
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To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hot Line
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