Guest Post by Alex Broome, VP, ReShield:
Many commercial real estate (CRE) companies are feeling the impact of coronavirus. For example, rapid changes in your operating environment may have impacted your leases. You may have cut your staffing levels. As small and large business owners struggle to cope with the aftermath of this national state of emergency, it may pay to re-evaluate your insurance premiums to determine if you can save money. Below, we break down a few key areas to consider for decreasing premiums as well as which areas can pose a danger to your commercial real estate risk management program.
Are There Adjustments to My Commercial Insurance Policies That May Save Money?
Review your typical coverages by each type of insurance to determine if you need to report any changes to your insurance broker. In some cases, you may see a reduction in your premiums if your expected exposures (what you reported at the policy start) vary significantly from your current or future exposure base. You should report any major reductions in items such as payroll, revenue or square footage to your insurance broker.
Always be sure you have correctly valued your buildings. Many CRE owners make the mistake of insuring the market value of their property rather than the replacement cost value (a.k.a. insurable value).
Business Interruption and Your Business Income Coverage
Without special endorsement, business income (BI) coverage will cover only losses from perils covered by the policy. This can include fire, windstorm, or other typical property perils. However, if you suspend operations due to a covered peril, you will want to ensure you have coverage to meet typical costs like ordinary payroll, insurance premiums, rents, advertising and other ongoing expenses.
If you reduce your workforce or other expenses such as rents or utilities, you may want to adjust your BI coverage limit accordingly which may result in a reduction in premium.
Workers Compensation Coverage
Post-COVID-19, many commercial real estate firms are reducing payroll through layoffs and outsourcing key services. Class codes for your remaining employees may change to largely clerical, which insurers charge at a lower rate than employees facing more hazardous work, such as tradespeople and construction. When your payroll changes, let your insurance broker know. You can utilize cost savings now rather than waiting for the year-end audit.
Beware the Vacancy Clause
Vacant properties attract problems, and insurers want to avoid vacancies. The reality of coronavirus is that many small businesses have failed. Additionally, many office lease-holders may reduce their CRE footprint and instead allow employees to continue working from home. While your policy language may differ, the standard commercial property policy says the insurer may consider the building vacant unless at least 31% of its total square footage is either rented or used to conduct customary operations.
If your insurer deems your building vacant, certain coverages may no longer apply and your carrier may reduce other coverages. You may have to purchase an endorsement that covers this situation or move your coverage to a policy that directly addresses vacancy.