How Is My Commercial Property Insurance Premium Calculated?

Almost any time of the year, fires, floods, storms, hurricanes, and many other disasters can cause a lot of damage to homes and businesses. One of the first things a business owner should do to protect their investments from natural disasters is buy business insurance, specifically commercial property insurance. Commercial property insurance is a type of property loss coverage. It protects your business from damage caused by things like bad weather, theft, and vandalism. 

This coverage is different from homeowners’ insurance in many ways. Because if a business is ruined and can’t run for a while, there are more expenses to worry about. Since business costs don’t stop if the building is in disarray, a disaster can cause a loss of business in the future. Which can lead to a loss of income while the building is being fixed. Commercial property insurance and the purchase of add-ons to the policy can help cover the costs of repairing the property and keeping the business financially stable in the meantime. But how are the rates for this type of coverage determined? 

The Equation

Your underwriter will use all of your data and information you send to plug into an equation to figure out the premium. To start you’ll submit a statement of values (SOV) to your insurance company.  A SOV is a thorough list of your assets that your insurance company will use to figure out how much it would cost to replace all of your business’s property and equipment. The total sum of your SOV is now added to your expected business income for the upcoming year. Giving you your total insurable value (TIV).

Your underwriter will then take your TIV and multiply it by your exposure risk rate, which is decided by the rating agency your insurer uses, divided by $100. This sum will give you your premium. Say your TIV is $1,000,000, and your exposure risk rate is $0.4 per every $100. The equation would be $1,000,000 x $0.4/100=$4000 annual premium which is about $333 a month. There are a lot of things that go into getting the numbers to put into the equation though. Things that affect your premium are:

Claims History

The first thing that many insurers look at is how your history of claims compares to that of other businesses in your field that are about the same size. If your business has more or worse claims than others, you’ll have to pay more. However, there is a way to keep your claims at a minimum, or fix the claims history you already have. Accident and injury claims can all be reduced with a good safety program at work and careful risk management, especially when compared to other companies.

Regular safety inspections and a review of safety management to find risks can help you find possible problems so you can fix them before they cause problems. Accident and injury claims can also be cut down by making sure your workers have the proper training on the equipment that they’re working with. If you have a bad claims history and after you implement these safety regulations, you can show your insurer that you have significantly less claims over the course of a year or two. Your insurer will then most likely lower your premium.

Property Construction

Coverage rates can be affected by the materials used to build the business property and by how well it is kept. Buildings made of fireproof materials like brick or stone, or businesses with fireproof walls and doors, will cost less to cover than a building made of wood. This is because a property built with fireproof materials is less risky to cover than one built with wood or other materials that burn more easily. Furthermore, having up-to-date fire sprinklers and alarm systems can also help lower insurance costs. Also, newer buildings and those with recently updated electrical wiring, plumbing, and heating, ventilation, and air conditioning (HVAC) systems often cost less to insure than older properties that need more upkeep. 

Industry

Commercial property insurance rates can also be affected by how a building is used. A restaurant or welding business has more risks than a flower shop or a dress store due to the nature of the business, so their insurance rates will be higher. Also, a business’s insurance rates are likely to go up if it shares space with another business that has a lot of possible risks.

Property Location

You know that saying, “location, location, location”? It doesn’t just mean pick a busy area with potential customers, it also means pick a safe area. Your insurance company looks at every possible risk, and we do mean every single one. Any possible risks in the area that your business is located heavily impacts your premium. Risks can include the crime rate, how often natural disasters happen in that area, your proximity to oil plants or businesses that use flammable materials. Location doesn’t just negatively affect your premiums, it can also lower them. Your commercial property insurance can go down if your business is close to places where emergency services are readily available. Such as a fire or police station or even just a fire hydrant. Your business being near emergency personnel means it’s more likely they’ll respond quickly and minimize the damage compared to a business that operates further away.

Coverage

How much coverage you need is the main factor in your premium. To find out how much coverage you need you have to find out how much both the building and anything in it are worth. You don’t want to get a coverage limit that is less than what it would cost to replace all of your equipment or the building. For example, if all together it would cost $1million to replace everything you’d need, at least that much coverage, if not more because when it comes time to actually replace everything, more than likely it will be more expensive than you originally planned.

You should also factor in inflation. So, you’ll want to give yourself some wiggle room just in case. It’s also very important to look over the assets on your statement of values at least once a year. This makes sure that as your business grows and changes, the limits of your insurance will still meet your needs.

How To Lower Your Commercial Property Rates

By following a few important tips business owners can save even more money on their commercial property insurance costs. These can make sure that the business isn’t losing money on insurance costs, while still having sufficient coverage. 

• Review Your Policy

When a business owner wants to find ways to cut their insurance costs, one of the first things they should do is read their policy carefully. Some people will find that they have more insurance than they need, which means they pay for unnecessary coverage. Changes in the business have sometimes made it so that less coverage is needed. For example, a company may have insurance for tools or a vehicle they no longer have.

• Pay Premium In Full

You can choose to pay your commercial property insurance premium entirely, once a year or in monthly installments when you buy the coverage. However, paying the full year in advance is cheaper than paying every month. 

• Bundle

Companies can bundle their insurance plans to save money, just like many people do with their home and car insurance. A business owners policy, or BOP, is a package of insurance plans that many insurance companies offer to small and medium-sized businesses. Most company owners’ policies include general liability insurance, commercial property insurance, and business interruption insurance at a cheaper price. Any business that buys these three policies individually should think about bundling them to save money.

• Raise Your Deductible

A deductible is the amount that the insured has to pay out of their own pocket before the insurance company pays the rest of the claim. Deductibles are chosen when an insurance contract is made. But they only have to be paid when a claim is made. By raising the amount of a deductible, you can lower the amount you have to pay out of pocket.

Policyholders need to look over their policies carefully to see if they can pay a bigger deductible for an accident. When you raise your deductible, your insurance costs go down, but you take on more risk. Fees are often charged each time something happens, not just once a year. Find out what a good deductible for your business is by talking to your insurance agent or provider. Increasing your deductible might not be a good idea if you take on more risk than your business can handle.

• Minimize Risks

When giving a quote for a commercial property insurance policy, insurance companies look at a number of things. Such as the amount of risk a business faces. There are several safety precautions a business can take in order to minimize their risk to an insurance company.  If a policyholder’s buildings and cars don’t already have a security system, they might want to think about buying one. Businesses can also do things like put sprinklers in your building, work area, or warehouse to lower your risks of fire and possibly lower their insurance rates. Modern fire alarms and smoke monitors should also be put in every business building.

• Look For Discounts

Even if your insurance company doesn’t advertise discounts, it doesn’t hurt to ask. Policyholders should always talk to their insurance company to find out if they offer deals or if there are other ways that they can save money. Some insurance companies will give you a discount if you stay with them for a long time. While others will give you a discount if you start a safety program.

How EZ Can Help

Every business is different in terms of what risks it faces, how much its property is worth, and how much coverage it needs. Commercial property insurance prices can change a lot from one company to the next. But businesses can still find ways to lower their insurance costs. The first step to lowering your business property insurance costs is to talk to an experienced insurance agent.

EZ can help whether you need group health insurance for your workers or commercial insurance to protect your business. Our agents work with the best insurance companies in the country to make sure you and your workers get the best insurance. In fact, we can find you the best coverage for your budget and save you hundreds of dollars a year. Feel free to call us at 877-670-3538 if you have any questions or enter your zip code to get started on a quote.