Filing a commercial property loss claim can be a tedious and overwhelming process, but there are steps you can take to avoid costly delays. It helps to have the right policies in place before an incident occurs, to ensure a seemingly brief disruption doesn’t turn into a substantial loss. Understanding your coverage and planning ahead can make all the difference when it comes to protecting your business. Read on for insights from BCH’s business insurance experts.
Understanding Your Commercial Property Coverage
As a business and commercial property owner, it’s important to familiarize yourself with the key terms and elements that make up your property loss policy. Every policy is unique, containing sections that require different types of documentation and records throughout the claims process. The basic components of a commercial property policy are as follows:
- Commercial Building — Policy coverage depends on the extent of commercial property damage following a loss. Partial loss consists of repair costs for labor and materials. If the building is completely destroyed, a formal appraisal determines the value of the property at the time of the loss.
- Business Personal Property — Coverage typically includes equipment, fixtures, materials or supplies. For equipment and fixture repair, policyholders will need an invoice to present the claim. When newer personal property requires replacement due to extensive damage, policyholders will need estimates from the dealers or manufacturers covering the replacement costs. When older equipment and fixtures require replacement after a loss, the cash value is only calculated after the policyholder provides extensive documentation. You should plan to present capital asserts ledgers, acquisition costs, appraisals and maintenance logs.
- Business Interruption — Business interruption claims require policyholders to prove definitive loss of sales due to stopped operations, physical loss or damage as long as both the property and event are covered by the policy. Extra incurred expenses may be entitled to recovery if the policyholder is able to resume partial or complete operations. Possible examples of recovered expenses include facility rentals or using raw, in-process or finished stock.
- Extra Expense — Extra expense allows policyholders to spend more than the amount saved to continue normal business operations. Coverage extends beyond traditional operating expenses in instances where businesses hire temporary employees or pay overtime during the transitional period. It’s important to note that expense to reduce loss falls under most business interruption policies, while extra expense coverage must be purchased separately.
Preparing for Commercial Property Loss
It’s impossible to know when commercial property loss will occur or how it will affect operations. By preparing ahead of time, you can significantly reduce the time it takes to process your claim and recover expenses.
- Establish an Emergency Plan — When disaster strikes, setting an emergency plan can help you and your team members react swiftly and avoid costly mistakes. In some cases, anticipating commercial property loss can help businesses salvage important assets and resume operations sooner rather than later.
- Assign Points of Contact — In the event of property damage or loss, claims specialists must interact with key departments or team members regarding salvage, repairs and resuming operations. Business leaders and appointed individuals should be prepared to follow the proper procedures to provide requested information.
- Secure Important Files — Store copies of important documents in a secure, off-site location. It’s a good idea to periodically back up all data to a remote or cloud-based server. Valuable documents may include financial records, inventory records, contracts, appraisals or blueprints.
- Equipment and Property Inventory — Maintain a thorough inventory of equipment and assets on an annual basis. Take photos of the property, especially areas that have been damaged or recently updated.
The BCH Risk Management Center (RMC) offers tools and resources to help you establish an emergency plan and avoid claim processing delays.
Commercial Property Loss Checklist
- File the claim and request a copy of the insurance policy.
- Notify your team and initiate the emergency plan.
- Protect property from further damage, make temporary repairs and restore fire protection.
- Document damage with photos and videos before cleanup.
- Submit proof of loss photos and reports to the insurer.
- Hire claims experts to help with property appraisal and valuation.
- Obtain repair estimates from contractors and dealers.
- Resume operations and document expenses for claims purposes.
Even after the claim is approved and the repairs are complete, you should conduct thorough inspections of the property and submit receipts for any extra expenses. Download our Commercial Property Loss Checklist to help you keep track of each step of the claims process.
Common Mistakes to Avoid During Commercial Property Loss Claims
First and foremost, it’s important to communicate and follow your emergency action plan. When policyholders fail to act quickly, they risk claim delays or denials. Assigning and delegating tasks can significantly reduce the workload after experiencing property damage.
Timing is everything when it comes to property damage or loss. Policyholders should submit proof of loss as soon as the incident occurs to avoid payment delays. Presenting a one-pager with all the required information should be sufficient to start the claims process. Businesses should also take proactive steps to protect the property from future damage and make temporary repairs when needed. Failure to arrange repairs may result in parts of your claim getting denied.
Finally, never rush the claims process. When policyholders get overwhelmed and settle for less than the property is worth, the business may suffer an unnecessary financial loss. Keep in mind that if a claim is denied, you can request a detailed coverage opinion letter and get a second opinion from a qualified insurance professional.
Commercial Property Insurance Market Outlook
Commercial property insurance buyers should expect higher coverage costs and increased restrictions with rates still on the rise in 2023. All policyholders — especially those in high-risk industries or natural disaster-prone areas — should monitor the following trends and plan accordingly:
- Natural Disasters — Last year natural disasters cost the global economy $227 billion, and nearly half of those expenses were covered by insurers. In fact, it was the third consecutive year disaster-related losses exceeded $100 billion. If conditions continue at this frequency and level of severity, coverage limitations and rate increases will likely follow. Check out our blog to learn more about coverage and construction considerations for natural disasters.
- Inflation — Wage increases in the construction sector coupled with the fluctuating demand for materials will likely result in higher claims costs for businesses after property-related losses. Experts warn the industry may encounter underinsurance concerns.
- Insurance-to-Value (ITV) — ITV calculations represent the ratio between the insurance amount and the estimated value of a commercial property structure. If the property has a higher value than the insurance policy provides, claim payments will not accurately cover the loss. Maintaining proper coverage and performing accurate ITV calculations can help businesses ensure adequate protection after a loss.
- Supply Chain — Industry experts predict shipment barriers created by the Russia-Ukraine conflict may limit our access to consistent copper supply. If flood-related losses continue to increase, property damage could result in drywall shortages. Supply chain complications typically lead to costly claims and steeper construction prices with slower turnaround times.
Starting the renewal process early, conducting accurate ITV calculations and focusing on risk management strategies can keep costs down this year. You can find additional insights in the 2023 Commercial Property Insurance Market Outlook report.
While commercial property loss can’t always be avoided, there are steps you can take to make the claims process more manageable. BCH is here to help you stay up to speed on the latest developments and offer resources to reduce the likelihood of property damage or loss when it matters.