Commercial Building Insurance

One thing you can certainly count on in Ohio, is unpredictable weather. Commercial building insurance can be one of the largest assets you hold as a business owner, and it is important to protect it properly against catastrophic events. We have seen plenty of claims related to fires, hailstorms, & tornados over the years, and when weather strikes, we want you to have the proper coverage in place to take care of any damage to your buildings.

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Building Coverage Forms

Building coverage is typically written on an ISO form, a standard industry coverage form from the Insurance Services Office. There are three causes of loss forms that are utilized: basic, broad, and special. We will define each here:

Basic

This is a named peril form and has specific coverage perils included. If the named peril is listed, coverage will apply. If it’s not named, then it would be excluded from coverage. This form is rarely used due to its coverage limitations but has a use case for property owners looking to save money on premiums and pick up coverage for things like fire, lightning, wind, smoke, and vandalism.

Broad

This is also a named peril coverage form, but as its name indicates, it broadens coverage from the basic property insurance form. The main perils that get added in this form are accidental discharge of water, weight of snow/ice, falling objects, and burglary. As you can see, the coverage perils are much more appealing, and the pricing of this form is greater than the basic form.

Special

This is by far the most widely used form we use, as it offers the best protection for our clients. Unlike the previous two named peril forms, the special form is an open peril form, meaning that everything is covered unless specifically excluded. Some common exclusions in almost all commercial insurance property policies are earthquake, flood, war or acts of terrorism, gradual damage, neglect or lack of maintenance, government action, intentional acts, and nuclear hazard. While some exclusions apply, coverage can be bought back for some of the excluded perils.

Building Valuation Methods

There are also three valuation methods used for commercial building coverage: Actual Cash Value (ACV), Replacement Cost (RC), and Functional Replacement Cost (FRC).

Actual Cash Value – ACV equals the replacement cost of the building minus the depreciation of the structure. Depreciation is the property value reduction due to the property’s wear and tear, age, and the potential for an installed product to be obsolete. This valuation will result in a lower claim payment versus replacement or functional replacement costs.
Replacement Cost – RC is by far the most widely used valuation method for building insurance. If a covered peril claim occurs to a commercial property, the claim payment will be for the full value to replace the damages caused by the peril, and no depreciation will be factored into the payment.
Functional Replacement Cost – FRC was a commonly used valuation method for years, but we’ve seen a decline in acceptance from insurance carriers in the past few years. FRC was typically used on commercial buildings over 75 years of age. The main difference between RC and FRC is that the form states that the damaged building will be replaced with readily available materials (drywall versus plaster, asphalt shingles versus slate).

Commercial building insurance is readily available in the insurance market. Contact a licensed commercial agent at Hitchings Insurance to discuss your risk and find a competitive solution to your insurance needs.