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Why (and When) You Need to Review Your Commercial Property Insurance Policy
Reviewing your policy annually is a great idea, but there are times when that may not be often enough.
- The Value of Annual Reviews
- 1. Property Value Fluctuations
- 2. Building Upgrades and Renovations
- 3. Minor Occupancy or Use Shifts
- 4. Emerging Risks
- 5. Insurance Market Evolution
- When to Review More Often
- 1. After Major Property Changes
- 2. Following a Significant Business Change
- 3. After a Large Insurance Claim
- 4. In Response to Market Shifts
- How to Conduct an Effective Insurance Review
- Closing Thoughts
- Get Financing
Protecting your assets is key to your success as an investor. While getting a comprehensive property insurance policy is an important first step (and can be a challenge all by itself), regularly reviewing and updating your coverage is equally valuable.
In this article, I'll go through why annual insurance reviews — and sometimes more frequent checks — are necessary to protect your investment and ensure you're well covered against potential risks.
The Value of Annual Reviews
Your commercial property insurance needs change over time, along with your business, the real estate market, and the overall economic landscape. Here's why committing to annual reviews matters:
1. Property Value Fluctuations
Real estate markets are dynamic, and property values can change significantly year to year. An annual review helps ensure your coverage limits match your property's current market value, reducing the risk of underinsurance if a total loss occurs.
Example: If your property's value increases by 15% over the year, but your coverage stays the same, you could face a substantial financial gap if you need to rebuild after a disaster. The opposite is also true — if you're paying for $5 million of insurance on a building now worth $4.5 million, you're simply paying too much money for your policy.
2. Building Upgrades and Renovations
Any improvements or renovations you make can increase your property's value and potentially alter its risk profile. Your insurance coverage should reflect these changes.
Example: Installing a new HVAC system or renovating a lobby might boost your property's value and require adjustments to your policy limits.
3. Minor Occupancy or Use Shifts
How your property is used can significantly impact its risk profile. If you've changed tenants or the property's use has shifted, your insurance needs may have changed too.
Example: If your property changes from office use to light industrial, you may need extra coverage for equipment breakdown or environmental liability. And if your retail property goes from a shop to a restaurant, you'll need to
4. Emerging Risks
As society evolves, so do the risks facing commercial properties. From cyber threats to climate-related issues, new perils emerge that may not have been considered when you first bought your policy.
Example: With more frequent severe weather events, you might need to reassess your coverage for flood or wind damage.
5. Insurance Market Evolution
The insurance market constantly changes, with new products becoming available and pricing fluctuations occurring regularly. An annual review lets you take advantage of new offerings or more competitive pricing.
Example: New endorsements might become available that provide coverage for risks specific to your type of property or location.
When to Review More Often
While annual reviews are a good baseline, certain situations call for more frequent assessments:
1. After Major Property Changes
Any time you make significant changes to your property, it's wise to review your coverage. This includes major renovations, additions, or changes in use. I know we talked about this in the "annual" section above, but if the change is truly major, it's best to be proactive.
2. Following a Significant Business Change
If your business undergoes a major change — such as merging with another company, acquiring new properties, or significantly changing your operations — it's important to reassess your insurance needs promptly.
3. After a Large Insurance Claim
If you've recently filed a significant claim, it's important to review your coverage to ensure you're still adequately protected and to understand any changes in your premiums or coverage limits.
4. In Response to Market Shifts
If there are significant shifts in the real estate market or broader economy, it may be wise to review your coverage to ensure it still aligns with current property values and market conditions.
How to Conduct an Effective Insurance Review
- Gather Relevant Information: Collect all documentation related to your property, including recent appraisals, renovation records, and details of any changes in use or occupancy.
- Review Your Current Policy: Carefully read through your existing policy, paying close attention to coverage limits, exclusions, and any endorsements.
- Assess Your Risks: Consider any new or evolving risks that may affect your property. This could include changes in the neighborhood, new environmental concerns, or emerging technological risks.
- Work with an Experienced Broker: Partner with a broker (like Janover Insurance Group) who specializes in commercial real estate. They can provide valuable insights into market trends and help identify potential gaps in your coverage.
- Consider Additional Coverage: Based on your review, determine if you need additional coverage options, such as flood insurance, business interruption coverage, or cyber liability protection (if you aren't sure, go to your broker).
- Update Your Property Inventory: Maintain an up-to-date inventory of your property's contents and any valuable equipment. This will be invaluable in the event of a claim but also helps you to understand the value of what you need insured.
- Review Your Premiums: While cost shouldn't be the only factor, it's important to ensure you're getting competitive pricing for your coverage. Even if all else remains the same, it can be immensely profitable to shop your policy requirements around to a large number of insurers.
Closing Thoughts
Regular reviews of your commercial property insurance are a smart practice for protecting your investment as conditions change. By committing to annual reviews and additional assessments when significant changes occur, you can ensure your coverage evolves alongside your property and business needs.
At Janover Insurance Group, we understand the unique challenges faced by commercial real estate investors. Our team of experts is dedicated to helping you manage the complexities of property insurance, ensuring you have the right coverage at the right price.