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by Tom Franzen, CIC, ARM, ARM-P

Commercial insurance policies have many components, including commercial general liability, product liability, commercial property, commercial inland marine, commercial crime, and business auto, among others.

In this piece, I’m going to focus on something near and dear to our hearts: commercial property. I’m not talking about real estate, which typically doesn’t blow away, burn up, or get damaged by lightning or hail. I’m talking about buildings, business personal property, raw materials, work in process, finished goods, property of others, inland marine coverage, and cargo coverages. In future articles, I’ll also address business interruption and extra expense coverage, which are considered property coverage under business package policies, and discuss endorsements that can enhance commercial property forms.

When we talk about commercial property, we also need to discuss valuation or “insurance to value.” Many of us have seen our “replacement cost” valuation for commercial property increase. Why is this? Well, consider the cost of a 2×4, which has gone up by 400-500 percent, along with increases in wiring, roofing, and labor. All of these factors cause our “replacement cost” values to rise significantly to meet the required “coinsurance” requirements. More on coinsurance and how to deal with it will be covered in a later article.

The cost to replace almost everything has increased and shows no signs of decreasing. Expect the insurable value of your business property to rise, along with the required insurance coverage values.

Your insurance policy is a contract that requires certain things, and “insurance to value” is one of them that we must adhere to. More on property coverage, “insurance to value,” and “coinsurance” will follow.

If you have any questions, contact Tom at Tom.F.Franzen@gmail.com.

Tom Franzen is the retained Insurance/Risk Management Consultant for FEMA Services, Inc. With 45 years in the insurance industry, Franzen has experience on both the company and agency sides of the business.