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Commercial Property Insurance

(April 2014)

Commercial property insurance helps businesses, including farms and ranches, pay to repair or replace buildings and other property damaged or destroyed because of fire, storm, or other incidents covered by the owner's policy. It also pays to replace stolen or lost property. Business owners can buy commercial property insurance regardless of whether they own, rent, or lease a building.

If you rent or lease a building, consider tenant coverage that will insure your on-premises property, including machinery, furniture, and merchandise. A building owner's policy doesn't usually cover the contents of the building that belong to you. The cost of tenant coverage is usually less than building coverage because the policy only covers contents.

You can buy a single policy to cover a business with more than one location, unless they have different functions and different risk profiles. This could be the case if your business has an administrative office and a separate factory. If your business has operations at multiple locations, ask your agent if you need separate policies.

Types of Commercial Property Policies

There are three types of commercial property policies in Texas. The policies protect against different causes of damage, commonly called "perils." These include fires, lightning, windstorms, or damage caused by vehicles and civil commotion.

  • Basic form policies usually cover common perils.
  • Broad form policies usually cover the common perils in addition to water damage, structural collapse, sprinkler leakage, and damage caused by ice, sleet, or weight of snow.
  • Special form policies cover all types of perils except those the policy specifically excludes. Common exclusions include damages from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.

Read your policy carefully. You may need to buy additional coverages or specialized policies -- such as flood, windstorm, or crime coverage -- to fully protect your business.

Note: Most commercial property policies cover damage from windstorms except in counties on the Texas coast. Companies may exclude windstorm and hail coverage from policies they sell in the 14 coastal counties and parts of Harris County on Galveston Bay. If your business is in one of these counties, you'll need a separate windstorm policy.

Replacement cost and actual cash value coverage

Most commercial property policies provide either replacement cost coverage, actual cash value coverage, or a combination of both.

  • Replacement cost coverage will pay to rebuild or repair your property, based on current construction costs. Replacement cost is different from market value and doesn't include the value of your land.
  • Actual cash value coverage will pay to rebuild or replace your property minus depreciation. Depreciation is a decrease in value due to wear and tear or age. If your business is destroyed and you only have actual cash value coverage, you may not be able to completely rebuild.

Commercial Property Coverages

Commercial property policies aren't standardized in Texas. Insurance companies must meet minimum state requirements but may create their own policies. As a result, coverages and policy terms will vary by insurance company and by policy.

Commercial multi-peril (CMP) policies combine several coverages -- such as commercial property, liability, inland marine, and commercial auto -- in a single policy. It's typically cheaper to buy a CMP policy than to buy the coverages individually.

Business owner program (BOP) policies are a common type of commercial policy primarily for small businesses. BOP policies combine property and liability coverage in one policy.

Commercial property policies provide various types of coverage, either as part of the base policy or through policy endorsements. Endorsements expand or amend a policy's coverages and usually increase your premium. You can buy certain coverages as separate standalone policies.

Following are some typical commercial property coverages:

  • Building occupied by the insured coverage insures a building that you regularly use but don't own. This coverage can be important if you lease or borrow a building.
  • Newly acquired or constructed buildings coverage insures a new building if you add it to your policy within a certain amount of time. If you don't tell your insurance company within the time period - usually 30 days - your policy won't cover the new building. Commercial property policies usually only cover buildings named in the policy.
  • Employees' personal property coverage insures your employees' personal property if the property is on your premises. Generally, you must buy this coverage as an endorsement if you need more than a limited amount.
  • Off-premises property coverage covers your property located off site. Some policies might not cover off-premises property or may provide only limited coverage. You can usually buy an endorsement to cover off-premises property. If you can't buy an endorsement, you may have to buy a separate policy.
  • Business interruption coverage pays for the income you'd lose if your business is damaged and you can't perform your normal business operations.
  • Extra expense coverage pays any additional costs to return your business to normal after it's damaged.
  • Valuable papers coverage provides limited coverage for your business records and other valuable papers. You may be able to buy an endorsement to increase this coverage.
  • Ordinance or law coverage pays additional costs to repair or rebuild a facility to current building codes after it's damaged. Many policies provide limited ordinance coverage, but you can increase the coverage with an endorsement.
  • Boiler and machinery coverage covers boilers, air conditioning units, compressors, steam cookers, electric water heaters, and similar machinery. Coverage is usually only for machinery listed in the policy and to losses caused by malfunctions of boilers or machinery, such as when a boiler explosion or water heater leak causes damage to other property. You can buy this coverage as an endorsement or a separate policy.
  • Inland marine coverage insures goods in transit by land, air, or inland waterways. It also covers projects under construction and transportation and communications structures, such as bridges, tunnels, and communications towers.

Other Coverages to Consider

Depending on the type of business you own and where it's located, you might want to consider more coverages to protect your business.

Crime Coverage

You can buy several types of coverage to protect your business from crime. Common crime coverages include:

  • Loss of glass and money due to theft pays for damage to glass and for a theft of money resulting from a break-in.
  • Robbery and safe burglary (property other than money) is a more limited form of coverage that doesn't include a loss of money or securities.
  • Forgery or alteration protects your business against forgery or alteration of checks, drafts, promissory notes, or other types of payments.
  • Theft, disappearance, and destruction coverage insures money, securities, and other property against losses, both on your premises and off premises in the custody of an employee or messenger.

A policy may pay losses from crime on either a loss sustained or discovery basis.

  • Loss sustained coverage pays for losses that happened during the policy period.
  • Discovery coverage pays for losses that happened at any time.

Both types of crime coverage require that you learn about the crime during the policy period or extended reporting period.

Flood Insurance

Some insurance companies include flood coverage in their commercial property policies for areas with a low flood risk. However, most flood insurance is available only through the federal National Flood Insurance Program (NFIP). Some insurance companies may provide flood coverage in addition to NFIP coverage.

To qualify for NFIP coverage, your business must be in an NFIP-participating community. These communities have adopted federal building and floodplain management programs to reduce the likelihood of flood damage. Special flood hazard areas are areas within NFIP communities that are at high risk for flooding. NFIP requires all structures within these areas to have flood insurance.

Note: More than 25 percent of all floods in the United States happen in areas designated as low-to-moderate risk. You should think about flood insurance even if your business is outside a hazard area.

You can buy flood insurance through licensed insurance agents. For a list of agents selling flood insurance in your area, call NFIP at 1-800-427-4661 or visit its website at www.fema.gov/national-flood-insurance-program.

Windstorm and Hail Insurance along the Texas Coast

Insurance companies may exclude windstorm and hail coverage from commercial property policies in Texas' 14 coastal counties or in parts of Harris County. If your business is in one of these areas, you will have to buy a separate windstorm policy through the Texas Windstorm Insurance Association (TWIA).

Buildings constructed, repaired, or remodeled before January 1, 1988, are eligible for TWIA coverage without a Certificate of Compliance (WPI-8). Those constructed, repaired, or remodeled after that date must pass a state inspection. You'll have to get a Certificate of Compliance (Form WPI-8) before TWIA will issue windstorm and hail coverage.

Texas Department of Insurance inspectors will inspect your structure for free if you call your local TDI Windstorm Inspection Office before beginning construction or repairs. The inspection will happen sometime during the course of the work. If TDI doesn't inspect your structure, you must hire a Texas-licensed professional engineer approved by TDI to inspect your building.

You can get a list of approved professional engineers on the TDI website and at Windstorm Inspection offices. For more information, call TDI's Windstorm Inspection Division at 1-800-248-6032 or 512-322-2203 in Austin or visit our website at www.tdi.texas.gov/wind/index.

For more information about your rights as a TWIA policyholder, contact TDI's Coastal Outreach and Assistance Services Team (COAST) at 1-855-35COAST (1-855-352-6278) or online at www.tdi.texas.gov/consumer/coast/.

Understanding Commercial Property Rates

Insurance companies use a process called underwriting to determine how likely your business is to file a claim. The greater the likelihood of a claim, the higher the premium will be. If an insurance company determines that your business is at a high risk for a loss, it may decline to issue you a policy.

Fire risk is usually the primary factor that determines a business's commercial property rates. State-licensed fire inspectors contract with insurance companies to perform inspections as part of the underwriting process. Inspectors use a standard rating system and weigh five factors to determine a structure's fire rating. The five factors are:

  • Construction materials. Buildings made of potentially combustible materials will have higher premiums, while those made of fire-resistant materials could earn a discount. Additions to an existing structure might negatively affect a fire rating, so it's a good idea to talk to your agent or insurance company before remodeling. Internal structural elements can also affect a fire rating. Using wood partitions, floors, and stairways in an otherwise fire-resistant building will likely nullify any rate reduction. Fire-resistant interior walls, floors, and doors can help maintain a good fire rating.
  • Location. Buildings in cities or towns with good fire protection -- as assessed by the Texas Commission on Fire Protection -- typically cost less to insure than buildings outside a city where fire protection may be limited.
  • Occupancy. A building's use also affects its fire rating. An office building will likely rate better than a restaurant or auto repair shop. In a building with multiple tenants, one hazardous occupant will negatively affect the fire rating of the entire building. If your business is in a building with a more hazardous business, your premiums will be higher.
  • Fire protection measures. Automatic sprinklers can reduce a building's fire rating by as much as 50 percent. Buildings with fire extinguishers and automatic alarms and those within 500 feet of a standard fire hydrant will usually have lower ratings.
  • Exposure. Nearby hazards increase a building's fire risk. Proximity to external fire hazards, such as a lumberyard or oil storage tank, will affect a fire rating even more. Internal exposure risks might include cluttered buildings and grounds, heavy mechanical or electrical equipment, or on-site storage of volatile materials.

To learn the fire ratings of the buildings on your business' premises, ask your insurance agent. Your agent can look at a statewide database of the ratings for all commercial properties. If you disagree with your buildings' ratings, first try to work with your agent, insurance company, and the inspector. If you are still dissatisfied, call or write TDI's Inspections and Fire Safety Office, the state's final arbiter of disputed commercial property ratings

P.O. Box 149104
Austin, TX 78714-9104
512-322-2259

Shopping for Commercial Property Insurance

Commercial property insurance rates and coverages are different from one insurance company and policy to another. It pays to shop around. The following tips can help you find the best deal for your money:

  • Remove all possible hazards before applying for coverage. Look at your business's premises and operations carefully to get rid of anything that could increase the likelihood of an insurance claim. Improving employee safety, security, and inventory management might reduce the amount you pay for commercial property insurance and other types of coverage, such as workers' compensation and general liability insurance. Most insurance companies also offer loss-control or risk-reduction services. Talk to your agent or insurance company about ways to find and eliminate hazards.
  • Get quotes from several companies. When comparing prices, make sure you're comparing policies with similar coverage. A cheaper policy might also provide less coverage.
  • Keep shopping if an insurance company says it won't cover your business. Insurance companies have different underwriting criteria. If one company turns you down or is too expensive, another may be willing to issue coverage or offer a lower premium.
  • Consider higher deductibles. Almost all commercial property policies have a deductible, which is the amount you must pay toward the cost of a claim before the insurance company will start to pay. The higher your policy's deductible, the lower your premium. Keep in mind that you'll have to pay more out of pocket if you have a claim. Your policy will also have a policy limit, which is the maximum amount the insurance company will pay for any covered loss.
  • Check your agent's and insurance company's licenses. Agents and insurance companies must be licensed to sell commercial property insurance in Texas. An unlicensed insurance company may not meet the state's minimum financial and regulatory requirements, meaning the company may not have the financial resources to pay your claim. To learn an agent's or insurance company's license status, call TDI's toll-free Consumer Help Line at 1-800-252-3439 or 512-463-6515 in Austin or use the Agent Lookup or Company Lookup features on our website at www.tdi.texas.gov .

For More Information or Assistance

For answers to general insurance questions, for information about filing an insurance-related complaint, or to report suspected insurance fraud, call the Consumer Help Line at 1-800-252-3439 or 512-463-6515 in Austin between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website at www.tdi.texas.gov.

You can also visit HelpInsure.com to help you shop for automobile, homeowners, condo, and renters insurance, and TexasHealthOptions.com to learn more about health care coverage and your options.

For printed copies of consumer publications, call the 24-hour Publications Order Line at 1-800-599-SHOP (7467) or 512-305-7211 in Austin.

To report suspected arson or suspicious activity involving fires, call the State Fire Marshal's 24-hour Arson Hotline at 1-877-4FIRE45 (434-7345).

The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.



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Last updated: 09/07/2014

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