Six Key Factors That Impact the Cost of Commercial Property Insurance

We find ourselves living in particularly challenging times. The state of affairs has made it all the more important for businesses of all types to pay close attention to the proverbial bottom line. Consequently, a business needs to focus on such factors as what impacts the costs associated with a suitable policy of commercial property insurance.

There are six key factors that most directly impact the cost of commercial property insurance:

• size of business premises
• geographic location
• age of building
• age of equipment
• security and safety considerations
• coverage options

Size of Business Premises

A primary cost-driving factor associated with the cost of commercial insurance premiums is the size of the physical premises being insured. In the same way, homeowner’s insurance on a larger residence is more expensive than that on a smaller property, more expansive business premises increase commercial insurance premium expenses.

There are some exceptions to this general rule. For example, a large warehouse space is apt to have a less expensive square-foot premium cost than would a high-end office suite with the latest accoutrements.

Geographic Location

In addition to the size of the insured premises, the geographic location of a business impacts the costs associated with commercial property insurance in two primary ways. First, broadly speaking, the city and state in which a commercial property is located drives the costs associated with insurance premiums. The reality is that there are markets in which the costs associated with different insurance products, including commercial insurance, are generally higher.

Second, the precise location of a business also impacts the rates associated with commercial property insurance. If a business is located in an area more prone to natural events like earthquakes or hurricanes, insurance premiums will be higher than in more placid environments.

Age of Building

Building age impacts premium costs as well. The older the structure, the higher the commercial property insurance premiums are apt to be (in most cases). For example, an older structure is likely to have aged wiring and plumbing. If something goes awry and results in an insurable event, the costs associated with repair or replacement are likely to be considerably higher than what is needed on a newer building.

Age of Equipment

On a related note, the age of equipment that is utilized by a particular business also impacts the amount of money expended on commercial insurance coverage. Older equipment is often more challenging to repair. For example, there can be a scarcity of parts. Thus, replacement ends up being the only real option and that can prove costly.

Additionally, if a business involves the use of heavier or more complicated equipment, even newer versions of these items will result in higher insurance premium costs. The stark reality is that equipment often proves to be the costliest investment made by a business. As a result, this equipment necessarily drives the costs associated with commercial property insurance premiums upward and—many times—significantly so.

Security and Safety Considerations

Security and safety considerations are factors that also impact the overall costs associated with commercial property insurance. If a business has taken comprehensive steps to enhance the security of the premises, that enterprise may be able to enjoy a reduction in commercial property insurance premiums.

If a business is a higher safety risk operation, like certain types of manufacturing, insurance premiums will rise. If a business implements certain safety enhancements, that effort can result in the reduction of premium cost—at least to some degree.

Coverage Options

The type of coverage options selected by a business for a commercial policy directly (and often significantly) enhances the costs of coverage. First and foremost, if a business elects to purchase replacement coverage, premium costs will be higher. With this type of policy, an insured business is paid the cost associated with buying a replacement item at today’s market value.

An alternative type of coverage takes into account depreciation and the age of a covered item. With this type of coverage, the insured is paid the actual value of the property and not the full replacement cost. This type of coverage is less expensive than the replacement alternative.

A business might also elect to add supplemental coverage options, technically known as riders, to a basic policy of commercial property insurance. A commercial property insurance agency can assist in determining what type of additional coverage might be recommended in a particular situation. These riders increase premium costs:

• inland marine insurance
• business interruption insurance
• glass insurance
• debris removal insurance
• builder’s risk insurance

A commercial property insurance agency can assist a business in making decisions about the nature and extent of coverage to purchase. In this day and age, there is a wide selection of policy options from different commercial property insurance companies.