A building's age and fire-safety features represent key factors to insurance companies

Marc A. Cisneros Jr., CEO and co-owner, CS Innovative Insurance Solutions

As published in Scotsman Guide's Commercial Edition, March 2010.

Insurance companies look at several factors when determining a property's potential risk and deciding whether to insure a property. In helping their clients, mortgage brokers should understand what insurers look for. With this knowledge, brokers and their clients can be aware in advance as to whether there will be problems with a property and can determine how to address potential problems before closing.

Although numerous factors come into play, the two factors insurers typically start with when analyzing a property are its age and its fire protection.

In general, if a property is older than 30 years, insurance companies will ask more underwriting questions. Their concern with older buildings typically has to do with wiring, plumbing and heating, as well as the roof, foundation and overall structural condition. Properties built in the 1930s to 1970s, for example, didn't have the electrical demands of today. Moreover, commercial properties built in that time may not meet the latest handicap-accessibility requirements, unless they were renovated.

When underwriting policies on older buildings, insurers will ask about updates' scope and dates. They also will want to see photos to examine the property's overall condition.

When dealing with a property constructed before 1980, mortgage brokers should be ready to help clients gather the necessary information. Get information from the seller and gather information from the property inspection.

Fire protection is another major concern for insurance companies. This involves the property's proximity to a fire department and a fire hydrant, as well as on-site systems such as sprinklers, fire and smoke detectors, fire extinguishers, and firewalls.

Five miles often is the maximum distance insurance companies will allow between a property and a fire department. The distance is measured as the crow flies -- or the direct distance between two points -- and includes any fire department within that distance that could respond in case of a fire.

For proximity between a property and the nearest fire hydrant, insurers typically prefer a maximum of 1,000 feet as the crow flies.

Insurers consider properties outside of the maximum distance to fire departments and fire hydrants to be unprotected, and most do not want to insure an unprotected property because they perceive it as having a greater risk of burning down if it were to catch fire.

As for on-site systems, insurers consider whether a property has a sprinkler system; fire and smoke detectors, including how many and if they are hard-wired or battery-operated; fire extinguishers, including how many and where; and firewalls.

Depending on the size of the property, insurance companies also may require several firewalls.

Mortgage brokers should be aware of insurer concerns and advise their clients about how property-insurance premiums could be impacted.

Marc A. Cisneros Jr. is CEO and co-owner of CS Innovative Insurance Solutions, an independent agency in San Antonio. He specializes in insurance programs catering to mortgage brokers, including errors-and-omissions coverage, commercial insurance, surety bonds, medical insurance, and home, rental and commercial insurance for clients. Visit www.csiis.biz or e-mail marc@csiis.biz.