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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   June 2011

Getting to Know Insurance

Learn the factors policy writers consider in commercial properties

Getting to Know Insurance

In today’s economy, investors are looking harder for deeply discounted bargains. One opportunity presenting itself is commercial property. Whether they seek a single structure, shopping center, apartment complex or warehouse, investors are eager to take advantage of the bargains presented by the new economy.

These investors also want to protect their purchases with insurance. There are a lot of different things insurance companies look at when insuring commercial properties. By understanding the basics required, commercial mortgage brokers can help make sure their clients establish policies in a timely manner.

1. Location

Insurance companies must know not only the property address but also what is around it. They typically want to know what adjoins and abuts the property to the front, back, left and right. Insurance companies want this information because whatever stands in close proximity to a property could be a potential liability.

There also could be some other hazard that could increase the insurance risk, which the insurance company may not be willing to accept. Make sure you and your clients are aware of the type of businesses surrounding the property under consideration.

2. Description 

Insurance companies must know the construction type, roof type, type of wiring, plumbing type, the square footage and the age of the commercial property in question.

The insurance company also must know if there’s a sprinkler system installed. If there is, the type and number of sprinkler heads also will be requested.

Moreover, if there are any cooking facilities on-site, the insurance company must know about the exhaust system, grease traps and the type of cooking facilities used — such as microwaves, fryers and stoves. In addition, information on the type of fire-suppression system installed at the facility should include information about its  last inspection.

You also should note the number and location of exit signs, as well as if the signs are illuminated and if there any fire doors.

3. Intended use

How your client intends to use the commercial property is just as important to an insurance company as the location and description of that property. Insurance companies must know what type of business is being conducted on the property because every type of business presents its own underwriting and rating issues.

For apartments and similar properties, insurance companies are concerned with the age of the property as well as its wiring, firewalls, exits, smoke detectors, stairs, railings and common areas. For this type of property use, an insurance company also will want to know who the tenants or residents will be.

Be prepared to disclose if the property is intended for:

  • Senior living;
  • Student use;
  • Section-8 or government housing;
  • Families;
  • Single tenants; or
  • Any combination of the above.

An insurance company also must know the rent being charged for each type of unit (one-bedroom, two-bedrooms, etc.) to determine the business-income coverage for the property.

Restaurants, coffee shops, food service and entertainment properties present their own additional risks and required information. For this property type, insurance companies are concerned about fire exposure and the number and type of patrons.

They also will want detailed information on any cooking facilities; the total number of occupants; the type of entertainment, if any, provided; the average cost of meals; the type of drinks being sold (include the percentage of each type of drink sold during a specified period of time); if there will be a happy hour; and the general hours of operation.

4. Updates and remodels

If your client is planning on purchasing a property that needs either small or major renovations, make sure the insurance company is aware of any planned updates or remodeling. There are several reasons for this.

Property being updated and remodeled usually will be vacant during renovation. In addition, many of the building materials used will be left at the site. These issues require special consideration.

A standard commercial policy won’t cover the property properly during renovation. Instead, your client will likely need a builder’s risk or a renovation-coverage policy.

After the work has been completed, the insurance company can write a standard property policy.

• • •

When it comes to commercial properties, mortgage brokers should know more than just the client’s credit score. Having an understanding of what insurance companies seek — and what your client’s intentions are for the property — will help you make sure your client is prepared to secure the proper insurance quickly and efficiently.


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