Commercial Property Insurance (February 2012)

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 things covered by your 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 owners policy doesnt typically 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. Businesses with multiple locations can be covered under a single policy, 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 risks. These include fires, lightning storms, windstorms, or damage caused by vehicles and civil commotion. Be sure to 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.

Basic form policies typically cover common risks.

Broad form policies typically cover the common risks 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 risks 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.

Most commercial property policies cover damage from windstorms except in counties on the Texas coast. However, 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 Texas coastal counties, youll need a separate windstorm policy. (Refer to the section on windstorm coverage for more information.)
Replacement cost and actual cash value coverage

Commercial property policies provide either replacement cost coverage, actual cash value coverage, or a combination of both. Replacement cost coverage will pay to replace your property with new property of like kind and quality, up to the policys dollar limit. An actual cash value policy will pay the replacement cost of the property minus depreciation due to age and normal wear and tear. Although replacement cost coverage is more expensive than actual cash value coverage, it might better ensure that your business fully recovers after a loss.
Commercial Property Coverages

Commercial property policies are not standardized in Texas. Insurance companies must meet minimum state requirements but may develop their own policies. As a result, coverages and policy terms may vary by insurance company and by policy.

Commercial multi-peril (CMP) policies combine multiple coverages -- such as commercial property, liability, inland marine, and commercial auto -- to provide full protection with a single policy. Its typically cheaper to purchase a CMP policy than to purchase 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 policys 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 do not own. This coverage can be important if you lease or borrow a building that is critical for your operations. 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 dont notify your insurance company within the time period usually 30 days your policy wont cover the new building. Commercial property policies generally 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 offpremises property or may provide only limited coverage. You can usually buy an endorsement to cover off-

premises property. If you cant buy an endorsement, you may have to buy a separate policy. Business interruption coverage pays for the income youd lose if your business is damaged and you cant perform your normal business operations. Extra expense coverage pays any additional costs to return your business to normal after its 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 its damaged. Many policies provide limited ordinance coverage, but you can increase it with an endorsement. Boiler and machinery coverage covers boilers, air conditioning units, compressors, steam cookers, electric water heaters, and similar machinery. Coverage is generally only for machinery listed in the policy and to any subsequent losses, such as when a boiler explosion or water heater leak causes damage to other property. You can usually purchase this coverage as either 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 its located, you might want to consider additional coverages to ensure youre protected. 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 does not 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, and 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 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 located within 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 25 percent of all floods in the United States occur in areas designated as low-to-moderate risk. You should consider 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 1-800-427-4661 www.fema.gov/business/nfip/ Windstorm and Hail Insurance along the Texas Coast Insurance companies may exclude windstorm and hail coverage from commercial property policies for businesses in one of Texas 14 coastal counties or within certain areas of Harris County. If your business is in one of these areas, you will have to buy windstorm coverage through the Texas Windstorm Insurance Association (TWIA), which is the states insurer of last resort for windstorm and hail coverage. Buildings constructed, repaired, or remodeled prior to January 1, 1988, are automatically eligible for TWIA coverage. Those constructed, repaired, or remodeled after that date must pass a state inspection and receive a Certificate of Compliance (Form WPI-8) before TWIA can issue windstorm and hail coverage. Texas Department of Insurance (TDI) inspectors will inspect your structure free of charge if you notify your local TDI Windstorm Inspection Office before beginning construction or repairs. The inspection will occur sometime during the course of the work. If you request a windstorm inspection after

starting construction or repair work, you must hire a Texaslicensed professional engineer approved by the commissioner of insurance 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 TDIs Windstorm Inspection Division or visit our website 1-800-248-6032 322-2203 in Austin www.tdi.texas.gov After your structure passes inspection, call TWIA for a list of agents in your area 1-800-788-8247 899-4900 in Austin www.twia.org
Understanding Commercial Property Rates

Insurance companies use a process called underwriting to evaluate the likelihood that a business will 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 typically the primary factor that determines a businesss 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 structures 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 its a good idea to

consult with 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 buildings use also affects its fire rating. An office building will likely rate favorably. A restaurant or auto repair shop will likely rate less favorably. One relatively hazardous occupant will negatively affect the fire rating of an entire building. If your business is in a building with a more hazardous occupant, your premiums will be higher. Fire protection measures. Automatic sprinklers can reduce a buildings 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 generally have lower ratings. Exposure. Nearby hazards increase a buildings 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 access 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, contact

TDIs Inspections and Fire Safety Office, the states 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:

Minimize all possible hazards before applying for coverage. Examine your businesss premises and operations carefully to eliminate 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 riskreduction services. Contact your agent or insurance company for help identifying and eliminating potential hazards. Get quotes from several companies. When comparing prices, make sure youre comparing policies with similar coverage. A cheaper policy might also provide less coverage. Keep shopping if an insurance company says it wont 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 pay. The higher your policys deductible, the lower your premium. Keep in mind that youll 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. Verify your agents and insurance companys licenses. Agents and insurance companies must be licensed to sell commercial property insurance in Texas. An unlicensed insurance company may not meet the states minimum financial and regulatory requirements, meaning the company may not have the financial resources to pay your claim. To learn an agents or insurance companys license status, call TDIs tollfree Consumer Help Line or use the Check Agents or Check Companies features on our website 1-800-252-3439 463-6515 in Austin www.tdi.texas.gov

For More Information or Assistance

For answers to general insurance questions, for information on filing an insurance-related complaint, or to report suspected insurance fraud, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, MondayFriday, or visit our website 1-800-252-3439 463-6515 in Austin www.tdi.texas.gov For printed copies of consumer publications, call the 24hour Publications Order Line 1-800-599-SHOP (7467) 305-7211 in Austin

To report suspected arson or suspicious activity involving fires, call the State Fire Marshals 24-hour Arson Hotline 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.