By Thomas Delark
For real estate owners and developers, having insurance is only part of the story. You must have the right insurance, with the right policy limits. Otherwise, your coverage will not match your property valuation. The wrong policies will leave you with gaps in coverage – often in areas where you likely assume you’re already protected.
Here are the Top 4 areas where you and your properties could be under-insured:
1. Catastrophic Coverage – Damage caused by low probability, high-cost catastrophic events including flood, wind, hurricane, earthquake or terrorist attacks are often excluded from general property policies. Even when they are included, the limits may not be enough to cover your property adequately. That’s where catastrophic, or “cat” coverage comes in. Cat coverage insures buildings for catastrophic losses and is a common gap in coverage for property.
TIP - Predictive technology can help determine potential cat loss based on different probabilities. Ask your broker for your annual cat modeling results so you understand your catastrophic risk so you can determine the best catastrophic coverage options for your property.
2. Rebuilding value – Most don’t realize the per square foot price tag of rebuilding. Factors like location, building type and exterior materials will all be additional factors to consider in determining the cost to rebuild. If your properties are inadequately valued, your insurance policy will not provide you with enough funding to rebuild your property the way you want to. Even with a blanket limit covering all of your properties, if you are underinsured and your policy has a coinsurance clause, you will be penalized. And because each policy is different, it’s important to check the limitations of your property policy.
TIP: Review your annual property valuation to see how much it will cost to rebuild your facility. Understand what it will really take and work with your broker to determine better policy limits. Ask your broker to provide annual valuation reports to help better understand your risk.
3. Contractual Indemnification – When it comes to liability, one of the biggest risks is the construction work that goes on in your facility. With every new tenant move in, there’s always some level of construction. And when an injury occurs due to the construction operation, you’re likely to get sued as the property owner. Make sure you have the proper indemnification in place, as many policies will have a construction exclusion.
TIP: Beyond the certificate of insurance contractors are required to provide, ask for a copy of their full insurance policy. Make sure you’re indemnified for any injuries. For more information read, Real Estate Developers: Could You Be Liable for an Accident You Didn’t Cause?
4. Business Interruption – A property policy insures your building during a disaster, and the business interruption portion of the policy reimburses you for business losses caused by the damage. This includes any impairment that prevents you from conducting business as usual - a fire, hurricane or other covered event that leaves your building uninhabitable or inaccessible.
TIP: Real estate BI losses are easy to predict and calculate, as they’re based on annual revenues from rent. Make a simple calculation: How much would you lose in a calendar year if you were unable to rent or access your building?
For more information on eliminating real estate insurance gaps, contact your HUB real estate specialist today.