CREJ - Property Management Quarterly - May 2015
All property managers and building owners should know if their buildings are properly insured, who they relied on to obtain the existing coverage, and understand the policy terms and conditions. Property managers should review the policy, often 80-plus pages, to ensure the coverage provides indemnification if the buildings are damaged by a covered peril. It is important to be fully aware of your property and casualty insurance coverage because it may have a direct impact on leasing and tenant revenue, maintenance costs and the overall profitability of your properties. Owners and property managers turn to experienced and reputable professionals to provide insurance coverage on properties and businesses. An insurance broker is a professional who provides a valued service in offering a comprehensive policy specific to your needs and to protect the properties in the event of a loss. In return for a premium, the insurance company assumes the risk of covering costs to repair, rebuild or replace the damaged buildings caused by covered perils, per the terms and conditions of your policy. To obtain the necessary replacement cost coverage, you want assurance your policy covers rebuilding at today’s pricing (not the market or appraised value). Many mistakenly believe the properties are protected if the policy limit is near the purchase price less the value of the land, which is not insured. Having adjusted numerous property claims on behalf of property owners, all too often we find the owner is underinsured – don’t make this mistake. In addition to limits pertaining to the building coverage, the policy also will specify limits for business personal property, business interruption or a loss of income, coverage and coverage for extra expenses to assist in mitigating your income loss. If you own multiple properties, learn about the benefits of blanket coverage – a single policy with limits that covers buildings and business personal property rather than obtaining individual policies for each property. Services provided by a broker and an agent are similar, yet it is important to understand differences in responsibilities and perceived allegiances. A captive agent provides policies on behalf of only one insurance company, whereas an independent agent can provide coverage and premium options from a number of different insurance companies. Agents’ responsibilities are administrative in nature because they must accurately complete the necessary forms and paperwork. Neither a captive nor an independent agent is obligated to inspect your property to provide binding coverage. You may be best served by having a representative of the insurance company inspect the properties before you agree to coverage. Even if coverage is already in place, an inspection of your properties may identify risks you were not aware existed. The report will provide valuable input for consideration and can establish the insurer is knowledgeable of many factors used to bind coverage, such as the age, use, quality and condition of the properties, materials used in the construction of the buildings, as well as an assessment of risks. A broker is required to be licensed and, based on information you share, has a duty to thoroughly inspect your properties and share with you coverage options specific to your properties and businesses. A reputable broker continually stays abreast of changes in coverage and pricing; is aware of reputable insurers (those who are inclined to provide quality claims service); knows of products offered by multiple carriers, whether via Insurance Services Office, manuscript or other policy forms; attends continuing education seminars; and schedules frequent reviews to address your questions and concerns. Consequences of having inadequate insurance coverage can be devastating. Your loss could be compound if you lose your business or property. Ask questions, seek input and clarification, be knowledgeable and have a complete understanding of coverages before, not after, a loss. Consider seeking input in writing; while your policy will dictate coverage, intentions of the parties can be supported if they are in writing, and if there are ambiguities or differences in how or whether coverages are extended. Do not assume your properties are adequately covered. Request confirmation indicating you are adequately insured from your broker or agent. Keep copies of all records and written communications with your broker, agent and insurance company. If you have not reviewed your policy in the past six months, it would be wise to schedule a time to meet with your broker or agent to review your coverage in the near future. Be sure to ask about available “additional coverages” to further protect your properties. Options available for purchase for an additional premium include endorsements to include or increase code upgrade or law and ordinance coverage, sewer backup coverage, or extended business income coverage because these types of coverage may be limited or may not exist in a standard policy. If you have a vacant property, ask your broker if you need a special coverage to protect the property from a loss while vacant. Finally, ask your broker or agent what he can do, and what he would do, to assist you if your properties were damaged. It’s a matter of trust.