Commercial property insurance helps businesses, including farms and ranches, pay to repair or replace buildings, associated structures, and contents damaged or lost because of fire, storms, theft, and other events outlined in the policy.

Note: Commercial property policies generally don’t cover building contents belonging to a tenant. If you rent or lease your building, you should buy your own policy to insure your on-premises property, including machinery, furniture, and merchandise. The cost of tenant coverage will generally be significantly less than building coverage because the policy will only cover contents, not the building itself.

Typically, business owners can buy a single policy to cover businesses operating at multiple locations. However, you might need separate policies if some locations serve different functions and have different risk profiles. This could be the case, for example, if your business has an administrative office and a separate factory.

Almost all commercial property policies have a “deductible,” which is the amount you must pay toward the cost of a claim before the insurer will pay. The higher your policy’s deductible, the lower your premium should be. Keep in mind, however, that you’ll 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 insurer will pay for any covered loss.

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 policy’s 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 significant loss.

In Texas, commercial property policies are not standardized. Insurers must comply with minimum requirements but have a great deal of flexibility to develop their own policies. As a result, coverages and policy terms may vary significantly by insurer and by policy.

Different types of commercial property policies protect against different risks, or “perils.” Some policies will cover only those risks specifically named in the policy. Other policies will cover all risks, unless the policy specifically excludes them. 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.

Commercial property policies in Texas generally fall into one of three categories:

• Basic form policies typically cover common risks or perils, such as damage from fire, lightning, windstorm, vehicles, aircraft, or civil commotion.
• Broad form policies typically provide basic form coverage plus coverage for additional perils, such as water damage, structural collapse, sprinkler leakage, and losses caused by ice, sleet, or weight of snow.
• Special form policies cover against all types of losses except those the policy specifically excludes. Common special form exclusions include losses from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.

Note: Most commercial property policies cover damage from windstorms, except in counties on the Texas coast. If your business is in one of Texas’ coastal counties, you’ll probably need a separate windstorm policy. (Refer to the section on windstorm coverage for more information.)

Commercial property policies provide various types of coverage, either as part of the base policy or through policy “endorsements.” Endorsements expand or amend a policy’s coverages and usually increase your premium. You can buy certain coverages as separate stand-alone policies. Following are some typical commercial property coverages:

• Business interruption coverage pays for actual or projected lost income if loss from a covered peril prevents normal business operations.
• Extra expense coverage pays any additional costs to expedite resumption of your operations after a covered loss.
• 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 specified amount of time. If you don’t notify your insurer within the time period – usually 30 days – your policy won’t cover the new building. Commercial property policies generally only cover buildings named in the policy.
• Off-premises property coverage covers your property located off site. Some policies might not cover off-premises property, or may provide only limited coverage. You can usually buy an endorsement to cover off-premises property. If you can’t buy an endorsement, you may have to buy a separate policy.
• Employees’ personal property coverage insures your employee’s personal property against covered losses if the property is on your premises. Generally, you must buy this coverage as an endorsement if you need more than a limited amount.
• Valuable papers coverage provides limited coverage of your business records and other essential information. You may be able to buy an endorsement to increase this coverage.
• Ordinance or law coverage pays any additional costs required to repair or rebuild a facility damaged by a covered peril in order to comply with current building codes. 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 generally extends to machinery specifically 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 over land, by air, or by inland waterways. It also covers projects under construction and transportation and communications structures, such as bridges, tunnels, and communications towers.

Commercial multi-peril (CMP) policies combine multiple coverages, such as commercial property, liability, inland marine, and commercial auto, to ensure full protection within the convenience of a single policy. CMP policies typically have lower premiums than purchasing the coverages individually.

Business owner program (BOP) policies are a common type of commercial multi-peril policy primarily for small businesses. BOP policies combine property and liability coverage in one policy.

Insurers use a process called “underwriting” to evaluate the likelihood that a business will file a claim. The greater the likelihood, the higher the premium will be. If an insurer determines that a business poses a high risk for a loss, it may decline to issue a policy entirely.

Fire risk is typically the primary factor that determines a business’ commercial property rates. State-licensed fire inspectors contract with insurers to perform inspections as part of the underwriting process. Inspectors use a standard rating system and weigh five factors to determine a structure’s “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 it’s a good idea to consult with your agent or insurer 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 preserve 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 building’s use also affects its fire rating. An office building will likely rate favorably. A restaurant – with grills and ovens – or an 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 than they would be for your business alone.
• Fire protection measures. Automatic sprinklers can reduce a building’s 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 building’s fire risk. Proximity to external fire hazards, such as a lumberyard or oil storage tank, will negatively affect a fire rating to an even greater degree. Internal exposure risks might include cluttered buildings and grounds, heavy mechanical or electrical equipment, or on-site storage of volatile materials.

Commercial property insurance rates and coverages can vary significantly from one insurer and policy to another. It pays to shop around. The following tips can help you save money or avoid other pitfalls when buying a commercial property policy:

• Minimize all possible risks before applying for coverage. Examine your business premises and operations carefully for things that could contribute to the likelihood of an insurance claim. Improving employee safety, security, and inventory management can reduce the amount you pay for commercial property insurance and other types of coverage, such as workers’ compensation and general liability insurance. Most insurers also offer loss-control or risk-reduction services. Contact ARCA Insurance Services for help identifying and eliminating potential risks.
• Get quotes from several companies. When comparing prices, make sure you’re comparing policies with similar coverage. A cheaper policy might also provide less coverage. At ARCA, we take care of this for you.
• Keep shopping if an insurer declines to cover your business. Insurers 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. Higher deductibles can lower your premium. Remember that your out-of-pocket costs will be greater if you have a claim, however.