How are Commercial Property Insurance Rates Determined?

In this modern era of financial fluctuations, property is one of the fixed assets that come in handy. You can forget trading securities or other assets by just focusing on the property business. Now, there are two different types of properties:

1.    Residential property

As the name indicates, residential property refers to zones or areas specified for living or dwelling purposes. It may also be a residential rental property where houses or buildings are rented to tenants for only living causes and not for business.

2.    Commercial property

You must have commonly heard ‘Commercial property or commercial real estate.’ It refers to non-residential buildings and dwellings that provide property for income generation and earning profit. Despite the new wave of Online Commerce, many businesses and companies still rely on brick-and-mortar buildings to offer the best services to their consumer base. So, a website-browsing trend will never be able to eliminate the significance of having a commercial property.

Did you know? In the US alone, the commercial real estate market was about $16 Trillion in 2018. Such is the potential scope of this market, and it doesn’t seem to be diminishing anytime soon.

Types of Commercial Property

For future reference, let’s explore what kind of real estate comes under the heading of Commercial property.

1. Office space

Office space includes all the office buildings available for rent for commercial purposes.

2. Industrial space

As the name indicates, it is the space used for industry, including heavy manufacturing, light assembly, and bulk warehouses, mixing industrial space with office space.

3. Multi-family properties

Such residential rental properties with more than five apartment complexes are considered commercial property because they generate rental income for the owner.

4. Retail

Any buildings used for retail purposes, ranging from single storefronts to strip malls and shopping centres, constitute the retail properties and come under the commercial real estate category.

5. Hotels

Hotels are commercial real estate, whether large, small, or barely existing in terms of space and functionality.

6. Mixed-purpose properties

Mixed-use properties are typically any combination of the above category properties. An example includes multi-family apartment complexes with retail spaces on the ground floor.

7. Mixed-purpose properties

Any property that does not fit the above categories would be considered special-purpose, such as amusement parks, zoos, parking lots, etc.

When there is talk of commercial properties, you will automatically find yourself delving into the topic of commercial property insurance.

What is Commercial Property Insurance?

Commercial property insurance can be defined as the premium you pay to cover a commercial property from multiple risks, including fire, theft, and natural disaster. Nowadays, most businesses, like manufacturers, retailers, service-based, and not-for-profit organizations, all carry commercial property insurance, giving massive financial protection for the long run. Generally, commercial property insurance gets bundled together with other forms of insurance, such as commercial general liability insurance.

Commercial property insurance can be a significant expense for businesses that use expensive equipment, such as railroads and manufacturers. Still, the end benefits are more than enough to compensate for this expense. Here, commercial property owners enjoy the same protection as property insurance provides for their consumers.

Businesses can usually put the cost of commercial property insurance premiums under the category of expenses. Regarding its downside, this insurance does not cover losses arising from tenants using the building, like if they cause some damage during their stay. There are some situations where even if the commercial property insurance doesn’t cover the cost of loss, such loss can still be added by endorsements. Like employee dishonesty, steam boiler breakdown, flood, earthquake, and crime.

Not all of your business or commercial property is covered with a commercial property insurance policy. So, it would be best if you did not accept it at face value that everything gets added to the insurance package. For instance, you might need additional insurance for commercial autos, signs not attached to your building, and outdoor fences.

Commercial property insurance is gaining popularity in the UAE, specifically the Dubai and Abu Dhabi areas, because of the blossoming new trend to own a commercial property.

Factors determining the cost of a Commercial Property Insurance

Numerous factors come into consideration while evaluating the cost of commercial property insurance.

1. Location

The location of your commercial building matters. Suppose this building exists within a city with excellent fire protection nearby. In that case, it will typically cost less to insure than buildings outside a city or in areas with limited fire protection.

2. Construction

Buildings made of potentially explosive materials will have higher premiums, like using wood partitions, floors, and stairways. In contrast, those made of fire-resistant materials could even merit a discount.

Did you know? Your building’s fire rating gets easily influenced by various elements. Before remodelling, you should consult an insurance agent or company as additions to an existing structure might affect a fire rating, changing the insurance amount. Fire-resistant interior walls, floors, and doors can also play a significant part in maintaining a good fire rating.

3. Geography

An insurance agent also gets accounted for the geography factor as your business may face environmental risks, such as flooding, tornadoes, etc. The Land value in a specific area can also affect what premiums you pay. For instance, Dubai and Abu Dhabi in the UAE are considered highly in demand because of their booming tourist, economic and home-buying sectors. The premiums charged here are expensive compared to other less-competitive regions.

4. Size of Business Premises

A large factory building or commercial office will likely cost more to insure than a single rented room.

5. Safety and Security

Many questions can arise about your commercial property’s security conditions. Like:

  • Is your business or real estate located in a high-crime area?
  • Does your company possess or dabble in toxic or hazardous materials?
  • Do you have the latest security measures?

All these queries can affect insurance rates.

6. Occupancy 

A building’s occupants influence its fire rating. An office building will most probably rate better than a restaurant. A single hazardous occupant among the whole building occupants can negatively affect the fire rating of the entire building, causing the premiums to get higher.

7. Type of Equipment

The nature of the equipment determines the insurance rate. Heavy industrial equipment like a machine in a giant steel mill will cost more to insure than an at-home business’s sewing machine.

8. Age of Equipment

You may be forced to pay higher insurance premiums if your equipment is hard to repair because of scarce parts or if it is more likely to break down because of heavy use.

9. Types of Hazards Covered

A commercial insurance policy covering all the open perils costs more than a policy covering named perils. Open perils coverage protects against all losses except those expressly excluded in the policy. Named perils coverage is the coverage that only protects against losses listed explicitly in the policy with their exact names.

Similarly, an “All Risks” protection commercial Insurance in Dubai and Abu Dhabi area provides broader coverage for loss or damage from any causes except those expressly excluded under this insurance. Such insurance may include:

  • Fire and Lightning
  • Aircraft damage
  • Explosion & Implosion
  • Storm, Tempest, Flood, bursting and or overflowing of water tanks or sprinkler leakage
  • Earthquake Shock
  • Burglary, attempted theft (by violent and forcible entry to or exit from the premises), accidental, and many more

Insurance Rate Determination

Although multiple factors determine how much a company should pay for commercial property insurance, the value of a business’s assets is a primary factor. A company or a commercial property owner should take an inventory of their physical assets located at their property. This information will help decide what level of coverage the business should get in a claim.

Although this is a crucial insurance category, things can be more complex than they seem when practically calculated. It can be beneficial to consult a commercial property insurance agent or company for an in-depth analysis of your real estate and get the best insurance coverage at a reasonable price.

Benefits of Having Commercial Property Insurance

Some of the advantages to paying commercial property premiums are:

1.     Financial loss coverage

This insurance highlights that any potential financial loss bore by a business or property gets covered, keeping the company floating well.

2.     Builds Credibility

An insured business appears more credible than an uninsured business. Such insurance can reassure a company’s suppliers and customers that there is a possible way out for them if the business cannot honour its commitments.

3.     Strong Backup plan

You get to protect your business in case of an unexpected or unpleasant surprise in the future.

In Conclusion

Commercial property insurance rate determination is the sum of many vital elements that should be wholly considered. The importance of having your commercial property insured cannot be denied in light of the tremendous benefits achieved. It particularly stands true for the Dubai and Abu Dhabi areas in the UAE with their highly competitive and evolving commercial real estate market.

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