Commercial Property · answer
How do I insure an older commercial building at a fair price?
Carriers decide whether to quote an older commercial building based on four systems: roof, electrical, plumbing, and heating and cooling. Owners who document updates to those systems get quotes from more carriers at better prices. Older buildings also need two coverages they most often lack: ordinance or law coverage for code upgrades after a loss, and a replacement cost limit that reflects today's construction costs.
If your building is more than thirty or forty years old, most carriers decide whether to quote it before they look at anything else. They look at four systems. Owners who know that, and can document them, get better prices from more carriers.
The four systems
Roof. Age, type, and last replacement. Many carriers settle older roofs at actual cash value rather than replacement cost, and some won't write a roof past a set age at all.
Electrical. Carriers want to see updated wiring and modern panels. Aluminum branch wiring, knob-and-tube, and certain older panel brands are common reasons for a decline or a surcharge.
Plumbing. Original galvanized or cast-iron supply and drain lines are a water-damage claim waiting to happen in the carrier's eyes. Copper or PEX replacements change the conversation.
Heating and cooling. Age and type of the system, and whether it's been serviced.
If any of these has been updated, the year and the scope belong in the submission. If none has, the price reflects it.
The two coverages older buildings need most
Ordinance or law. If a covered loss damages the building, current code may require upgrades the policy won't pay for: sprinklers, accessibility, seismic, electrical. This coverage pays the difference. Older buildings are the ones that need it and the ones most often missing it.
Replacement cost with an accurate limit. Older buildings are the most likely to be underinsured, because the limit was set long ago and construction costs have moved. If the limit is too low, coinsurance clauses can reduce the claim payment further.
Why the incumbent's renewal is rarely the best price
Carrier appetite for older buildings shifts constantly. A carrier that wrote your building five years ago may now surcharge it, while another has opened up for updated buildings of its type. Unless someone has shopped the building recently, you're paying yesterday's market.
What BIG does
BIG reviews older buildings against the four systems and the two coverages above, then shops them across more than 50 carriers and wholesale markets, including the excess and surplus market where many older buildings are placed today. The Premium Relief Check shows what the current market would charge for the same building and coverage.
More detail
How to document the four systems
- Roof: type, year installed, warranty, repair invoices
- Electrical: panel brand and amperage, wiring type, year updated, inspection report if available
- Plumbing: supply and drain material, year updated, water heater age
- HVAC: system type, year installed, last service
Photos of the panel, the roof, and the mechanical room settle most underwriting questions before they're asked.
What coinsurance does to an underinsured building
Most commercial property policies require the building to be insured to a stated percentage of its replacement cost, commonly 80 or 90 percent. If it isn't, the carrier reduces every partial claim by the same shortfall. A building insured at $1,000,000 that should be insured at $1,600,000 under an 80 percent clause would see a $100,000 claim paid at roughly $78,000, before the deductible.
Frequently asked questions
Will any carrier write a building with knob-and-tube wiring?
Some will, usually at a surcharge or in the surplus lines market, and usually with a plan to replace it. Most standard carriers will decline until it's updated.
What is ordinance or law coverage and do I have it?
It pays the extra cost of rebuilding to current code after a covered loss. Check the declarations page; if it's not listed as a coverage or endorsement, you don't have it.
My roof is 20 years old. Can I still get replacement cost?
Sometimes, depending on the carrier and the roof's condition and type. Many will offer actual cash value only. It's a specific question to ask at every renewal.
Sources
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