Perhaps you would rather not think about what would happen to your business if a fire hit or you had to weather a winter storm. We get it – there are way more fun things to be thinking about than doom and gloom. But since you’re a business owner and understand that things rarely go as planned, you’re here, reading about property insurance. You know that you need to protect yourself from loss, but you’re probably wondering how much property insurance costs.
And that’s a great question, but the only problem is that it’s a little complicated.
There are a few things that influence the cost of commercial property insurance. We’ll explain some of the factors that go into determining your commercial property insurance rates.
Here we go:
1. The CONSTRUCTION of your building.
When an insurance company is looking at the commercial property insurance for your business, they’re going to want to figure out how flammable your building is. Insurance companies don’t really like fire because it tends to be very destructive. Anyways, the material your premises is made of influences how flammable your business is, as certain materials are easier to catch on fire and burn. (And the building material also influences the reconstruction cost of your building, which also plays a part in your rates.)
The building material is so important that the Insurance Services Offices (ISO) has created a system of categories to describe the structure of a building for insurance purposes. The “Classes” as they’re called go from 1 – 6, with 1 being the most flammable and 6 being the least.
Here are the general categories:
- Class 1: Frame
- Class 2: Jointed Masonry
- Class 3: Non-combustible
- Class 4: Masonry, Non-combustible
- Class 5: Modified Fire Resistive
- Class 6: Fire Resistive
The reason we explain this is that the higher up on this list your building is, the less likely it is to catch fire – and if it does, you’ll probably be facing less damage because the material is more fire resistant. And all of that can translate to lower insurance rates.
2. The OCCUPATION of your building.
To put it simply, this means what you’re using your building for. Your insurance rate depends on what kind of business you have and what kind of work you do.
To illustrate, let’s compare an auto repair shop with a retail store. The auto shop does welding and stores many chemicals and flammable liquids. The retail store, on the other hand, only has clothes. The auto repair shop is more likely to face a fire, so they’ll probably pay more for their insurance.
Bottom line, some things are more likely to burst into flames. And that affects your insurance rates.
Pro tip: Depending on your business, you may be able to get your property insurance in a business owner’s policy to save money.
3. The PROTECTION your building has against fire.
Bear with us as we talk about fire some more.
The more defenses your building has against fire, the better your insurance rates. Protecting your building can come from without (your local fire department) and within (fire controls installed in your building.)
As far as external protection from fire, the ISO has come up with a way to rank the quality of the fire department near you (as well as other fire control measures.) They score it on a scale from 1-10, with one being the best and 10 being the worst. To come up with this number, they evaluate the quality of your local fire department, the available water supply, the effectiveness of your alarm system, and the strength of the communication system.
Of course, the insurance company isn’t just looking at your fire department. They’ll also look at your building’s firefighting tools. Do you have fire doors? Sprinklers? Fire extinguishers? An alarm system? These things can help minimize damage from a fire, something that insurance companies like to see.
You’ve probably noticed a pattern here:
The more protected you are from fire, the lower your insurance rates are likely to be. So, you might want to brainstorm how you can protect your business from fire.
4. Your business’s EXPOSURES.
Now, this may surprise you, considering what we’ve discussed thus far:
Insurance companies aren’t only concerned with fire when they’re considering the cost of business insurance.
They’re also looking at other exposures, or risks that your business faces. They’ll look at your location to see how susceptible you are to natural disasters and man-made hazards. (For example, they might look at your area’s crime rate.) They also might look at the reconstruction cost of your building, the size of your premises, and the age of your building.
We can talk about factors that affect property insurance rates until we’re blue in the face, but the best way to get a truly accurate idea of how much your commercial property insurance will cost is to get a business insurance quote. Our business insurance experts would be happy to help you save on your rates by shopping around for your insurance. All you have to do to get in touch is fill out our form or give us a call today.