Inflation impacts small business owners in a variety of ways, whether it’s rising food and ingredient costs, more expensive fuel, utility increases, or higher interest rates on loans or credit cards. Many small business owners assume their Commercial Property Insurance coverage always keeps pace with rising costs simply because their policy renews every year.
Unfortunately, that assumption can create a serious problem. If your company building is damaged or destroyed, the amount of insurance you carry today may not be enough to rebuild it at today’s current prices.
For restaurants, cafés, retail stores, hotels, and other commercial property owners, inflation has drastically changed the cost of construction, materials, labor, and equipment. A building that was properly insured a few years ago may be significantly underinsured now.
In our latest Aegis blog post, understand how property values change and why regularly reviewing your coverage can help protect your business when you need your insurance the most.
Over the past several years, commercial construction expenses have risen due to higher material costs, labor shortages, supply chain disruptions, and increased demand for contractors. These increases impact nearly every aspect of rebuilding a business after a major loss.
A business owner may look at their property insurance limit and think, “That is what I paid for the building,” but your insurance coverage is based on the cost to rebuild, and not the purchase price, market value, or original construction cost.
Rebuilding costs can include:
For example, if your restaurant is gutted by a fire, replacing the custom kitchen, ventilation system, and specialty equipment may cost much more to rebuild than a standard commercial space.
If your business experiences a major loss and doesn’t have enough Commercial Property Insurance coverage, you may be responsible for covering the difference between the insurance payment and the actual rebuilding cost. Your other policies, such as General Liability, won't be able to cover these type of losses, so your business will have to handle these expenses out-of-pocket, or possibly take out an emergency loan just to rebuild.
This situation can become especially difficult after a fire, hurricane, tornado, or other catastrophic event when construction costs may be even higher due to increased demand for contractors and materials.
Your Commercial Property coverage may also include coinsurance requirements. If the building isn’t insured to the proper percentage of its replacement value, your claim payment could potentially be reduced, even for a partial loss.
Hospitality and retail businesses often invest significant money into improvements that may not be reflected in the original property value or your coverage totals.
Examples might include:
Any of these improvements add value to your operation and need to be considered when determining appropriate coverage limits for your business. As a business owner, you should never assume your existing policy automatically accounts for any major remodeling or equipment upgrades.
One of the best ways to avoid being caught underinsured is to review your commercial property insurance regularly with the experienced insurance professionals at Aegis Insurance & Financial Services. A yearly review with Aegis allows you to adjust coverage as your business changes and as replacement costs increase.
During your review, consider:
Insurance is not a “set it and forget it” expense. Your coverage should always evolve as your business evolves. Protecting your building is about more than protecting four walls. It’s also about protecting your ability to reopen, serve customers, and continue operating after a major setback.
Contact Aegis Insurance & Financial Services at 713-850-7622 for more information or to schedule a consultation with our Commercial Insurance agents.
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