Commercial real estate owners in South Florida have been very fortunate over the past eight hurricane seasons. One year, maybe this one, their luck will run out and damage from a major storm will force them to file insurance claims. Before that happens, a building owner needs answers to two questions: Is my property and casualty policy in order? And, am I getting the most for my money?
The answers don’t involve shopping around for a new policy; that time-consuming process could bring only a temporary reduction in your premium, and you could still miss out on savings. Your time is better spent reviewing your properties and policies. That effort could produce a huge reduction on your property and casualty premium and avoid costly surprises when you do file claims.
Here’s what to look for:
Are you getting all the windstorm mitigation credits you deserve? The credits are based on a number of factors such as location, when your building was completed, when and how your roof was constructed, and window protections. Start by obtaining a building inspection, which is cheap compared to the potential savings. Compare the report to what you have on file with the insurer. A property owner in North Miami lost 10 years’ worth of savings because he did not conduct an inspection and correct the windstorm mitigations on his properties. After our company updated his policy, he saved nearly $150,000 in one year by providing his insurer with the correct information on his portfolio. You might enjoy a similar pleasant surprise if your policy is with Citizens Property Insurance Corp. It can provide up to 65 percent in savings based on the findings of a wind mitigation report.
Is your building insured for what’s it worth today? Property values suffered during the Great Recession, but they are recovering. Some sub-markets, such as the Design District and Wynwood in Miami, are hot, with some properties doubling and tripling in price. If you’re not insured to the correct value at the time of loss, an insurance carrier can deny your claim or penalize you for being underinsured. That will be displeasing to you and your lender. The remedy: Look at your current cost per square foot. If that figure is over $130 per square foot, it’s probably time to order a new appraisal. We are seeing concrete buildings that qualify as fire resistive being appraised for $95-$100 per square foot and wood-roof buildings in the $80-$90 square-foot range. That’s probably too low.
Are the records on your building construction accurate? Get your facts wrong, and your insurance company could deny your claim. You’d be surprised to learn that we regularly find buildings listed as having floors and roofs made of combustible materials and having concealed spaces as being fire resistive. We have found that about one in every 10 properties is rated incorrectly. You can save money today on your premium by having a higher rating on your building than it deserves, but when a major storm hits, expect the insurance company to penalize you for providing inaccurate information when you applied for coverage.
What’s the right deductible? Most property owners look for a low deductible so the insurance carrier bears the brunt of the cost of repairing a building damaged by a hurricane. However, that low figure comes with a higher premium. If you are looking for savings today, consider increasing your hurricane and other peril deductibles. Be sure to consult your lender; it may want to weigh in on how much risk it’s comfortable with you assuming.
Evan Seacat is a director of Franklin Street Insurance Services and is based in Miami.