General P&C Insurance Question

[lastscer]

Is there any insurance coverage that insures a commercial building for a fixed amount rather than the market value of the buliding? If so, what is the name of such insurance coverage and which company offers it?

Any help is appreciated!

[MightySchoop]

Originally Posted by lastscer

Is there any insurance coverage that insures a commercial building for a fixed amount rather than the market value of the buliding? If so, what is the name of such insurance coverage and which company offers it?

Any help is appreciated!

Ask an agent. But I don't think you're likely to find it as an "off-the-shelf" product.

Most building losses are proportional to the replacement cost of the building, and are NOT complete losses. Insuring to something less than replacement cost or market value will generally mean that the premium is inadequate to the risk. Insuring to something greater than replacement cost is inviting the insured to burn down the building himself.

[tommie frazier]

assuming the fixed amount is < market value, right?

[Mary Frances]

There at least used to be significant penalties in the calculation of your insurance recovery if your commercial building was insured for less than the cost to repair. The reasoning behind that was that most losses are for far less than the building's value, so by underinsuring most of the time you got more coverage than you'd actually paid for. For example, let's say the building's worth $1 million, but you only insure it for $500,000. The distribution of potential losses on your $1,000,000 building is very different from the distribution on a $500,000 building, though. It's more than just capping losses over $500k at $500k for the underinsured policyholder, too - probability of a loss of any given size is going to be higher in the higher cost building. I haven't looked at a commercial property policy in eons - is the coinsurance clause still out there?

[tommie frazier]

i would say the best you could get is a 50% share of 100% coverage.

[oirg]

This is called "Agreed Value" option. There are minimum co-insurance requirements, and the agreed value has to be renegotiated with every renewal.

I'd guess that most, if not every, company writing commercial property insurance offer this option.

[lastscer]

Originally Posted by tommie frazier

assuming the fixed amount is < market value, right?

Yes. My parents have a commercial building that they bought for 60K, now they have to pay 2K to cover the replacement cost coverage of 200K+...but all they need is 60K coverage.

I talked to the insurance guy, he said the most he could do is 60% share which reduces the premium to 18K for coverage of 150K, and this type of coverage is subject to ACV.

[lastscer]

Originally Posted by oirg

This is called "Agreed Value" option. There are minimum co-insurance requirements, and the agreed value has to be renegotiated with every renewal.

I'd guess that most, if not every, company writing commercial property insurance offer this option.

Thanks. I will call to see which company offers this.

[Maine-iac]

Originally Posted by lastscer

. . .but all they need is 60K coverage.

If I were an underwriter, that statement would cause all sorts of alarm bells to ring in my head.


If $60K is what the owners need to recoup their original investment, and $200K is what they would need to rebuild and restore the property to it's current value in the event of total loss, and they just want to insure to $60K, I'm going to be thinking "financial management with a well placed match" and be really leery about writing it.

No offense to your folks, though.

[MountainHawk]

Originally Posted by lastscer

Yes. My parents have a commercial building that they bought for 60K, now they have to pay 2K to cover the replacement cost coverage of 200K+...but all they need is 60K coverage.

I talked to the insurance guy, he said the most he could do is 60% share which reduces the premium to 18K for coverage of 150K, and this type of coverage is subject to ACV.

Ugh, no ... they need $200K of coverage. If they go to an insurer asking for $60K of coverage on a $200K building, this screams 'potential fraud' to the insurer, because clearly the owners don't care about the building.


Edit: Ninja'd by like 10 minutes by Maine-iac.