Understanding Commercial Insurance Property Rates
Insurance companies use underwriting to determine how likely your business is to file a claim. The greater the likelihood of a claim, the higher the premium. If an insurance company determines that your business is at increased risk for a loss, it may decline to issue you a policy.
Fire risk is usually the primary factor determining a business’s commercial property rates—state-licensed fire inspectors contract with insurance companies to perform inspections as part of the underwriting process. Inspectors use a standard rating system and weigh five factors in determining a structure’s fire rating. The five factors for determining commercial insurance property rates are:
- Construction materials. Buildings made of potentially explosive materials will have higher premiums, while those made of fire-resistant materials could earn a discount. Additions to an existing structure might negatively affect a fire rating, so it’s good to talk to your agent or insurance company before remodeling. Internal structural elements can also affect a fire rating. Using wood partitions, floors, and stairways in an otherwise fire-resistant building will likely nullify any rate reduction. Fire-resistant interior walls, floors, and doors can help maintain a good fire rating.
- Location. Buildings in cities or towns with good fire protection typically cost less to insure than buildings outside a city where fire protection may be limited.
- Occupancy. A building’s use also affects its fire rating, and an office building will likely rate better than a restaurant or auto repair shop. In a building with multiple tenants, one hazardous occupant will negatively affect the fire rating of the entire building. If your business is in a building with a more hazardous company, your premiums will be higher.
- Fire protection measures. Automatic sprinklers can reduce a building’s fire rating by 50 percent. Buildings with fire extinguishers, automatic alarms, and those within 500 feet of a standard fire hydrant will usually have lower ratings.
- Exposure. Nearby hazards increase a building’s fire risk, and proximity to external fire hazards, such as a lumberyard or oil storage tank, will affect a fire rating. Internal exposure risks might include cluttered buildings and grounds, heavy mechanical or electrical equipment, or on-site storage of volatile materials.