How much does commercial property insurance cost?
What determines commercial property insurance cost? We explain what aspects of your business insurers will analyze when determining your premium.
Protect your business today!
Get a QuoteImagine finally opening up the business of your dreams only to have someone vandalize it a few months later, breaking every window of the storefront and destroying or damaging your inventory.
As with any small business, the ability to recover from such an event almost entirely relies on whether or not you’ve purchased commercial property insurance. But you may be wondering: How much does commercial property insurance cost? And is it a worthwhile expense for your business?
If the physical property and business-related assets are an essential part of your services, then buying commercial property coverage needs to be a priority. Property insurance can cost a significant amount, but leaving your property vulnerable could end up costing you significantly more.
In this article, we’ll discuss the average cost of commercial property insurance for businesses and break down some of the key factors that may influence your premiums.
Average cost of commercial property insurance
On average, small businesses pay between $1,000 and $3,000 for commercial property coverage, which is around $83 to $250 per month. However, there are many different factors at play that can cause the cost to be significantly higher.
For example, a construction company may pay double this figure per year because of its significant equipment and storage space risks. Additionally, if your property is located in a region that’s prone to natural disasters, such as Florida and California, your premiums will likely be higher than similar companies in less high-risk areas.
In general, larger businesses will naturally pay more for property insurance as they’ll have more equipment, larger headquarters, and, simply put, more property at risk.
Determining the cost of commercial property insurance
As is the case with any type of insurance, there is no set premium cost when it comes to commercial property insurance. No two businesses are exactly the same, which means that no two businesses will have the same insurance needs and pay the same premium to obtain coverage.
Just like no two businesses are exactly alike, no two commercial property insurance policies are either — and it’s the same with pricing. Your premium will depend on your specific needs and the unique characteristics of your property.
Let’s take a more detailed look at certain characteristics insurers will evaluate when determining the cost of your commercial property insurance coverage.
1. Location
The location of your business is a major player in determining your property insurance costs. If you’re located in an area known for extreme environmental events (wildfires, hurricanes, earthquakes, sinkholes, etc.), the risk of damage to your property is much higher, and therefore your insurance premiums will be higher.
Commercial property insurance also covers theft and vandalism. As a result, your premiums may also be higher if your business is in a high-crime area, especially in neighborhoods with a high rate of property crime.
Another location-related factor? The building costs in your city or state. In some places, the cost of rebuilding or even repairing your property will be substantially higher, which can trigger higher insurance premiums — even if your business is in a safe neighborhood in a region that is not prone to natural disasters.
Most expensive states for commercial property insurance:
- Florida: Due to frequent hurricanes and increasing flood risks, Florida commonly ranks at the top of the list for the highest property insurance rates.
- California: In recent years, wildfires have wreaked havoc on many different areas of California, causing property insurance premiums to skyrocket.
- Texas: Like Florida, Texas is also prone to hurricanes, specifically near the Gulf Coast. This, paired with tornado risks in the northern plains, makes Texas’ commercial property insurance premiums among the highest in the country.
Even the micro-location of your business is very important. For example, if your building is tucked away in between other larger buildings and is protected from the elements as a result, your premium will usually be lower. Also, you will probably pay less for coverage if your business is near a fire station or police department.
As you can see, your location can have a significant impact on your property insurance costs, but it certainly isn’t the only factor.
2. Industry
Another major factor that contributes to your commercial property insurance rates is your industry. Some industries simply come with more inherent risk than others, and property insurance premiums will likely reflect this.
There are a few different reasons your industry can affect your premiums.
- The riskiness of your operation: The riskier your operation, the more expensive your equipment, and the more potential hazards there are to worry about at your place of work, the more you will pay for property insurance.
- Inventory and equipment costs: Inventory is a very important aspect of your property that insurers consider, especially when defining premium prices for retail companies. For example, a retail store that sells appliances and electronics will have to pay more to protect itself from theft than a store that sells second-hand and vintage clothing.
- Frequency of visitors or customers: Industries that see a high volume of foot traffic, such as retail stores or entertainment venues, may face higher premiums due to increased risks of accidents or damage.
Ultimately, manufacturing companies that work with expensive industrial equipment and restaurants that have open fires and dozens of people coming in and out of the building every hour are going to pay more for property insurance than a company made up of people working on computers in an office building.
3. Occupancy
Businesses with higher occupancy rates are more likely to experience incidents such as accidents, theft, or property damage, which increases the risk for the insurer. Hospitality and retail businesses, for example, operate over longer hours and see much heavier customer traffic than many other industries.
When calculating your occupancy rate, insurers will take into consideration all of the general foot traffic that your property has. This includes the number of employees that are present on your business property on a daily basis, as well as customers, suppliers, contractors, and any other regular foot traffic at your workplace.
In general, the more people moving through your property during the course of the day, the more you’ll pay for insurance. That also means that businesses open 24/7 will pay more for property insurance than companies with typical eight-hour workdays.
4. Type of equipment
Commercial property insurance doesn’t just cover the building your business operates in, it also covers your inventory and equipment.
Insurance companies consider both the replacement cost of your business-related equipment and the potential risks associated with its use when determining premiums. For example, a construction company with expensive heavy machinery like cranes and bulldozers will pay more for property insurance than an office-based business with standard computers and printers.
5. Construction
The construction of your building is also very important. If your property is mostly made of bricks and stone, it’s going to be cheaper to insure than a property that is made entirely out of wood. Since wood is very flammable, insurers tend to consider wooden structures to be more of a liability.
6. Building and equipment age
As you might expect, older buildings cost more to insure. Older buildings tend to experience more issues and may be more expensive to repair. If you do operate in an older building, consider investing in maintenance and renovation (replace old electrical wiring, install new electronics, etc.) — this will make your building safer and can help to decrease your property insurance premium.
In fact, if you have already done any maintenance work and renovation on your building, or replaced any old equipment since the last time you purchased property insurance, make sure that your insurer knows about it when the time comes to renew your policy.
7. Security and safety measures
Another good way to decrease property insurance premiums is to make sure that your building is as safe and secure as possible. That means installing sprinkler systems, security cameras, fire alarms, and any other technology that can make your property safer is going to help decrease your insurance rates. If your property is located in a high-crime area, consider investing in a security guard to prevent theft or vandalism. Anything you do that improves the security and safety of your commercial property will likely lighten the load of your insurance burdens.
8. Replacement value vs. actual cash value
One of the most important decisions you will make when buying property insurance is deciding whether you want to purchase a replacement value or an actual cash value policy. Replacement value means that your policy will pay the cost of what your damaged or stolen property was worth when it was brand new. Actual cash value means that you’ll get the depreciated property value. Naturally, replacement value policies typically come with higher premiums than actual cash value policies.
9. Covered perils
Another important decision you need to make is whether you want a named perils or an all-risk property insurance policy. An all-risk or “open perils” policy covers all losses except any that are specifically excluded from the policy, while named perils coverage only protects against those specifically listed in the policy. Since all-risk coverage includes more perils, it will be more expensive.
10. Claims history
Your business’ claims history is another key factor that insurance providers will use to determine your property insurance premiums.
A history of frequent or high-value claims signals to insurers that your business is riskier to insure, which ultimately will lead to increased premiums. On the other hand, a clean claims record almost always results in lower premiums.
For example, a boutique clothing store may appear low-risk at first glance, but when digging, an insurance provider may find that the business experienced a significant fire resulting in a costly insurance claim. Despite being a seemingly safe business, its claims history might cause insurers to charge higher premiums. On the other hand, a manufacturing plant, which is generally a relatively risky industry to insure, could have a spotless claims record, which could result in lower premiums despite the inherent risks of the industry.
What does commercial property insurance cover?
Commercial property insurance is designed to protect any and all business property. That means that it not only protects the buildings in which you conduct business, it also protects your equipment, inventory, and other assets, as well as fencing, and signage that may be vital to your operations.
There are essentially three different types of coverage that you can purchase to protect your commercial property:
- Basic form: This policy covers property damage related to fires, vandalism, smoke, theft, and “common natural disasters.” The natural disasters that are covered by a basic policy usually include weather events such as wind, hail, lightning strikes, and wildfires, although there could be exclusions made by the insurer based on your business’s risk profile.
- Broad form: In addition to covering everything that the basic form policy covers, a broad form policy will also protect against water damage, collapsing structures, falling objects, and the weight of snow or ice.
- Special form: This policy will additionally protect your property from every other type of peril as long as that peril has not been intentionally excluded from your policy by the insurer.
Common property insurance exclusions
Personal assets
Most policies will not cover personal assets or property damage on your property that serve no business purposes.
Wear and tear
If the damage to your property is primarily due to general wear and tear, most insurers will deny coverage. For example, if the roof of your property develops leaks over time due to aging materials and a lack of regular maintenance, the damage would likely be considered wear and tear and not covered under your policy. On the other hand, if your roof is damaged by a powerful windstorm, you will likely be eligible for a claim.
Acts of war
Most commercial property insurance policies will not cover property damage caused by war and terrorist attacks.
Earthquakes
There are some insurers that will offer earthquake coverage as an endorsement (i.e. a change/update to your policy), but most will not. If you live in a high-risk area and want to make sure that you have earthquake coverage, you need to talk to a surplus lines broker or an earthquake authority insurer, which many businesses that operate in areas prone to experiencing earthquakes, such as California, will do.
Acts of God
As already mentioned, wind and hail damage are usually covered, but other damage related to the elements, such as snow, dust, and sand damage, are typically not covered by commercial property insurance. If your property is damaged on the outside by these types of natural elements, coverage might be included. However, damage inside the building will not be covered. Another property threat that is fairly common in some areas of the country but never covered by a basic property insurance policy is flooding.
Specific types of fires
Fire coverage in a commercial property policy is usually very specific and essentially only covers fire damage caused by unusual events. That means that if the fire started at a stove or another place where fires are common within the building, your property damage claim would most likely be denied.
Specific smoke damage
While a standard property policy will cover most smoke damage, it will not provide coverage when the smoke comes from a nearby factory, for example, since most property policies have pollution exclusions written into them.
Covered elsewhere
There are also things that property insurance won’t cover because they are issues that should be covered by other insurance policies.
For example, damage to your business vehicles, while technically business property, is generally covered by a commercial auto policy.
Additionally, while property insurance will enable you to replace or repair your damaged or destroyed property, it will not provide you with the financial help needed to keep your business afloat while repairs are being made. This type of aid is provided by a business interruption policy, which will cover business costs such as loss of revenue, employee wages, rent, and loan payments while you work on getting your business back up on its feet.
How to reduce commercial property insurance costs
In many cases, it is pretty difficult to lower property insurance costs as they are primarily tied to your location and industry. That said, there are a few things you can do to cut back on your premiums.
Upgrade your property’s safety and security
One of the best ways to reduce your premiums is to take a proactive approach to reducing the risk of property damage or theft. After all, if your insurer’s risk is reduced, you’ll likely see a decrease in your property insurance costs. Renovate your building if needed, install a security system, and invest in fire-safe building materials. While these improvements are most definitely costly, they can help save you money in the long run.
Make sure your protection classifications are accurate
Protection classifications help insurers assess the level of risk associated with your business. Your company’s protection classification is dictated by how close you are to a fire station, the quality of your fire safety, and the communication standards of your area.
You should make sure that the details the insurer has on your business property are up-to-date and accurate. For example, if the insurer believes your building’s structure is primarily wood, but in reality, it is made of masonry, you’ll likely be able to lower your premiums.
Bundle with other coverage in a Business Owners Policy (BOP)
One of the best ways that small businesses can save money on commercial property insurance coverage, especially if the business doesn’t tick any “high-risk” boxes, is by purchasing a business owners insurance policy.
A BOP is an insurance policy package that gives businesses access to three coverages — general liability, property, and business interruption — while paying significantly less than they would have to pay to get all three policies separately.
Even if you’re a larger business with more complex needs, you can still find a way to package a property policy with various other coverages that you need while paying a lower premium. You can choose to buy what’s called a commercial policy package (CPP), which lets businesses bundle a large variety of insurance policy types in order to save money.
Invest in top-tier commercial property insurance
If you need to insure your business property and would like to find out what type of coverage you need and whether buying a BOP or a CPP could be the right move for you, be sure to reach out to an experienced broker for guidance.
In some cases, brokers will recommend that you bypass policy bundles and stick with purchasing an individual commercial property policy that’s tailored to your business’s specific risk profile and coverage needs.