Securing Your Business: Understanding the Essentials in Property Insurance

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There are over eight million small businesses in the U.S., ranging from construction firms to grocery stores to home-based businesses. All have one thing in common: Without the right insurance coverage, each could be wiped out by a disaster or a lawsuit¹. Making matters more compelling, during the five-year period between 2018 to 2022, losses incurred by insurance carriers increased by over 35% and this trend appears to be continuing.²

Faced with escalating risks, businesses can minimize the impact of potential losses by either self-insuring—taking on the financial responsibility themselves—or purchasing insurance to reduce exposure. With property, even seemingly ordinary events like a frozen pipe bursting in winter or a small fire can inflict substantial damage to inventory or computer systems, severely impacting business operations.

Determining the property insurance that’s right for you
Customizing property insurance to meet the unique needs of your business is essential and can take various forms. It begins by conducting a comprehensive inventory of your business property to determine the most suitable coverage. This initial step is crucial in gauging the necessary amount of coverage in the event of a covered loss.

Before determining the most suitable coverage, it's helpful to understand the various types of property typically covered in policies:

Physical Property

• Buildings and other structures (leased or owned)
• Furniture, equipment and supplies
• Inventory
• Leasehold improvements and betterments made to the rented premise
• Machinery/boiler
• Electronic data processing equipment (computers, etc.)
• Mobile property (construction equipment, etc.)
• Satellite dishes
• Signs, fences and other outdoor property not directly attached to the building

Financial Assets

• Money and securities
• Records of accounts receivable
• Valued documents, books and papers

Transporting Goods

• Property in transit
• Cargo

Intangible Assets and Contingencies (goodwill, trademarks, etc.)

• Business contingency for suppliers
• Ordinary payroll and continuing expenses during a period of diminished or interrupted operations
• Extra expenses as a result of loss

Once you’ve conducted an inventory of the types of property to be protected, understanding the fundamentals of property insurance policies can help determine which is the best fit for your business. These include:

Basic Property Insurance

• Covers losses due to fire or lightning
• Includes the cost of removing property to protect it from further damage

Standard Property Insurance

• Encompasses all features of basic coverage
• Provides coverage for extended perils, including floods, windstorms, hail, earthquakes, acts of terrorism, explosions, riots, smoke, civil commotions and damage caused by vehicles

Additional Coverages:

• Vandalism and malicious mischief coverage can be included as an extension.

Determining how much coverage the business needs is the most important aspect of purchasing property insurance. A typical policy will provide the replacement cost value for your building and the actual cash value for your business property. And most policies will have a coinsurance clause.

Replacement Cost Value
This equals the amount necessary to replace or rebuild your building or repair damages with similar materials. It does not consider depreciation.

Actual Cash Value
This is the value of your property when damaged or destroyed and is determined by subtracting depreciation from the replacement cost value.

Coinsurance Clause
This requires the policyholder to share the cost of covered services up to a moderate percentage of the actual cash value of the property. Adhering to this clause ensures that complete coverage is available to cover losses. In the event inadequate coverage is purchased for the property, the business may be obligated to pay a percentage of all losses, even if they are listed in the policy. The coinsurance clause is in place to ensure fair risk-sharing between the insurer and the insured.

How Can Alliant Help?
Alliant offers creative and powerful strategies with onsite consulting services to help clients effectively respond to the ever-changing circumstances and regulatory landscape. We offer a team of leading specialists to support key loss drivers and exposures.

Our all-inclusive Risk Management Center (RMC) platform creates effective risk mitigation programs for employee safety and compliance. This unique and robust web-based suite of safety and risk management tools provides a risk reduction and safety center for all departments and locations across client organizations, designed to make risk prevention efforts more impactful, cost effective and easier to manage.