StateFarm Now Requires Commercial Building Inspections Before Insuring Commercial Buildings
We inspect commercial buildings in Oklahoma, Arkansas, Missouri, or Kansas for the purpose of renewing commercial buildind insurance policies.
We've recently noticed an increase in inquiries from commercial building owners either renewing policies or seeking new coverage with State Farm Insurance. Curious about the reason, we discovered that State Farm, along with other insurers, has begun requiring commercial building inspections for some new policies. This inspection requirement is now a standard part of the underwriting process to ensure that buildings meet safety and structural standards before the policy can be finalized. This seems to be a new policy and may come as a surprise to commercial building owners.
As a disinterested third-party inspection company, we provide unbiased, comprehensive inspections that give you an accurate assessment of your commercial building's condition. Our role is solely to evaluate the property’s current state without any interest in influencing insurance coverage or claims decisions. This independence ensures that our reports are objective, thorough, and transparent, offering both building owners and insurers a clear, factual basis for making informed decisions. By choosing a neutral third-party inspection service, you’re guaranteed impartial insights that support your long-term property management and insurance needs.
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Commonly Asked Questions About Commercial Building Insurance and Commercial Building Inspections
Can a Commercial Insurance Company Require Building Inspections Before Insuring a Commercial Building?
Yes, a commercial insurance company can require a building inspection before issuing a policy. This inspection helps insurers assess potential risks associated with the property and determine whether the building meets safety and structural standards necessary to be insured. Here’s why and when they might require one:
Risk Assessment: Insurers conduct inspections to evaluate factors like the building’s structural integrity, fire protection measures, security systems, and compliance with local building codes. These aspects influence the overall risk profile of the property and, consequently, the premium and terms of the insurance policy.
Verification of Information: An inspection allows insurers to verify the information provided during the application process, ensuring that details like building materials, age, and occupancy align with actual conditions.
Identifying Required Improvements: Some insurance companies may request specific upgrades or repairs as a prerequisite for coverage. For example, if fire safety equipment is outdated or security measures are lacking, the insurer may require updates to reduce risks before finalizing the policy.
Policy Pricing and Coverage Determination: An inspection helps determine the appropriate level of coverage and premium rates. Properties in poor condition may face higher premiums or exclusions, while well-maintained buildings with low-risk features may qualify for reduced rates.
Insurance companies generally reserve the right to request an inspection for larger or older commercial buildings, or when the building’s use poses higher risks, such as in manufacturing or food services. Regular reinspections may also be required to keep coverage in place and ensure ongoing compliance with safety standards.
What is a Commercial Building Insurance Policy?
A commercial building insurance policy is a type of insurance that protects a business's physical property and assets. It is essential for business owners who own or lease commercial spaces, as it provides financial coverage in case of damage, loss, or liability related to the building. Here are the main components:
Property Coverage: Covers damages to the physical structure due to fire, vandalism, weather events, and other specified risks. It can also cover improvements and renovations made to leased spaces.
Content Coverage: Insures business equipment, inventory, and furnishings inside the building. This is crucial for protecting business assets from theft, water damage, or other losses.
Liability Coverage: Covers claims for injuries or damages to third parties that occur on the property. For instance, if a customer is injured on the premises, liability coverage helps with legal expenses, medical bills, or settlements.
Business Interruption Coverage: Provides financial support for lost income if the business is temporarily unable to operate due to a covered event (e.g., fire or flood), covering expenses such as payroll, rent, and ongoing bills.
Optional Coverage: Policies can also include additional options like flood or earthquake insurance, which are often not part of standard policies.
The specifics of each policy vary depending on the insurer and the unique needs of the business. Having comprehensive commercial building insurance is essential for protecting a business's assets and ensuring continuity in the event of unexpected damage or liabilities.
How Do Insurance Underwriters Determine the Cost and Terms of an Insurance Policy?
Underwriters determine the cost of a commercial building insurance policy by evaluating several factors related to the building’s risk profile, business operations, and environmental context. Here are the main considerations:
Building Location: The geographical area plays a crucial role, as regions prone to natural disasters (e.g., hurricanes, earthquakes, or floods) typically face higher premiums. Areas with higher crime rates or limited access to fire protection services may also see increased costs.
Construction Materials and Age: The construction quality, materials used, and age of the building affect the risk of damage. Buildings made of fire-resistant materials are generally less costly to insure than those with combustible materials. Older buildings may incur higher premiums due to outdated systems or structural vulnerabilities.
Building Use (Occupancy): How the building is used impacts its risk profile. For example, a restaurant, which poses higher fire and liability risks, will generally have a higher premium than an office building. If the property houses multiple tenants with varied activities, the combined risk level may increase the cost.
Fire and Theft Protection: The presence of safety features such as fire alarms, sprinkler systems, and security systems can lower insurance costs. Underwriters assess how well the building is protected against fire, theft, and other potential losses.
Coverage Limits and Deductibles: Higher coverage limits or lower deductibles result in higher premiums. Businesses need to balance the level of coverage they choose with what they can afford, as the limits affect replacement and liability costs in case of a claim.
Claims History: A business’s claims history can impact premiums, as a high frequency of claims often results in increased costs. Insurers may adjust rates based on historical claims to account for ongoing risks.
Market Conditions: Economic factors, such as inflation and construction costs, can influence policy costs. During periods of high inflation or increased building costs, insurers may raise premiums to ensure that replacement costs are adequately covered.
By combining these factors, underwriters can estimate the risk associated with insuring the property and set a premium that aligns with potential liabilities and claims.
What You Need to Know About Commercial Building Insurance Policies.
When renewing a commercial building insurance policy, several key points should be considered to ensure continued, adequate coverage:
Review of Coverage Needs: It’s essential to assess if any changes in the business, property, or environment affect coverage needs. For example, if there have been property improvements, new equipment installations, or significant value changes, these should be reflected in the renewed policy to avoid underinsurance.
Premium Adjustments: Renewal is also a time when insurers may adjust premiums based on claims history, changes in risk factors, or market trends. Understanding how premiums might increase or decrease helps businesses budget accurately and decide if they need to adjust coverage levels.
Evaluation of Additional Coverage Options: Since policies may have add-ons, such as coverage for natural disasters, cyber incidents, or equipment breakdowns, renewal periods are a chance to add, modify, or remove these options as business needs evolve.
Timing and Notification: Many insurers notify policyholders about upcoming renewals 30 to 90 days before the policy’s expiration. Reviewing this notification promptly allows time to negotiate terms, switch providers if needed, or make necessary adjustments without a lapse in coverage.
Loyalty and Multi-Policy Discounts: Insurers may offer discounts for long-term clients or those bundling multiple types of insurance. Renewal periods are an opportunity to discuss these options and potentially reduce overall costs.
Understanding these aspects of renewal can help business owners maintain a policy that best fits their current needs and budget.
Bibliography
Hartford Financial Services Group, Inc. "Commercial Property Insurance | The Hartford." The Hartford. Retrieved from thehartford.com; The Hartford.
Investopedia. "Commercial Property Insurance: What It Is, How It Works, Examples." Updated June 6, 2022. Retrieved from investopedia.com; Investopedia.
National Electrical Contractors Association (NEC). "Considerations for Commercial Building Insurance." NEC Insurance, October 3, 2024. Retrieved from necins.com; NEC Insurance.
DiStefano Insurance Services Inc. "Commercial Buildings Insurance: A Comprehensive Guide." DiStefano Insurance Services, 2024. Retrieved from disagency.com; DiStefano Insurance Services Inc.
Progressive Commercial. "Commercial Property Insurance | Progressive Commercial." Progressive Commercial Insurance. Retrieved from progressivecommercial.com; Progressive Commercial.