If an unexpected catastrophe such as a fire, lightning strike, or storm damages your property, the costs of recovery can be significant. In addition to the costs of replacement or repair, you may be unable to continue operating your business if key property is damaged or destroyed. Most businesses operate in space they rent or own, and businesses in the IT industry often rely on technology that could be difficult and expensive to replace in the event of a disaster. This is why most companies carry Commercial Property Insurance to protect the value of their property.

What is Commercial Property Insurance?

If your business property is damaged or destroyed, Commercial Property Insurance can pay for the costs of recovery. It’s important for companies to carry this type of insurance because dealing with a disaster is expensive, and property loss or damage can make it difficult for a company to continue its business with minimal interruption.

Examples:

• Due to faulty wiring, a fire breaks out in your server room, destroying the servers and damaging walls and flooring, causing thousands of dollars of damage. Your Commercial Property policy would pay for the loss.
• A motorist loses control of their car and drives into the window of your IT consulting firm’s offices. Your Commercial Property Insurance will pay for the window to be replaced.
• A tree falls on your office’s roof during a storm, damaging the roof and causing it to leak. Your Commercial Property policy will pay for repairs to the roof and for property that is damaged by the leak.

What property does Commercial Property Insurance cover?

Commercial Property Insurance covers buildings, property owned by your business, and the property of others when it is in your care, custody, or control. It’s important for IT companies to keep in mind that Commercial Property Insurance typically only covers tangible property and does not cover electronic data. Companies that want protection for electronic data can, depending on the type of damage or loss, add an endorsement to their policy, purchase a separate electronic data coverage policy, or obtain cyber liability insurance.

Buildings

Commercial Property Insurance covers buildings or offices that your company owns or leases. It includes items that are permanently affixed to the building, such as plumbing, electrical systems, machinery and equipment, and other permanent fixtures. Commercial Property Insurance also commonly covers buildings that are in the process of being built, outdoor fences or signs, and any landscaping.

Example:

• Your software development company builds an extension to expand its office building. While construction is in progress, vandals break into the property and graffiti the walls. Your insurer would pay for the graffiti to be removed.

If you rent a building or office space, your lease may require you to have Commercial Property Insurance. Most commonly, the landlord’s Commercial Property Insurance will cover the structure itself, while tenants will purchase their own Commercial Property Insurance to cover the building’s contents and tenant improvements.

Contents

Commercial Property Insurance covers the contents of your building or offices, including items such as computers, equipment, furniture, tools, and inventory. Leased equipment is also covered if the lease contract requires you to insure it.

Example:

• Someone breaks into your web design company’s offices and steals computers and monitors with a total value of $20,000. Your insurance company will reimburse you for the loss.

For IT businesses that store important business records in paper form, Commercial Property Insurance commonly covers the cost to replace or restore valuable papers and records that are damaged or destroyed. The standard coverage for valuable papers and records is minimal, with common limits set at $2,500 per premises. For more extensive coverage, consider an endorsement or extra coverage for valuable papers and records.

Property of Others

Commercial Property Insurance covers personal property of others that is in your care, custody, or control and located on your business premises.

Example:

• Your SEO consulting company’s printer breaks, so you borrow a printer from another company in your building. An electrical fire breaks out in your office, damaging the borrowed printer. Your insurer would pay to repair or replace the printer.

Note that coverage for property of others is separate from contents coverage and typically has a low limit of liability. This likely would not be sufficient coverage for businesses that frequently take possession of others’ property, such as computer repair companies. Bailee’s insurance would provide more suitable coverage.

What property isn’t covered by Commercial Property Insurance?

Standard Commercial Property Insurance policies come with a number of excluded property types. Below, we’ve listed the relevant exclusions for IT professionals:

• Electronic data. Any data or software that you’ve stored electronically on computers, servers, or media is not covered by Commercial Property Insurance. You can add coverage for electronic data to your policy via endorsement or a separate electronic data coverage policy.
• Vehicles or self-propelled machines. If your business owns and operates any vehicles or self-propelled machines (e.g., company cars or drones), they are excluded from Commercial Property Insurance coverage. For automobiles your company operates, you’ll need to purchase commercial auto insurance to cover them.

What risks are covered by Commercial Property Insurance?

Commercial Property Insurance is generally available in two common types: named perils and open perils. Named perils policies only cover the incidents specifically mentioned in the policy, and exclude everything else. Open perils or all-risk policies cover everything except for specific exclusions mentioned in the policy. Because open perils policies provide more comprehensive coverage, the premiums are higher for these policies.

Named Perils

What perils are specified varies depending on the contract, so it’s important to confirm what’s covered with your insurance company. Common named perils include:

• Fire
• Lightning
• Explosion
• Windstorm or hail
• Smoke from accidental fire
• Damage from vehicles or airplanes (excluding those owned or operated by the business)
• Riots or civil commotion
• Vandalism
• Water damage from plumbing, HVAC, or sprinklers
• Falling objects
• Sinkhole collapse

Example:

• A hailstorm destroys your computer repair company’s signage. Your insurance company would pay for repairs or replacement.

Open Perils

Open perils policies cover any causes of damage that aren’t specifically excluded within your Commercial Property Insurance contract. Since open perils policies generally provide more coverage than named perils policies, you’ll end up paying more for a policy written on an open perils basis. The higher price may well be worth it if you’re unsure as to what perils your business may need to be covered by, or if your business is exposed to a higher level of risk or needs to protect expensive equipment. For most smaller IT businesses, a named perils policy may be sufficient, but for those with high-end electronic or computer equipment, an open perils policy may be the safer bet.

What perils are excluded from Commercial Property Insurance?

There are a number of perils that are typically excluded from both open perils and named perils policies. These include:

• Ordinance or law. Any loss or damage sustained due to the compliance or enforcement of any ordinance or law is excluded from coverage.
• Earth movement. Natural disasters such as earthquakes, landslides, volcanic eruptions, or any movement of the earth or soil are excluded from coverage. Companies in areas prone to natural disasters can add an endorsement to their Commercial Property Insurance policy to cover those risks, or they can purchase a separate policy.
• Water. Damage or loss caused by water events, including flood, tsunami, mudslide, and sewer or drain overflow, is excluded from coverage.
• Fungus, mold, and rot. Damage resulting from the presence of fungus, wet or dry rot, or bacteria is excluded from coverage.
• Utility services. Any failure in utilities, including power surges, power failures, and water shortages, is excluded from coverage.
• Governmental action. Any property that must be seized or destroyed under governmental authority is excluded from coverage.
• Nuclear hazard. Damage caused by nuclear reaction, radiation, or radioactive contamination is excluded.
• War and military action.

What’s the difference between replacement cost and actual cash value policies?

When you select a Commercial Property Insurance policy, you can choose to insure your property for replacement cost or actual cash value. Replacement cost coverage will pay for you to repair or replace your property with a new item of similar kind and quality to the original. Actual cash value takes depreciation into account, paying only for the value of the item at the time it was destroyed.

Replacement cost coverage results in higher premiums because the insurer will pay higher costs for replacement. Actual cash value may be more economical for companies who are able to buy used items as replacements. Companies in the IT industry should keep in mind that computers and other technical equipment depreciate quickly. Specialized equipment used by IT firms may be difficult to replace, and actual cash value policies may not provide enough coverage.

Example:

• The fire sprinkler system in your office’s ceiling leaks and destroys several of your network security company’s laptops. Although the laptops cost $2,000 each when they were purchased two years ago, due to depreciation, the used laptops are now worth $900 each, while a brand new model now costs $1,800. If you have a replacement cost policy, your insurer will pay the $1,800 for each laptop that was destroyed. An actual cash value policy will only pay $900 for each laptop.

What happens if your property isn’t valued properly? What is coinsurance?

When you purchase a Commercial Property Insurance policy, insurers typically require policyholders to insure a minimum percentage of the property’s value (often 80%) in order to receive full coverage for claims. This is called coinsurance. Coinsurance is included in most commercial property insurance policies in order to discourage underinsurance.

Business owners may be tempted to underinsure their property because most damage that occurs to property does not result in a complete loss of property, and purchasing a policy that covers less would be less expensive. With coinsurance, however, insurers can reduce the amount they will pay for a claim if the coinsurance minimum is not met. In cases where the property is underinsured, the insurer will reduce coverage proportionally.

Example:

• A company’s insurer requires a coinsurance minimum of 80%. The policyholder insures 60% of the value of its property in order to pay a lower premium. The limit of insurance is $1 million. The policyholder suffers a loss of $500,000. Even though this is less than the limit of insurance, the insurer will only pay for 60% of the loss, or $300,000.

Are there deductibles in Commercial Property Insurance?

Like many types of insurance, Commercial Property policies typically have a deductible, which is the amount your company is responsible for paying before the insurer’s coverage begins. Higher deductibles result in lower premiums because the amount the insurer would pay is lower.

Pricing and Quotes

Insurance companies take the basic information that you provide to them and calculate the risk of loss for your business. Part of this calculation will involve assigning a Commercial Property Insurance rating, which is specific to the building or property you’re looking to insure. The higher risk your business is rated, the higher the premiums will be.

In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer property policies:

Provider	Commercial Property	Business Interruption	Inland Marine
CoverageSmith	??	??	??
CoverWallet	??	??	??
Thimble	??	??	??

Final Word

Companies in the IT industry often depend on expensive, difficult to replace technology. Damage to crucial items such as computers or servers can bring your business to a standstill, and repairs or replacements can be costly. It’s important to make sure you have enough coverage to protect your company from unforeseen disasters. Commercial Property Insurance is a key coverage that will give you and your clients peace of mind that your business will continue to function in the event of a disaster.