Most small businesses are covered for property damage from riots, looting, and vandalism, with average premium payments totaling $1,395 per year.
Protests in reaction to the killing by Minnesota police officers of George Floyd, an unarmed African American man, have, in some cases, led to rioting, looting, and vandalism. Many retail stores and local businesses have suffered property damage as a result, leaving many small businesses looking toward their insurance policies to help cover losses.
In this article, AdvisorSmith examines the insurance policies that may cover a retail business in the event it is vandalized or looted. We also take a look at the premiums that a retail store would pay for this kind of coverage and what recoveries the business would receive from an insurer. This analysis is developed using insurance premium data from actual retail store insurance policies, while model insurance claims are based on AdvisorSmith models.
Are riots, looting, and vandalism covered by business insurance?
Yes. Commercial property insurance policies almost always cover businesses from damage from riots, civil commotion, vandalism, and looting. Additionally, businesses carrying business income insurance may also have coverage for lost income as a result of physical damage to their business location or business property.
To read more about the types of insurance coverages for damage to businesses as a result of a riot, looting, or vandalism, please see our article: Does Business Insurance Cover Riots, Looting, or Vandalism?
What percentage of small businesses carry commercial property insurance?
According to a survey by the NFIB from 2002, 75% of small business owners who responded to their survey carry property insurance, with the rest self-insuring or deciding not to carry insurance.
Additionally, according to the Insurance Information Institute, approximately 40% of small and midsize businesses carry business income insurance.
How much does property insurance cost for retail stores?
The average cost of commercial property insurance for small retail stores is $1,395 per year. This cost figure represents the cost of insurance for leased stores and includes coverage for building improvements, furniture, fixtures, and retail inventory. Premiums data were sourced from actual written premium policies for retail store policyholders.
AdvisorSmith examined commercial insurance premium pricing from actual policies for small retail stores for commercial property insurance. In many cases, commercial property insurance was bundled together with other coverages such as general liability insurance and business income insurance in a commercial package policy or a business owner’s policy. For this cost analysis, we estimated the portion of the policy premium that was allocated toward the commercial property portion of the insurance policy.
How much is a typical claim for a retail store that has been vandalized or looted?
AdvisorSmith developed a model for potential losses a small retail store would suffer if it had been vandalized and ransacked during a riot.
The potential claim for a small retail store in our model that has suffered extensive damage and thorough looting is $95,840. Of this loss, the store owner would be responsible for paying the deductible, which was $1,000 in our model. The insurance company would bear the loss of the remaining $94,840, as well as costs for debris removal and other incidental expenses.
Assumptions underlying this model are for a 1,200 square foot main street retail store with approximately $600,000 in sales per year. The store carries inventory worth $60,000, and the build-out cost of the store is $37.36 per square foot, based on an average retail store build-out cost by Chain Store Age. The store’s inventory was a total loss based on looting and damage to merchandise, while 20% of the store’s fixtures and fittings were salvageable, leading to a loss of 80% of the build-out cost.
Assuming this model store paid the average premium for a small retail store, the store’s premium as a percentage of the maximum possible insurance payout (not accounting for supplementary payments) was 1.34% after its deductible.
1. Chain Store Age, Annual Store Construction Outfitting Survey
2. National Federation of Independent Business, Business Insurance
3. Insurance Information Institute