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How Is a Commercial Property Insurance Rate Calculated?

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Commercial property insurance has some very important differences when it comes to how it compares with its residential counterpart. One of these is with how calculations are made to determine insurance rates and other key coverage and policy structure factors. Below, we go over how commercial property insurance is typically calculated by looking at the factors often considered.

Property Value

The value of your commercial property is one of the basic factors that goes into calculations for coverage needs and rates. This value is usually determined by an authorized appraiser or available documents clearly showing any property value assessments already on file.

Future Earnings Potential

It’s also common for insurance providers to consider a property’s future earnings potential. For instance, the earnings potential may be considered greater for an established manufacturer’s new plant than a building intended for use by an entirely new business.

Building Construction

An insurance provider also typically looks at what materials were used to construct the property you want to insure. With building materials, insurance rates and related factors tend to be influenced by:

• Fire-resistance capability of various building materials
• Quality of the building’s electrical wiring
• Age and condition of key building systems (e.g., plumbing, HVAC)

The age and condition of your commercial property as a whole is also typically considered. However, you may be able to offset this issue if you have an older building by making strategic updates.

Occupancy

How a structure is used can also impact commercial property rates as calculations are being made. For instance, a building where welding and similar processes take place is usually going to cost more to insure than one with doctors’ offices.

Protections & Precautions

As commercial insurance calculations are being made, you may be able to earn lower rates if certain protections and precautions apply. Features or considerations of this nature that could contribute to reduced rates include:

• Proximity to fire hydrants or fire stations
• Fire and burglar alarm systems
• Sprinkler systems
• Property surveillance cameras

Exposure to Risk

Risk exposure is also considered as commercial property insurance is being calculated. For example, if your business is located in a neighborhood with a higher crime rate than what’s typical for the rest of the area, you may end up paying higher rates. This could also be the case if the area where your commercial property is located is susceptible to flooding or other natural disasters.

Other Businesses in the Area

While this may not be a significant factor, it’s one that’s sometimes considered as commercial property insurance is calculated. For example, if your commercial office building is located right next door to a fireworks factory, this fact will likely be considered.

Getting a Fair Calculation

Commercial insurance is fairly complex, and many factors will determine your rates and the extent of coverage you’ll need or be encouraged to consider. As for how to get a fair calculation when seeking commercial property insurance, being prepared can definitely help. This is something you should be able to do with:

• Updated documentation regarding the property’s condition
• Proof of any relevant updates you may have already completed
• Documentation showing average commercial property rates in the area for comparable structures 

Operating a business means assuming certain kinds of risk, and the type of commercial insurance needed will vary according to several factors. For affordable, reliable commercial insurance as well as homeowners, renters, motorcycle, and auto insurance, San Diego residents call on the trustworthy professionals at Altra Insurance Services. Reach out to us today at (800) 719-9972 to learn how we can satisfy all your insurance needs.

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