Contributing Author: Mark Rogina, CPCU
There are multiple factors to consider when purchasing a commercial property. Price, location, functionality, and taxes are certainly a few of the factors a prospective building owner will consider when purchasing a property, but another factor that should be considered will be the cost to insure the building itself. In this article, we’ll focus only on factors as it relates to the property insurance itself for a new building, ignoring the needs for other important coverages for the building such as general liability.
When reviewing a building for commercial insurance, insurance companies tend to focus on the acronym C.O.P.E. The letters in C.O.P.E. reference Construction, Occupancy, Protection, & Exposures:
Construction refers to the construction type of the building. There are six main construction types which include: frame, joisted masonry, non-combustible, masonry non-combustible, modified fire resistive, and fire resistive. The categorization of a building into one of these construction types will be related to the materials used in construction and as a result, the building’s ability to withstand causes of loss such as a fire, tornado, or hurricane.
One building type is not necessarily better than another. The best building type will instead be based on the location of the building within the country. Some building types withstand hurricanes better than others, while other building types may withstand fire better than others. It’s important to recognize where your property will be located and some of the risks associated with that area. If you’re unsure of your construction type or what is the best construction type for your area, contact your agent and describe the building you’re considering purchasing in detail. Pictures are also often useful in determining a construction type.
Occupancy refers to the plan for the use of the building and how any risks generated by that operation affect the likelihood of a claim or loss to the building. If you’re considering purchasing a commercial property for a specific purpose, there’s probably not much you can do about your occupancy. However, there are several steps that can be taken to minimize the risk associated with the operations of your building. Speak with your insurance agent and provide details on what the building’s intended use it. Your agent will be able to guide you on risk minimization tips prior to obtaining insurance on the building for you.
Protection refers to burglar and fire protection methods used in or around the building. Generally speaking, buildings with better protection methods in place receive better rates. Examples of a well-protected building include: fire and burglar alarms which report directly to the proper authorities, full sprinkler system in the building, adequate and designed for the intended use of the building, proximity to a fire department, adequacy of the fire department (full time, part time, volunteer), and proximity/adequacy of a local water supply such as a fire hydrant (typically within 1,000 feet is preferred).
Exposure refers to the area around the property, usually out of the building owner’s control. Examples of exposure issues might be locations near wildfire prone area, in high flood zone, or coastal property. If a poor exposure cannot be avoided, risk (and cost) can be minimized by purchasing a “best-in-class” property and taking into consideration construction type and protection of a specific building. I.e. – if a prospective building purchase is going to be located in wildfire prone areas, ensure the building is masonry non-combustible or better, is located near a water source, and has a full and adequate sprinkler system.
There’s no such thing at the “perfect building”, however discussing a new prospective purchase (and any changes to a business) with your insurance agent before changes are made can help a building or business owner save costs and future headaches.
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