Assessing Property Values is a Good Investment of Your Time
December is traditionally a time for business owners to evaluate the previous year and finalize plans for the coming year and beyond. Considering the challenges and unpredictable nature of the last 10 months, many business professionals will be relieved when 2020 is in the rearview mirror. This tumultuous pandemic year has challenged our flexibility, creativity, and patience in ways we may never have been able to predict, but it also has helped to identify risks and exposures that need to be addressed going forward.
For the past several years, catastrophic insurance claims of all types have been occurring more frequently and with increasing severity. The Insurance Information Institute reports $25.5 billion of insured losses in the United States in 2019 as a result of natural catastrophes to include severe storms, wind, hail, wildfire, flood, and earthquake. Overall losses were nearly double that amount at $49.9 billion. It is critical that commercial property owners, including owners of self-storage operations, prepare for potential catastrophic losses resulting from natural events as well as manmade and accidental occurrences such as fire, roof leakage, slip-and-fall incidents, bodily injury, and others.
Property owners need to be aware that a thorough property valuation is a critical component to the risk management process and can impact the claim payment in the event of a covered loss. Replacement cost is the preferred insurance property valuation, and it provides coverage to repair or replace a building with materials of the same or comparable quality. This method of valuation does not include the value of any land. It does include the cost to purchase materials, labor, and ancillary property items such as fences, signs, foundations, sidewalks and driveways. A warning: Policy coverage can be different, and it is important to note what is covered and not covered in the valuation process.
Replacement cost coverage does not account for depreciation; however, the market cost of labor and materials to repair or replace a damaged building can fluctuate dramatically as we have seen in the past several years. In addition, property owners making facility improvements or adding new buildings need to consider updating the insurance property valuation to reflect these changes.
Business Income Coverage
In the event of a catastrophic loss, business income (or business interruption) insurance is absolutely critical to an operation’s survival. This coverage pays the policyholder for loss of income and expenses following damage to the property resulting in the partial or total suspension of operations. It is also one of the most complex, least understood, and most undersold insurance coverages available to property owners. Insurance agents are strongly encourage to discuss business income coverage with their self-storage clients in order to understand its benefits as well as the documentation required to file a claim. Successful resolution of a business interruption claim involves specific and detailed recordkeeping, so it is important to take steps to store records electronically or where they may be protected from potential catastrophic damage to the facility property.
Risk Management Planning
Create and implement a detailed risk management plan to help minimize claims and losses from all types of risks. Insurance agents can stress the importance of this task to their customers and direct them to online resources. The Federal Emergency Management Agency (FEMA) offers resources for business owners at http://www.ready.gov/business.
MiniCo sends our best wishes to you and your loved ones for a safe, healthy, and happy holiday season. We look forward to working with you in 2021 and thank you for your business and continued support of our insurance products and publications.
President and CEO