Tips from Canadian Real Estate Insurance Experts
Whether buying or managing a commercial property, it's crucial to remember the importance of protecting your investment. The world of property insurance is often perceived as complex and filled with jargon and confusing clauses.
One of our goals at EQUA Specialty Risk Partners Corporation is to empower property owners and property management companies to make informed decisions to help mitigate the risks associated with this sector. We asked our team of commercial real estate insurance experts to help demystify commercial property insurance.
Why Insuring Your Property Matters
Property and liability insurance act as financial safety nets, providing coverage for personal liability and a wide range of perils that could jeopardize property and possessions. From natural disasters like fires, floods, and windstorms to unforeseen events like theft, vandalism, and liability claims, a robust insurance policy offers peace of mind and financial protection when you need it most.
Here’s a list of five things every property owner and manager should know about property insurance.
1. Understanding the Types of Property Insurance Coverages: Building Your Protection Shield
Protecting your property is a top priority, and understanding the intricacies of property insurance is crucial for every owner and manager. Property insurance policies are multifaceted, offering various types of coverage to address specific risks and potential losses. “You need first-party insurance, and you need third-party insurance,” Client Executive Andrew J. Kaupe explains. According to him, first-party insurance forms the foundation of an insurance policy and acts as a safeguard against direct damage to property. This coverage protects the physical structure of a building — including its walls, roof, and foundation — from perils like fire, lightning, windstorms, and hail. Imagine it as a safety net that ensures a property owner can rebuild or repair the property if disaster strikes.
Third-party insurance, or liability insurance, applies when someone else suffers an injury or loss on your property. Whether it's a tenant slipping on an icy walkway or a guest tripping over a loose floorboard, this coverage shields the property owner from the financial burden of potential lawsuits. It covers legal fees, medical expenses, and any damages awarded, providing protection against unexpected claims.
Another piece of the puzzle is tenant insurance. “Whether they are commercial entities or residential, they will still need to carry tenants' insurance,” Andrew tells us. This adds another layer of complexity to property insurance. It's essential to recognize that tenant insurance differs from standard property insurance. Tenant insurance protects the contents of a tenant’s unit or home and provides third-party liability coverage while property insurance provides the owner with third-party liability coverage and coverage for the building itself. Since residential tenants are responsible for their guests' actions, tenants are strongly recommended to have their own liability coverage.
A coverage that property owners may not have considered is cyber insurance. In today's increasingly connected world, cyber insurance is no longer a luxury but a necessity, especially for properties with smart technology or online systems. “Depending on how technically advanced the building or the facility might be, there's an exposure for cyber risk too,” Andrew says. This coverage shields a property owner from the growing threat of cyberattacks and data breaches, which can compromise sensitive information and disrupt operations. Cyber insurance helps cover the costs associated with data recovery, identity theft, and cyber extortion, ensuring a property's digital infrastructure remains secure.
2. Factors Affecting Insurance Coverage
National Technical Practice Leader Dan Fitzpatrick, P.Eng, advises remembering and understanding this handy acronym: COPE—Construction, Occupancy, Protection, and Exposure—when evaluating your property. These are the key factors insurers consider when assessing risk as they influence your specific coverage needs and premium costs.
Every property owner and manager need to be aware of the type of property they own and its purpose. Whether it is for residential or commercial purposes, understanding the difference will impact the process of determining the coverage your property will require.
Property Type and Purpose:
The first step is clearly identifying the property's nature and intended use. Is it a residential dwelling, a commercial building, or a mixed-use property? This distinction significantly influences the coverage a property will need.
For instance, a residential home insurance policy will typically cover personal belongings and liability for guests. However, if a home-based business operates out of a residential property, a property owner must expand their coverage to include business equipment, inventory, and liability protection for clients visiting their premises.
Similarly, landlords require specialized policies for rental properties, encompassing protection against tenant damage, loss of rental income, and potential liability claims.
Construction and Age:
The age and construction of your building are crucial factors in assessing risk. Older properties, especially those with outdated electrical or plumbing systems, may present higher risks than newer builds with modern, fire-resistant materials.
"If you're going to go look at a [building] that's older, the very first thing you should be doing is asking about the age of the heating system, the roof, the wiring and the plumbing, and when they were updated and what they were updated to,” says Client Executive Matt Jardine. Understanding these nuances allows you to proactively address potential vulnerabilities and potentially qualify for lower premiums.
Occupancy Status:
Is the property occupied year-round, or is it a seasonal or vacant property? Vacant properties require specific insurance policies with tailored coverage, as standard policies often have limitations or exclusions for extended vacancy periods.
Occupancy also describes the type of businesses that occupy that property, such as whether the commercial building is used for manufacturing or warehousing. Dan Fitzpatrick, P.Eng, advises that these factors come into play when assessing the different types of risk that a property owner must be aware of when communicating with insurers.
Safety and Security (Protection):
Investing in robust safety and security measures is crucial to ensuring the safety of a property's inhabitants. “We're seeing a tremendous uptick in crime of all kinds, and these are interpersonal crimes, not just online hacking type losses. [Personal] possessions can be replaced, but people can't,” emphasizes Andrew J. Kaupe.
Whether the security and safety threats are that of natural disaster or digital, investing in smoke detectors, burglar alarms, fire extinguishers, and cyber security systems enhances protection and demonstrates proactive risk mitigation to an insurer, potentially leading to lower premiums.
By carefully considering these factors, an insurance broker can tailor a comprehensive policy that accurately reflects a property's unique characteristics and specific needs for its owner and manager.
3. Location, Location, Location (Exposure)
In addition to the standard coverage options and factors that impact a property owner, a property's geographical location plays a crucial role in determining its risk profile. Properties in areas prone to natural disasters, such as floods, earthquakes, or wildfires, may face higher premiums or require specialized coverage.
“A property located by a creek is more likely to experience a flood and may require more coverage,” says Dan Fitzpatrick, P.Eng. With the increasing frequency and severity of natural disasters, climate change is a growing concern for property owners and insurers. Insurance companies are developing new products and strategies to address climate-related risks, such as flood insurance and wildfire protection.
Another factor to consider is how far a property is from emergency responders. “Properties would be rated differently if the fire departments are more than five kilometres away and the fire hydrant is a private hydrant system. You see this a lot with condo corporations, especially in some slightly rural areas,” explains Matt Jardine.
4. Regular Insurance Policy Reviews
The insurance industry constantly evolves, adapting to new technologies, changing lifestyles, and emerging risks. That’s why regular reviews of the property’s insurance coverage are vital. “Anytime you make changes to a property, such as renovations or additions, it’s recommended that you review your policy and advise your broker of the changes,” explains Matt.
Residential property upgrades, such as interior floors, roof and windows, and pool and hot tub additions, require an insurance broker's advice beforehand. These changes can increase or decrease risk, which in turn can affect a property owner’s insurance policy and coverage. Ensuring you have the most updated policy and are covered for all situations is a key part of risk mitigation.
5. The Power of Partnership: Working with An Insurance Broker
Navigating the complexities of property insurance can be daunting. Still, an experienced insurance broker can be a trusted advisor, guiding individuals through the process, answering questions, and helping property owners find the best coverage for their unique needs.
Here's how an EQUA Specialty Risk Partners Corporation insurance broker can assist property owners and property management companies:
- Conducting Detailed Assessments: We take the time to understand individual circumstances, assess the risk profile, and recommend appropriate coverage options.
- Policy Comparison: We access various insurance providers and compare policies to help a property owner find the best value.
- Claims Assistance: In the unfortunate event of a claim, we act as an advocate, guiding our clients through the claims process and ensuring a smooth and efficient resolution.
- Ongoing Support: We are your long-term partner; we provide ongoing support, answer questions, and help adjust your coverage as your business needs change over time.
The EQUA Bottom Line: Understanding Insurance Jargon
Owning and managing commercial or residential property is a source of pride and security for many Canadians. Investing in comprehensive insurance protects more than just the physical property; it safeguards financial well-being and ensures peace of mind for individuals, businesses, and families.
A proactive approach to property insurance allows property owners to confidently embrace the benefits of ownership, knowing they are well-prepared for whatever challenges may arise. Since the insurance world is constantly evolving, we recommend regular policy reviews and open communication with your broker.
Connect with our team of commercial real estate experts — send an email to findoutmore@equaspecialty.com.