Does your standard commercial property insurance policy offer you the best possible protection? It might not. As Jonathon Diessner, director of new business development for Burnsville, Minn.-based Kraus-Anderson Insurance, says, there are plenty of gaps in a standard policy. And these gaps can come back to haunt commercial real estate owners. Minnesota Real Estate Journal recently spoke to Diessner about the best ways commercial owners can fill these gaps.
Minnesota Real Estate Journal: Commercial owners probably already have property insurance in place. What is your message to these owners? Jonathon Diessner: As a property owner you are obligated legally, financially and contractually to purchase and maintain property and liability insurance on your building. So, yes, most likely you have coverage in place. The argument we are trying to make, though, is that through a more intensive focus, training and agency resources, we are able to provide a broader coverage than what is typically offered in a standard property policy. Many policies have gaps in coverage. There are limitations that we can address. Our basic argument is that there are overlooked aspects to a standard commercial policy that we can address.
MREJ: What are some of those overlooked aspects? Diessner: A lot of questions focus around the coverage that is referred to as business income or business interruption coverage. A property owner will buy a standard property policy to cover them against unforeseen events, storms, tornadoes, fires, the classic insurance coverage scenarios. Say you own a commercial property and it is destroyed. While the standard coverage will pay to replace the property itself, the property owner is still losing the income generated by its operating tenants during that renovation. The owner has to pay contractors to clear the site. The owner has to handle the costs of gaining permits. This is all commonly overlooked. Business owners need a policy in which the income they are forfeiting is included in the overall coverage. Owners need protection while the property is getting up and running again, even after that. We can provide policies that up to a year after the property has been rebuilt can provide you income coverage as you are leasing up space.
MREJ: Are there any other gaps owners should be aware of in traditional commercial property policies? Diessner: Flood protection is often misunderstood. Usually, you are told you are in a 100-year flood zone and flood insurance is not required or might be required. However, you don’t necessarily have to be on the Gulf Coast or alongside a river to be exposed to possible flood damage. You can be far away from a body of water and still suffer flood damage. We work to determine a property’s real exposure to possible water damage. We work to identify exposure more specifically and provide protection against it.
MREJ: How do you spread the word to commercial property owners about these possible coverage holes? Diessner: That is the million-dollar question. We have been following what you would think of as the classic agency sales model until now. What we want to do more of now, though, is to pursue educational marketing. We want to touch on these topics in publications. We think by doing this, we can grab owners’ attention and provoke them to respond.
MREJ: Do owners understand that their standard policies might have coverage holes? Diessner: Most are unaware of the nuances in coverage. Typically, property managers are educated to bid insurance like they bid on a landscape contractor or snow removal. They don’t look at much beyond the quoted premium price. There is the assumption that insurance is a commodity that you buy it like any other commodity. It’s like auto insurance. You have auto insurance but no one likes to talk about it.
MREJ: What can happen to property owners if they don’t shore up their coverage? Diessner: The common fear is that they’ll get a denial of coverage. You really don’t see total exclusions, though, very often. Property policies have become fairly standardized so that really doesn’t happen. The real cost to not having the right policy comes after a loss. If you use the business interruption example, you might lose a lot of money while you’re ramping your business back up. You might think you are saving money because you are paying a lower premium. But at the end of the day because you don’t have this interruption protection, you are forfeiting income. What you end up paying has far exceeded what would have been a slightly higher premium.
