If you’ve recently tried purchasing a car, renovating or constructing a home or business property, you’ve probably been faced with frustrating supply shortages and enormous price hikes. It’s a shocking reality that seems to be seeping into every aspect of business and life.
Today, it takes significantly longer to repair damaged homes and automobiles because of material and skilled labor shortages. Because of this scarcity, the parts and the work cost more than they used to. Some may say that these inflated prices are the result of a hard insurance market, which is when rates start increasing and underwriting becomes more difficult, resulting in smaller coverage limits and higher premiums for businesses – but in many cases, we’re just seeing higher premiums because your stuff costs more to replace. Therefore it costs more to insure.
The cost to replace something today isn’t a dollar-for-dollar match like it’s been in the past. This applies to homes, factories, vehicles – anything property-related. So customers now have two main options to consider when it’s time for policy renewal.
You can either:
- Pay more in premiums, with the confidence that your limits cover the total value of your assets.
- Lower coverage limits but run the risk of terms & conditions restrictions and/or paying for additional costs in the event of property damage.
But be careful with terms & conditions restrictions because they can be tricky. If you insure your property at a lower value than the building can be replaced and you have a claim, the carrier can restrict or limit their payment for the claim based on the difference between the appraised value at the time of the loss and the amount you insured. Most commercial policies also include a “coinsurance” penalty. Coinsurance is a condition of the policy that attempts to restrict policyholders if they don’t insure their property to adequate limits.
Standard coinsurance is 80 percent for commercial clients, but we’re seeing carriers raise this as high as 90-100 percent in some cases. Meaning that if your coverage limits are not within 80-100 percent of your evaluated property value, they can limit the payment of a claim by the percentage you were underinsured.
You’ll also want to check with your agent on lower-cost replacement options like “functional replacement cost.” These coverage options can help lower your premiums but then allows the insurance carrier to reimburse you for lower cost (and likely lower quality) replacement items.
Not to fear! There are also a few things you can do throughout the year to help keep your rates down.
Whether you’re insuring a home, car, commercial building or an entire auto fleet – make sure to keep your property in good working order and stay up-to-date with regular maintenance. Getting an annual appraisal (if possible) can help ensure you receive fair premiums and save you the headache of going toe-to-toe with underwriters on estimated values. Lastly, increasing your deductible lets you handle more minor issues yourself and can help offset costs.
Be sure to discuss all of these options with your insurance broker or agent. Together, you can decide the best risk management strategy for your specific needs.
This content is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. Gregory & Appel is neither a law firm nor a tax advisor; information in all Gregory & Appel materials is meant to be informational and does not constitute legal or tax advice.