The Unexpected Pitfalls of Commercial Property Insurance
You’ve got insurance, so you should be covered if there’s a theft at your business, right? Not so fast. Too often, businesses end up becoming complacent because of the false sense of security that insurance provides – to tragic results.
There are several hidden ways that insurance can let you down when you need it most. From skyrocketing premiums with every claim, to being dropped if you have too many claims, to multiple deductibles and hidden gaps in coverage, insurance is not always the reliable safety net you think it is.
Shortcomings of commercial insurance
The type of insurance your business needs to cover property theft and damage is called commercial property insurance. Commercial property insurance covers your building, inventory, onsite assets, office supplies, computers, and equipment from covered incidents of theft, fire, storms and vandalism. Though premium prices vary, in general, commercial property insurance premiums typically cost around $3,000 for every $1 million in coverage.
A single commercial property insurance claim can increase premiums by 20%.
Your insurance company sets your premiums based on risk. The more risk your company presents, the higher your premiums. For every claim you file, your insurance company assumes that you are a greater risk than previously thought, so your insurance premiums increase. One claim can cause your premiums to increase by up to 20%.
After a successful theft, thieves are likely to strike again
In truth, if you have experienced a theft, your business is a bigger risk to the insurance company because thieves that have successfully robbed a place once are likely to strike the same place again. If thieves already know how to get in, access valuable items, and get out without getting caught, it simply makes sense that they’d keep hitting the same target (your business) that presents a high probability of success.
Compounding premium increases
With each commercial insurance claim, premiums don’t just increase, they compound. For example, if a business experiences three thefts in a year and files a claim for each incident, that business could expect its premiums to increase not just by 20%, but by 20% each time.
For example, if a business currently has $10 million in insurance coverage at a cost of $30,000 in premiums each year, three claims would increase the business’ insurance premiums as such:
With three theft claims, the business’ annual premium would almost double – from $30,000 to $51,840 a year – for the same coverage. That $51,840 a year will only increase in the future with yearly rate hikes, compounding the expense of each theft even further.
Imagine that thieves break into your parking lot and steal five catalytic converters from five different delivery trucks. Your insurance deductible is $1,000. You think, “Ugh, that’s $1,000, but at least everything is covered.” Not exactly.
You see, the deductible is per unit covered, not per incident. That means you’ll be paying $5,000 in deductibles, $1,000 for each vehicle. At that point, it might be more cost-effective to pay out of pocket for the stolen catalytic converters, considering how much your business will pay in deductibles plus the increase in insurance premiums after filing a claim.
Coverage can be dropped
When you need your company a little too much, and file what they consider “an excessive amount of claims,” they can drop you altogether, leaving your business completely vulnerable while you scramble to find new coverage. Businesses that file multiple insurance claims can be dropped from their insurance carrier for being too risky to insure. When this happens, your business will be forced to find a new insurance carrier – a difficult task once you’ve been dropped by a previous insurer. Prepare to pay astronomical premiums to find coverage after being dropped.
Relying on insurance to cover losses is unsustainable
Don’t fall victim to the false sense of security that insurance provides. While insurance coverage is important, it’s unsustainable to depend on it to cover all of your losses from theft.
The most economical way to avoid these insurance headaches is to prevent theft from happening in the first place. Is your business vulnerable to break-ins? Is your security plan as strong as it should be to prevent theft? Find out with a complimentary Threat Assessment from AMAROK. Our security experts will analyze your current security plan, uncover hidden weaknesses, and show you how to fortify your business against theft and the insurance issues that come with it.