Navigating commercial property insurance trends

Article summary By Jesse Sanchez.

Understanding key shifts in property insurance policies is crucial for managing risks effectively in the face of significant weather events.

In an era of increasing climate volatility, property insurance for commercial buildings is evolving rapidly, reshaping how claims, particularly those related to roofing systems, are evaluated and resolved. Benchmark, a leader in roof and pavement consulting, stresses the importance of vigilance in reviewing policies in their latest FMJ article to help facility managers avoid costly surprises when disaster strikes.

A growing trend in the industry is the shift from Replacement Cost Value (RCV) to Actual Cash Value (ACV) methods for calculating claims. Unlike RCV, which accounts for the full cost of repairs or replacements, ACV depreciates the value of assets like roofs based on their age and condition. While this approach reflects real-world wear and tear, it can significantly undervalue high-quality systems or well-maintained structures, potentially leaving policyholders undercompensated.

Another noteworthy change involves the rise of percentage-based deductibles, particularly for hail and wind events. Instead of a fixed dollar amount, deductibles are now calculated as a percentage of the insured building’s total value — sometimes reaching as high as 5%. For large commercial properties, this can equate to six-figure out-of-pocket costs before insurance coverage kicks in.

Insurers are increasingly emphasizing functional damage over cosmetic damage. This affects claims for metal roofs dented by hail but still technically leak-free. This narrowed definition can complicate coverage and shift the burden of proof to the policyholder.

Rising reinsurance costs and escalating losses from "secondary perils," such as hailstorms and wildfires, further drive these changes. A recent report by MarshMcLennan Agency cited 28-billion-dollar weather and climate disasters in the U.S. alone during 2023, amplifying pressures across the insurance landscape.

To mitigate these risks, experts recommend engaging independent roof consultants to assess existing systems, propose preventative measures and document conditions. These professionals can also facilitate negotiations with adjusters and ensure compliance with evolving building codes.

As insurance terms grow more complex, the need for proactive risk management has never been greater. Comprehensive reviews of policies, coupled with strategic improvements to property resilience, are essential to navigating this challenging environment effectively.

Read Benchmark’s Senior Consultant, Curt Liscum’s, full article to discover actionable strategies to protect your property investments in a changing insurance landscape.