Insuring Your Commercial Property During a Vacancy

Commercial property owners are struggling to balance a positive bottom line as tenant vacancies and insurance premiums increase.
According to Moody’s Analytics’ Q4 2023 Preliminary Trend Announcement, commercial real estate is in limbo. Their analysis revealed the following trends:
In response to market fluctuations, some property owners have reduced their coverage to save money. But this strategy isn’t always the best way to go, even if it saves some cash at the outset. You could end up paying far more than you save in the long run.
Instead of cutting your coverage, ask your independent broker for a policy review. Start by clarifying the language in your commercial property policy and comparing it to your current situation. Evaluate your coverage limits and understand your policy definitions, including vacancy clauses.
Vacancy clauses exist because commercial properties have an increased risk of damage or loss from things like theft, vandalism and weather damage. If an insurance company insures you when your building is fully occupied, a lower loss rate is applied. If you lose occupants, the chance of property loss increases. Insurance companies build the possibility of a vacancy into their policy terms, which offsets their liability and transfers it back to you.
Check the definitions section of your policy. Look for what your insurance company considers a “vacant” or “unoccupied” property.
Vacancy clauses automatically affect your coverage and payouts.
Interpretation of these clauses can vary and become a point for litigation. Your broker can help you understand your policy’s language. They can also explain different situations that would require a change in coverage or special endorsement.
Even if your building is vacant, you’ll still need general liability insurance if someone gets injured on your property. Empty buildings can attract kids and squatters. You could be held accountable for their injuries, even if they were trespassing.
Bridge the vacancy gap with endorsements
Tell your broker immediately if you know your property is or will become vacant. They can add coverage to bridge the gap with endorsements like:
Beyond insurance, there are other risk management strategies that property owners can use to handle vacancies:
Vacancy clauses can create costly coverage gaps. Your broker can help you determine if you’re within your policy’s occupancy thresholds. If you aren’t, they can help you secure the right endorsements to avoid expensive exclusions.
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