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How Are Commercial Property Insurance Rates Determined?

How Are Commercial Property Insurance Rates Determined - Garrett Insurance

As a business owner, you’re always looking for opportunities to trim costs to help improve your bottom line. You likely stay on top of the expenses that help keep your company in business, including commercial property insurance.

While you may not be required to carry commercial insurance in your state, operating your business without it is a huge risk. Your company could be one disaster, accident, or claim away from shutting down permanently.

The value of maintaining commercial insurance to mitigate your risks far outweighs the cost of it, but you still want to get the best rate possible for the coverage you need. To help you do that, you’ll need to understand what insurers consider when quoting you a rate. Here’s a look at how insurance companies determine commercial property insurance rates.

What Is Commercial Insurance?

Commercial insurance is an agreement between you and an insurer that lays out what in your business is covered and from what perils. It tells you how your business will be compensated if those assets are stolen, damaged, or destroyed by the hazards in your policy.

Companies often bundle commercial property insurance with general liability insurance, business interruption insurance, and other kinds of insurance for more comprehensive coverage of their risks. This is known as a business owner’s policy (BOP).

You don’t have to own your building to purchase commercial property insurance. Landlords often require business tenants to buy coverage for possible damage to the property and business assets.

What Losses Are Covered

Commercial insurance can be different from one carrier to another. However, there are basic hazards commercial property may cover for you, including:

  • Fire
  • Lightning
  • Wind
  • Hail
  • Theft
  • Vandalism

You can buy additional coverage in your policy for earthquakes and glass breakage.

What to Cover

While you’ll likely have specific items you need to cover, it’s important to make sure any policy covers the following:

  • Building
  • Office equipment
  • Inventory
  • Fencing
  • Storage sheds
  • Outdoor signage

You can work with your commercial insurance agent to find other types of insurance to cover items used in your business not covered by commercial property insurance. When adding to your policy, you also must consider any tax implications from payouts. 

Factors Affecting Commercial Property Insurance Cost

How much your business pays for commercial insurance depends on several factors and varies from insurer to insurer. One factor impacting the cost of commercial insurance is the industry you’re in. High-risk industries tend to pay more for commercial property insurance than low-risk industries.

Factors that affect the cost of commercial property insurance include:


It’s unlikely you will pick up your business and move to save on your commercial insurance premium. However, the location is worth discussing with your commercial insurance agent if you might move in the future.

Local laws, environmental risks like natural disasters, and land values can impact the commercial insurance rate.

Size of the Property

The size of the property you will be insuring is a key consideration as well. If you have a large building, it is more likely to cost you more to insure than a small building.

Safety and Security

A high-crime area can drive rates from a commercial insurance agency higher. While it might be tough for your business to relocate, you can lower your rate by adding security, increasing safety training, and removing possible hazards.

Fire Protection

The farther you are from a fire hydrant or fire station, the higher your rate will be. Adding fire alarms, sprinkler systems, and other fire suppression can help reduce this factor’s impact on your rates.

Age of Building

Older buildings could cost more to insure because of the age of the materials. This is because aged materials can make buildings more susceptible to property damage.

Age and Type of Equipment

Because replacement parts might be harder to find, older equipment might be harder to repair, driving up your insurance cost. However, it might be less expensive for you to repair old equipment than to replace it with something new.

Property Valuation

Property valuation refers to whether you buy coverage for replacement value or actual cash value. The replacement coverage pays for a new item, and the actual cash coverage pays you the depreciated value of an item. Buying the replacement value coverage costs more than the actual cash value coverage.

Hazards Covered

Most policies include hazard coverage. However, you have two choices here that will impact your insurance rate: open perils and named perils. 

Open perils coverage is broader, covering any issue that arises that isn’t specifically excluded in your policy. Named perils coverage pays for damage only from the hazards named in your policy. Open perils coverage costs more.

You can work with your commercial insurance agent to uncover ways to lower premiums based on some of these factors, so it’s important to review your policy often.

How to Save Money on Commercial Insurance

With so many factors affecting what you pay for commercial property insurance, you can find several ways to save on insurance costs, including:

  • Bundle policies
  • Pay annual premiums
  • Manage risks
  • Select high deductibles

While cost is always a factor in business, shopping for a commercial insurance agency to suit your needs is helpful. But it’s also important to remember the value of the risks your commercial property insurance will mitigate.

Find a Commercial Insurance Agency in Texas or Kansas

If you’re ready to talk about your company’s insurance needs, turn to the experienced commercial insurance agents at Garrett Insurance. As a family-owned, independent insurance agency, integrity is a cornerstone of our business, and we work to give you the peace of mind you need to focus on what matters most. Get in touch with us today.

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