Having to deal with commercial property damage can be quite daunting. While business owners may want to get back to work as soon as possible, the insurance claim process can take quite a bit of time. Not only that, but it can be discouraging if a policyholder finds their claim has been undervalued. For commercial property owners to ensure they know the proper value of their claim, they need to know how to track the damage costs associated with a commercial insurance claim.
Tracking Commercial Property Damage Claim Costs
In a nutshell, commercial property insurance works to help a business recoup the costs associated with damage incurred due to a covered event. These specific policies provide coverage through replacement costs of the damaged items, the actual cash value of them, and/or a combination of both.
Replacement cost coverage, for instance, helps a business repair or replace its property at current costs, meaning the commercial property policy will reimburse the insured enough to rebuild or replace the property with new items, even if the cost is greater than what was originally paid. On the other hand, actual cash value coverage will pay for the replacement costs minus the depreciation of the damaged property due to wear and tear or age. In most cases, for commercial property owners to be fully protected, replacement cost coverage is recommended.
Many things need to be considered when it comes to tracking the costs associated with a commercial property damage claim. Tracking or calculating a commercial loss, for instance, requires many steps to complete. When determining the value of a claim, business owners will need to obtain a few key elements regarding the damage, including:
- The total amount of damage to both the property and its contents
- Any applicable policy limits for each type of insurance coverage
- The coinsurance percentage
- Any applicable deductibles
- Whether or not the property is insured on a replacement cost or actual cash value basis
- The value of the covered property at the time of the loss
With these items in mind, the following steps should be taken when determining the damage costs for a commercial insurance claim:
Document and Determine Cost of Damaged Items
Well before the property and its contents are damaged, business owners should track the costs of the property and its contents at the time they were purchased. This information can be easily obtained by maintaining business expenses such as keeping receipts and referring back to company credit card charges related to the property and its contents.
Following a covered instance of property damage, the insured should take photos and/or videos of the damaged property as soon as possible. These items, in addition to copies of receipts and financial statements, will be utilized by the insurance company during the claim investigation. Additionally, the insurance company will provide the policyholder with a proof of loss form. This form gives the insurer the specifics of the loss as well as a detailed breakdown of the amount being claimed. Once the insured has filed this with their insurer, the total damage amount will then be determined.
Know The Policy Limits
While having the total damage amount on hand can be helpful, business owners should keep in mind that the total amount of damage can sometimes exceed the limits of their policy. Policy limits must be calculated along with any potential coinsurance penalties that may apply because the final payout cannot exceed them. Commercial property owners mustn’t lower the total damage amount to match the policy limit, as they could eventually be penalized once any applicable deductibles are subtracted.
Commercial property policies may be subject to a specific limit or blanket limits. A specific policy limit applies to one type of property, while a blanket limit can apply to multiple locations or property types. A blanket limit often affords better protection against losses than a specific limit.
Factor In Coinsurance
Coinsurance refers to the act of splitting or spreading the amount of risk among multiple parties. With regard to commercial property insurance, this applies to both the property and contents coverage following a loss. Coinsurance ensures policyholders have insured the property for an appropriate value and insurers receive fair premiums in exchange for the risk. For instance, if a building is valued at a $1,000,000 replacement cost with a coinsurance clause of 90%, it must be insured for no less than $900,000. The same building with an 80% coinsurance clause must be insured for no less than $800,000.
To calculate coinsurance costs, the insured would begin by dividing the actual amount of coverage on the property by the amount that should be carried, which is normally 80%, 90%, or 100% of the property value. Following this, the insured will then multiply that amount by the loss figure to determine the total reimbursement. In the event the reimbursement value is greater than the specified policy limits, a secondary coinsurer can supply the remaining funds.
Determine The Deductible Amount
The policy deductible is the amount that must be paid by the policyholder before an insurance provider will pay for any claim expenses. While a commercial property policy may have different deductibles for different covered losses, in most cases only one deductible can apply to a single loss event. When a loss involves damage to more than one covered property, separate limits can apply. These losses cannot be combined when determining the application of the deductible, meaning the deductible can only be applied once per occurrence.
Insurance Coverage Attorneys
Although it can be quite a process, knowing how to track the damage costs for a commercial insurance claim can be incredibly helpful for policyholders. Unfortunately, however, even if a business owner knows the value of their losses, the insurer can still choose to underpay, delay, or deny a valid claim.
The insurance coverage attorneys at Raizner Slania are well versed in the claims process and have represented thousands of clients against major insurance providers in commercial property damage disputes. If you need assistance with a business insurance claim, contact our office today.