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"It& #39;s just property, and that& #39;s what insurance is for." As an agent I would love to address this issue, so let& #39;s jump into the weeds. Let& #39;s start with contents coverage: sure, most commercial policies provide coverage for riot and vandalism 1/?
HOWEVER depending upon the coverage purchased, it could exclude theft. While the major chain stores probably have theft coverage it isn& #39;t guaranteed for numerous reasons (cost, loss history, etc.). Also, the mom and pops 2/?
stores are less likely to have the coverage than the national chains (they still likely have it, but you never know). In a best case scenario all of that is covered so let& #39;s move on to how it is paid out in the event of a loss 3/?
Depending on the coverage you could be paid on either an actual cash value or a replacement cost basis. Actual cash value is calculated by taking the replacement minus depreciation, where replacement cost provides the cost necessary to replace the damaged goods w/new goods. 4/?
With things like inventory those two values can be similar, but with things like shelving, desks, furniture and equipment those values can be vastly different. If someone has an actual cash value policy they can still be in a hole with their payout based on what they need to 5/?
recoup in order to reopen. Businesses such as pawn shops, art galleries and antique stores not only have difficulty valuing their inventory, they also have difficulty replacing it. 6/?
So far we& #39;ve only discussed the issues with replacing contents/inventory but there are other associated costs with a loss. There is also an associated loss of income. Again, not every policy covers the loss of income that happens when a business cannot operate. 7/?
If there is no money coming in, then there is no money for payroll. When a building is severely damaged it can mean no income for several months while it is being rebuilt. Most businesses cannot survive such a shutdown without loss of income coverage. 8/?
All of this assumes that the business owns its building and wants to remain in the same location. If the business does not own its building then it can be forced to move to a new location so it can reopen. The cost of moving is another expense, as well as 9/?
the increased cost of advertising to let everyone know that you& #39;ve moved. There are numerous other soft costs associated with a move. Speaking of structures, let& #39;s come back and discuss that coverage. Again you run into the actual cash value vs replacement cost issue. 10/?
As one might imagine, the actual cash value of a building built in 1940 is vastly different from its replacement cost (remember actual cash value = replacement cost minus depreciation). There is the cost to remove the debris and demo the part of the building that is still 11/?
standing. Additionally there is the increased cost of construction to necessary to bring the new building up to today& #39;s code. These things are referred to as ordinance and law coverage. While most policies provide some coverage for this, many fall woefully short. 12/?
Building owners cannot rent their buildings while being repaired so they too experience a loss of income. As discussed earlier, most tenants cannot afford to wait on a location to be repaired and move, so now the building owner must find a new tenant. 13/?
Oh yeah, they still owe property taxes and other associated fees while this is going on, so suddenly taking the insurance payout and walking away starts to look really attractive. Sell the lot and let some other schmuck take the risk. Now your city has a burned out lot that 14/?
may or may not sale for awhile. Would you want to risk the cost of building a new building in an area prone to riots? So in our hypothetical let& #39;s assume the best case scenario, the business wants to stay and the building owner rebuilds, both of those parties (assuming it 15/?
is not the same person) now have a massive loss as part of their claims history. At best both are going to pay significantly higher premiums for the next 3 to 5 years. If the claim is sufficiently large their carrier might cancel/non-renew their policy. 16/?
That means the business owner now has to find new coverage, and they might be uninsurable in the standard market due to them now being high risk, forcing them to seek coverage in an excess and surplus (high risk) market. Now their premiums are going to be 3x to 5x their 17/?
premium prior to the loss, and the coverage is often not as broad. Oh yeah, there are additional taxes and fees that must be paid with these higher cost policies in addition to the higher premium. Yet again our business owners have significantly higher operational costs 18/?
after a loss that they will not recoup. Once again taking the payout and either moving to a lower risk area/state or not reopening at all starts to look like a really attractive option. So businesses close, employees find themselves unemployed, 19/?
and the city finds itself a little poorer and more run down. But hey, it& #39;s just property and that& #39;s what insurance is for, right? I am sure all of those owners that fought and bled to run their business, and all of these newly unemployed people that now can& #39;t afford food and 20/?
rent totally agree with you.
(Fin) 22/21
(Fin) 22/21
Addendum: the above illustration was intended to demonstrate how gaps in coverage exist even in a best case scenario. Many (most?) policies are going to have more gaps than assumed above. Following this thread the Star Tribune published an article on
high demolition costs & the shortfall of insurance coverage https://twitter.com/StarTribune/status/1300414766926753799?s=20
One">https://twitter.com/StarTribu... of the owners in the article talks about how he feels like he owes it to the community to rebuild even though there is little left after the mortgage is paid off & the demo bill from the city
One">https://twitter.com/StarTribu... of the owners in the article talks about how he feels like he owes it to the community to rebuild even though there is little left after the mortgage is paid off & the demo bill from the city
How many others will feel that way, especially if the riots continue?
