Whether it is a small storefront or a sprawling distribution center, every commercial property faces risks such as burst pipes, electrical fires, or storm damage that could disrupt operations and result in major financial setbacks. To learn how Commercial Property Insurance can help business owners protect their assets, we spoke with Barry Whitton, Managing Director, Broker, Property, Burns & Wilcox, Brokerage Division, Atlanta, Georgia.
What are some of the most pressing risks facing commercial property owners today?
BW: To some degree, the risks facing commercial property owners today are the same ones that have been around historically. A property owner needs to make sure they adequately insure their facilities and have proper coverage in place for perils such as fire, lightning, wind, flood, and earthquakes. With the marketplace being as it has been over the last two or three years, the valuation on some of these facilities has gone up dramatically, so property owners also need to double-check that the values they report to their insurance broker are adequate or else their limits will not be sufficient.
Why is Commercial Property Insurance so important for business owners and what does a standard policy typically cover?
BW: Any business owner, from a small mom-and-pop shop up to a Fortune 500 company, needs to be buying Commercial Property Insurance to some degree. Most of these policies are going to cover the basics, like fire and wind, and additional coverages are available for equipment breakdown, flood, and other perils. If you have a client in Florida right on the coast, hurricanes are one of their primary exposures, whereas wildfires are a greater risk to someone on the West Coast. Geographically, certain perils will apply to certain clients that do not apply to others. Another component is business interruption, which can impact the longevity of the business. If a claim occurs and the business cannot operate, that coverage can pay for their lost profits and income until the facility can get back up and running.
Are there any risks that are commonly overlooked by business owners?
BW: Small business owners who have a product they provide to an end-user customer really need to understand where their materials are coming from. The supply chain has become hugely critical since 2020 and the pandemic because so many individuals are buying things online. If you get your product from a single-source supplier, and that supplier has a loss, where are you going to get your product from? A lot of the clients we talk to do not do the research to figure out if they have a single-source supplier or if there are two or three different facilities they can get their product from, and that is often overlooked.
What misconceptions do business owners commonly have about Commercial Property Insurance?
BW: Business owners often believe that insurance makes them whole, or that insurance basically pays for everything. It does not. It all depends on the choices they made regarding their policy. They should understand the coverage they are buying and their insurance broker needs to understand the client’s business model. If you do those two things, you can identify where there are gaps or bottlenecks in coverage — like the supply chain issue, for example — and then they can make informed decisions. Insurance is not always inexpensive and a business owner has to make economic choices as to what they can afford to buy. Brokers should provide an outline of the coverages offered and let the business owner decide what is most important.
How would you describe the current market for Commercial Property Insurance?
BW: We have been in what is considered a hard market for the last three to four years. Typically, a hard market is driven by the insurance carriers and reinsurers not making any money on their portfolio over a long period of time, requiring them to start raising their rates to actually break even or provide a return for their investors. As that has been happening over the past few years, rates and deductibles went up, allowing the companies to strengthen their balance sheets. Now, new capital has started coming into the marketplace and as a result, capacity is readily available, demand is down, and rates are starting to decrease.
How have recent events — severe weather, inflation, supply chain issues — affected Commercial Property risks and claim costs?
BW: Severe weather, inflation, and supply chain issues all come into play. This year, we are halfway through hurricane season and have not really seen a [significant] hurricane, so that benefits the carriers in the insurance marketplace. At the same time, though, materials and supply chain costs have gone up over the last two to three years, so companies are struggling with their balance sheets and the overall insurance expenditure.
What can insurance brokers do to help their clients secure coverage in today’s market?
BW: The biggest thing a broker can do is communicate. Most of the buyers put on their insurance buying “hat” once a year. The brokers do it every day. They need to be bringing value to their customers, explaining what the coverage actually does — from why valuations are so important to how the deductible would apply and how the policy would respond in the event of a claim — because the worst thing is to have a claim and find out it is not covered or covered properly.
Why should brokers partner with Burns & Wilcox for Commercial Property Insurance?
BW: There are two different sides of Burns & Wilcox: one is the brokerage side, which I am on, that deals in the open marketplace; and we also have a binding MGA (managing general agent) division that has its own paper and basically acts as an underwriter. They have programs for specific types of occupancies that they can underwrite specific types of accounts from the brokerage standpoint. We are, in effect, a one-stop shop for an agent. We always try to partner with the agent and client to explain how the coverage works and what they should consider. Communication is the key.
Why is this class of business increasingly being written in the Excess and Surplus (E&S) market?
BW: It is very interesting that this class of business has grown so dramatically in the E&S market. In my 38 years, it has more than tripled or quadrupled. The standard market does a good job of taking care of the normal, everyday type of buyer, but they have to go through a process to get their forms and rates approved, whereas the E&S marketplace does not have to do that. We are readily available to take care of the late-breaking types of coverages and the new exposures that are coming out, as well as the geographical CAT-type exposures that the standard markets do not really want to handle. The increases in convective storms, wildfires, and hurricanes all seem to be driving more business to the E&S marketplace.
Commercial Property Insurance
WHY YOUR CLIENTS MIGHT NEED IT: Severe weather, fires, and other perils can threaten a property owner’s business and profits. Commercial Property Insurance helps safeguard buildings, equipment, and inventory from unexpected losses that could disrupt operations or force closure.
PROTECTS AGAINST: Covers damage to commercial structures and contents caused by perils such as fire, wind, hail, vandalism, and burst pipes. Policies may also include protection for business interruption, equipment breakdown, and other specialized risks depending on location and industry.
EXPERT OPINION: “Any business owner, from a small mom-and-pop shop up to a Fortune 500 company, needs to be buying Commercial Property Insurance to some degree.” –Barry Whitton, Burns & Wilcox, Brokerage Division
