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Ask the Expert Q&A: Commercial Property Insurance

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A surge in online shopping during the pandemic has increased the demand for large warehouses and distribution centers. It is one of the prominent shifts currently affecting the Commercial Property Insurance market. To learn more, Crain’s Content Studio spoke with Barry Whitton, Managing Director, Broker, Property, Burns & Wilcox Brokerage, Atlanta, Georgia.

What are the greatest risks for commercial property owners today?

B.W.: One of the emerging risks, which is becoming more prevalent during the pandemic and is expected to continue, is the shop-from-home experience utilized by consumers. Fewer shoppers are going to brick-and-mortar stores and are choosing to do their shopping online. This has accelerated growth in third-party warehousing and the construction of even larger distribution centers, which can hold a variety of products. While many of these are built, or operated, for specific clients such as Amazon or for storage of a specific item like tires, an increasing number of these can house any number of products from consumer goods such as clothing to flammable and even hazardous types of products such as automotive or household cleaners. We are seeing more and more mixing of goods within third-party warehouses, which in turn creates increased risk.

What should owners be aware of relative to these risks?

B.W.: The risk of the product that is stored directly correlates to the Commercial Property Insurance terms and rates that can be offered by the marketplace. A warehouse owner needs to understand that even if their building is a high-quality, non-combustible, sprinklered building, the goods stored inside will dictate what rate and terms will be offered. The markets will rate it based upon the highest-hazard material stored within the warehouse, even if the amount of that product may be a small percentage in regard to the overall warehouse capacity. The fire peril from the highest-risk products can create a fire that could spread to all the other products stored and potentially engulf the entire warehouse for a total loss. They should also be aware of the potential of higher premiums and rates from the insurance carrier due to storage changes before signing any long-term storage agreements. Many products will create a huge concern for carriers and may even become almost uninsurable (for example, fireworks).

How does Commercial Property Insurance help them respond to these threats?

B.W.: Commercial Property Insurance products generally respond to the normal risks associated with a warehouse operation, which includes coverage for the building itself, any loss in business income, as well as the actual cost of the product stored within. The caveat is to understand that all products and storage arrangements are not the same and that improper storage, or lack of adequate sprinkler protection, can create an increased risk that will cost the client much more premium when placing the proper insurance coverage. With warehousing clients, there can also be certain unique exposures dependent upon how the storage contract is written, where the legal liability is assumed by the warehouse owner for the third-party goods. Warehouseman’s Legal Liability Insurance covers the liability you are assuming as the warehouse owner for this third-party warehouse product. This can be a difficult product to place, pending the limits needed, as it is not readily available coverage provided by all markets.

What advice would you give brokers to increase their success in offering Commercial Property Insurance?

B.W.: Asking a lot of questions is very important. Individual brokers need to understand exactly what their clients’ exposures are and make sure that they are not missing any peril that their client may be facing. If they have full knowledge of their clients’ processes, procedures, and product lines, then they will be able to represent it better in the marketplace.

What questions should brokers be asking clients relative to these products?

B.W.: I would suggest that anyone working with a client who operates, or owns, warehousing operations should do their homework up-front to determine the maximum values of the product stored, the average value of the products stored, how that product is physically going to be stored, as well as what liability is being passed along via the storage contract.

What features of Commercial Property Insurance are specific to Burns & Wilcox?

B.W.: The advantage of working with Burns & Wilcox is the ability to access more in-depth resources and expertise when needed for this line or any  lines of insurance. These policies are tailor-made specifically for the client and what their risk exposures may be.

 

COMMERCIAL PROPERTY INSURANCE

WHY YOUR CLIENTS MIGHT NEED IT: Out-of-pocket costs can be expensive and lead to financial risk for business owners if catastrophic events occur.

PROTECTS AGAINST: A variety of property-damage related losses, including building, business income, and product from perils such as fires, theft, and natural disasters.

EXPERT OPINION: “The risk of the product that is stored directly correlates to the Commercial Property Insurance terms and rates that can be offered by the marketplace. A warehouse owner needs to understand that even if their building is a high-quality, non-combustible, sprinklered building, the goods stored inside will dictate what rate and terms can be offered,” said Barry Whitton, Managing Director, Broker, Property, Burns & Wilcox Brokerage, Atlanta, Georgia.

 

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