Insurance inspections are a standard part of purchasing or renewing commercial real estate insurance. When you purchase insurance on a commercial real estate property, or at renewal, the proposed or existing insurer will notify you about an upcoming insurance inspection. The insurer may send its own safety engineers or may outsource the inspection to a third-party inspection vendor. The purpose of the inspection is to evaluate the insurability of the property.
The inspector will complete a walk-through of your property, take photos and may perform some due diligence research to determine possible environmental hazards such as the location of any underground storage tanks, environmental contamination, or high crime rates in the surrounding area.
Inspectors usually do not provide feedback directly to you. They may talk with the insurer’s representative as well as submit their report to the underwriter. However, it’s always a good idea to take the walk-through with the inspector if allowed so that you can answer any questions that may arise during the tour of your building.
Inspectors normally will notify you; however, they may arrive unexpectedly. Whether they call or arrive without notice, make them feel welcome and cooperate with them. In today’s more unpredictable insurance marketplace, failure to cooperate with the inspection may be all the reason an underwriter needs to reject a risk, even after binding coverage.
Depending on the size and complexity of your property, the inspection can take from 30 minutes to three hours or more.
What is the Purpose of the Inspection?
Insurance inspections serve several purposes. These include ensuring the building is correctly valued for replacement purposes. While the possibility of a building’s total loss is remote, underwriters want to make sure you protect your building for its full value or up to the coinsurance requirement in your policy. They also want to ensure you are not over-insuring your commercial real estate, which is a red flag to insurers.
Next, the inspector will describe your property more fully than the summary found in your application. The description includes photos that highlight your maintenance and adherence to safety, including the servicing of boilers and fire extinguishers or Ansul systems.
Finally, the inspector will look for any problems that might cause a loss, including trip hazards and poor maintenance, or other loss exposures. The inspector will look for water damage, evaluate access and egress for liability reasons, and examine electrical and mechanical systems.
The inspector may recommend some changes to the property like improved lighting, updated fire suppression, repairs to doors and windows, or other loss prevention measures. These recommendations go directly to the underwriter.
When Does the Insurance Inspection Take Place?
On a new policy, the insurance inspection usually will occur within 30 days of the policy issuance. This way, if the insurer decides to decline your risk, it is within the state’s time limits for cancellation. In some instances, the inspection will include a telephone interview with the property or facility manager.
The inspector will make several attempts to contact you if you’re not easy to reach, but the responsibility is yours to ensure you talk to the inspector. Time is critical. After the inspection, the inspector still must prepare the report and ensure it gets to the underwriter within the risk acceptance or cancellation window.
Why Do Insurers Require Insurance Inspections?
Commercial real estate is a complex risk to insure in today’s increasingly hazardous world. Much of commercial construction today is frame, and fire is just one peril that concerns underwriters. Location has substantial impact on underwriting decisions, as well. The building operations also increase the risk profile of that location. For example, a commercial building with several restaurants is more hazardous than an office building without commercial kitchens.
The inspection allows the insurer to determine if the risk matches the application. The inspection helps determine if the property is properly valued while also measuring the insured’s willingness to take inspection recommendations seriously.
The inspector will usually discuss his or her findings only with the underwriter or in the report. If the inspector recommends changes or improvements to the property, your agent will reach out to discuss these recommendations with you. Your willingness to comply with the inspector’s recommendations or to rebut them if you feel there are errors is critical to the underwriter.
Failure to comply with inspection recommendations may mean cancellation or non-renewal.
How to Prepare for a Commercial Real Estate Property Insurance Inspections
When the inspector calls, ask if you can accompany the inspector. Some will let you; others will not. Ensure your maintenance staff tidies up the premises, especially if your property houses manufacturing or mechanical exposures that generate grease and other flammable materials. Strong housekeeping is an important factor in making a great impression on the inspector.
Cooperation is key. Once your agent or broker discusses the findings with you, determine how and when you can comply with the recommendations. You need not immediately comply with all recommendations, however. For example, a recommendation that you improve parking lot lighting may be something you can phase in; a leaking roof or faulty fire suppression system may be a “must repair.”
Your Approach Toward Inspection Can Help
Few commercial real estate managers welcome the insurance inspection process. However, it’s best to approach it with a cooperative spirit. Consider it as a free loss prevention inspection. Know that you are reducing your chances of a loss down the road, even if you must spend valuable time and money to comply with the inspector’s recommendations.
If we can help you better understand the insurance inspection process or discuss your commercial real estate insurance with you, contact us at this link.