My father always said, “If it’s worthwhile doing, it’s worthwhile doing right”. As a teenager, it was one of those absolutely grating sayings that usually accompanied some menial assignment or chore like moving a pile of rocks from one side of the yard to another or raking leaves in someone else’s yard. As a kid, I would roll my eyes. As a working adult, I now appreciate it (and look forward to tormenting my kids with it). I recently thought of those words while discussing a piece of the commercial real estate puzzle that is too often overlooked and not done “right”: commercial property insurance.
I traded some emails on the topic with my friend, Josh Fifield, a commercial insurance agent at Clark Insurance. Too many of my clients and other property owners simply look at insurance as another item to check off the list, without considering the true value it can have. Furthermore, there are significant cost-savings that can be had up front with proper coverage and planning. Along those lines, Josh suggests that, “including your insurance agent in the early planning discussions is extremely helpful regarding your investment whether it be new construction, development or renovation/rehabilitation. It also applies when adding to or subtracting from your property portfolio.”
Josh emphasized the importance of having a well-documented list of the property’s characteristics to provide to your agent so he can better understand risks and exposures. Why? It makes your properties more competitive in the insurance markets. Accordingly, a good agent should be ready and willing to physically walk-through the property which is, as Josh says, “a great opportunity to fact-gather, take photos, document significant building updates, age and conditions as well as discuss new plans and your vision.”
Anecdotally, I can confirm the importance of an on-site insurance inspection. I recently had a multi-family property under contract to be sold in Portland. Josh joined us during the building inspection walk-through. He was able to identify a number of red-flags from an insurance stand-point that would not have been on our radar otherwise. To his credit, Josh was not looking for problems; rather he was more interested in finding solutions to what could have been major issues down the road for my clients.
Within this column I have often stressed the importance of analyzing each line item on an expense report, and property insurance is no exception. When I asked Josh about costs, he offered an interesting anagram, C.O.P.E. (Construction, Occupancy, Protection, Exposure).
Construction: How is the property built (frame, joisted masonry, metal, etc.) and what is its susceptibility to fire and theft? Occupancy: What is the nature of the operation and the risks associated? A self-storage facility has far less risk than a manufacturing plant, for example. Protection: You need to analyze the quality of the fire protection in the area; size, location in distance from the local fire department, fire hydrant and pressure of the local water supply. Additionally think about safety measures like sprinklers, fire/smoke/heat/burglar alarms, etc. Exposure: What dangers exist to and from the adjacent properties. Also, does the geography create risks (natural disasters like flood, earthquakes, wind, etc.)?
In my opinion, it is that last point on natural exposure that should evoke concern. Ice storms, wind, fires and flooding are all very real Maine problems. Josh mentioned one specific type of coverage that can be overlooked, and that is Debris Removal; “for expense to remove debris of covered property damaged or destroyed by covered cause of loss from insured premises.” Being uninsured or under-insured for this risk can amount to untold thousands of dollars out of pocket.
He also highlighted the importance of understanding new FEMA flood summary changes that went into effect last year. Many residential real estate owners are feeling the effects of these changes and commercial owners should be cognizant of the new maps as well.
Commercial real estate is an extraordinarily valuable asset and every measure should be taken to protect your investment. Clearly vetted and thorough insurance coverage goes a long way towards that end. Talk to your insurance agent and “do it right”. I did and would like to thank Josh Fifield at Clark Insurance for his time and input. He can be reached at firstname.lastname@example.org.
Article originally published in Mainebiz on May 19, 2014.