Vacant Commercial Property Insurance: Agent and Broker Guide

Navigating the world of property insurance can be complex, and commercial vacant properties present a unique set of challenges. For insurance agents and brokers, understanding the ins and outs of vacant property insurance is crucial to providing comprehensive coverage and mitigating potential risks for your clients.

In this guide, we share important aspects of vacant property insurance and cover common misconceptions, specific risks, coverage choices and best practices for agents and brokers.

Understanding Vacant Property Risks and Exposures

A common point of confusion among agents and brokers is at what point a property officially becomes "vacant" and how that status affects coverage.

"Vacant" status limits your market options and often requires you to turn to an excess and surplus (E&S) wholesale or program option. But it's a misconception that adequate coverage for vacant properties is difficult to obtain.

Key Differences: Vacant Property Versus Unoccupied Property

It's essential to differentiate between "vacant" and "unoccupied" properties, as this distinction significantly impacts insurance coverage.

• Unoccupied means the building is without people using it for its given purpose or occupying it daily.
• Vacant means the property is completely empty of both people and personal property.

This distinction is important because it affects the risk profile of the property and, consequently, the type of insurance needed.

Standard property insurance policies are designed for occupied buildings. When a building becomes vacant, typically after 60 consecutive days of being less than 31% occupied, the coverage changes. This situation is where specialized vacant property insurance policies become essential.

Top Hazards for Vacant Properties

Vacant properties are exposed to a range of hazards that increase their risk profile. Some of the most significant include:

• Fire
• Water damage from sprinkler systems, frozen pipes bursting, etc.
• Vandalism
• Theft (e.g., copper wiring and piping)
• Lack of maintenance

These hazards can cause significant losses. It's important for agents and brokers to help their clients get the right vacant property insurance coverage and provide guidance on preventing these types of exposures.

Commercial Property Security

Insuring vacant commercial properties presents unique security exposures. Commercial buildings may be sparsely monitored or located in less-populated areas. On the flip side, they often have fewer entry points and may already have security measures like alarms, cameras and protection dogs.

Yet even with these protections in place, security systems may be compromised, batteries might fail, and regular checks could get skipped, leaving the property at risk of theft or vandalism. Any violation to a commercial property could result in significant unplanned expenses if it's not properly insured for these exposures.

Coverage Options and Policy Nuances

Know When to Seek Vacant Coverage

Agents and brokers would be smart to plan ahead for property managers and owners who might be without tenants for a period of time, who are doing renovations that extend beyond a Builder's Risk policy term, or whose single property becomes vacant among a schedule that excludes vacants.

Ideally, you want to plan for these vacancies a few months in advance or know who you will turn to for quick and reliable E&S lines options, as these buildings often won't fit admitted market carrier appetites.

Common Exclusions to Watch for and Essential Coverage Extensions

Agents and brokers must also be aware of common exclusions in vacant property insurance policies. Most policies exclude coverage for losses from vandalism, sprinkler leaks (unless protected against freezing) or broken glass. They also don't cover water damage, theft or attempted theft if the building has been empty for more than 60 days. To ensure comprehensive protection, vacant property insurance policies should include specific coverage extensions or endorsements for these unprotected areas.

Maintaining Coverage on Vacant Properties

Maintaining coverage on a vacant property requires policyholders to adhere to specific requirements and warranties. These often include:

• Keeping the property locked and secured
• Maintaining heat, or draining pipes and shutting off water
• Conducting regular recorded rounds of the building

Agents play a vital role in ensuring their clients understand and comply with these requirements to avoid jeopardizing their coverage. It's important that the insured understands the warranties and conditions of the coverage to comply and maintain coverage for the vacant property.

Agent and Broker Best Practices and Client Communication

Effective communication and diligent information gathering are key when dealing with vacant property insurance. Agents and brokers should ask detailed questions to assess the client's needs accurately, including:

• The building's construction
• The projected duration of vacancy
• The operational status of utilities
• Existing protection measures (alarms, sprinkler systems, etc.)
• Property maintenance practices
• Any ongoing renovation work
• The insured's plans for the property (sale, rental, repurposing, etc.)

By gathering comprehensive information, agents and brokers can tailor vacant property insurance solutions that effectively address their clients' specific circumstances.

Partnering with RPS for Vacant Property Insurance

Navigating the complexities of commercial vacant property insurance can be overwhelming, but you don't have to go it alone. RPS understands the complexities of vacant commercial property insurance, offering a longstanding non-admitted vacant property program focused exclusively on these risks. This program offers comprehensive coverage options, including "basic perils" and "special perils" or "all risk" coverage. These policies can be tailored to include or exclude specific coverages such as vandalism, theft, water damage and sprinkler leakage, with options for actual cash valuation or replacement cost. To meet diverse needs, they also offer full limits, primary limits and excess coverage solutions.

Reach out to an RPS specialist today for expert guidance and tailored coverage solutions for your clients' commercial vacant properties.