Committee Blog: Property Insurance – The Good, the Bad, and the Ugly. 

by NCIA’s Risk Management & Insurance Committee

How a Hardening Market is Limiting Coverage and How to Be Prepared. 

2020 was one heck of a year. The insurance industry has experienced more claims this year than in the history of insurance with over a billion dollars in intentional property destruction alone. With the catastrophic claims from COVID-19, record-setting wildfires, civil unrest, and theft, expect property insurance rates to spike this year — and even more so if you’ve experienced a property claim. 

Should an insured party that does not have a loss on their record expect an increase in their premium upon renewal? Simple answer, YES.

What is “commercial property”?

In the insurance world, commercial property is a lot more than just physical property — like cultivation equipment or a brick building. Commercial property coverage also includes (but is not limited to): loss of income, equipment breakdown, business property or equipment, inventory of others and finished stock that has been processed, packaged and ready for sale. 

Commercial property insurance is not required but is highly recommended — your business could close due to a fire, theft, natural disaster, or other catastrophic loss. If your brand-new cultivation facility burns to the ground, you don’t want to be the one paying to build a new one out of your own pocket. 

Property insurance is still an essential component of your insurance portfolio. There are many forms of property insurance that need to be considered. Property coverages include but are not limited to: 

• loss of income (sometimes known as business interruption), 
• tenant improvements, 
• real property such as the building, 
• business personal property, 
• manufacturing equipment, 
• cannabis inventory,
• signage, 
• and property of others (in this case, any cannabis stock or equipment you may hold for another licensed operator). 

Also, it’s important to understand the different forms of coverage available in property insurance. You can learn and understand the forms by looking at the property declaration page. There is basic, broad and special. Here is a breakdown of what each form generally covers: 

Basic: fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.

Broad: Covers basic perils and more – fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, volcanic action), plus the following additional perils: falling objects; weight of snow, ice, or sleet; water damage (in the form of leakage from appliances); and collapse from specified causes.

Special: This is considered all risks coverage: coverage for loss from any cause except those that are specifically excluded. This is the BEST form of property insurance.

What people often don’t realize is that when you buy property coverages, these differences between Basic, Broad, and Special determine if you have coverage or not for your loss based on the peril that caused the loss.

Example: In a brush or fire area, getting Special coverage is almost impossible which is exactly what an operator in that environment needs. But when an insured asks for coverage, they usually are required by a lender or lease to have property coverage. They are usually not requiring a special form, just property coverage per the specific limits per the contract. At this time, the insureds are not concerned about Basic coverage, but that is all that they can get due to brush zones caused by recent fire areas throughout the U.S. Fire is covered, but not much else.

Any defense you can provide your property when located in these high brush areas is essential to surviving in these harsh environments. Clearance of 100 feet minimum from all structures is always recommended where possible. Water storage and proper access throughout the property is also recommended. This will help with personal defense and help support the efforts of your fire department in case a fire comes your way.

Wind and Hail coverage is another example that you need to address concerning property in the Midwest and East coast. Make sure this is addressed in your property policy if you live in these areas. These policies will have either a flat deductible or a % deductible based on the policy that is written. A flat deductible could be $5K-100K and the deductible will range from 1-5% of property coverage based on the geographics and coverage written for the policy.

Knowing it’s a hard market with higher pricing shouldn’t steer you away from purchasing this coverage — but that knowledge should make you more aware of the initial costs to properly safeguard your property. 

The reason why property insurance is getting pricier isn’t that the insurance companies are out to get you… it’s that they’re busy paying for your neighbor down the road whose dispensary was targeted by criminals or whose building burnt up in a wildfire. With that in mind, savvy insurance customers are taking steps to reduce their risk profile (and their corresponding insurance premiums). If you haven’t already, take some time to check out your property and do what you can to protect yourself from fire, theft, hail, or other local worries.

Content provided by Jesse Parenti of PCF Insurance Services- Nine Point Strategies, Stephanie Bozzuto of Cannabis Connect Insurance Services, Helkin Berg of Strimo, Michael DeNault of Charles River Insurance, Summer Jenkins of Cannasure Insurance Services, and Matthew Johnson of QuadScore Insurance Services on behalf of NCIA’s Risk Management & Insurance Committee.