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How Inflation Affects Your Commercial Property Insurance Policy.

Published in Commercial Insurance

The inflation rate in Canada has reached levels not seen in decades. Inflation has hit many aspects of our economy. Gas, groceries, and the cost of living have all increased drastically. Inflation impacts us all, including the cost to repair, rebuild or replace commercial property. If you are responsible for a commercial property insurance policy, we have some important advice on how inflation affects your insurance policy.

Inflation impacts on commercial property insurance.

Like many things, commercial property insurance has suffered from a combination of inflated repair and rebuild costs, as well as construction worker shortages. The cost of materials used to rebuild most commercial buildings has increased at a rate higher than inflation. In addition, labour shortages in the construction industry mean repair and rebuild jobs may take longer to complete and be more expensive.

For commercial insurance, it is essential to have an accurate and up-to-date building valuation. Outdated valuations could leave your business under-insured if the rebuild cost exceeds your existing coverage amount. Being under-insured could be even more costly due to the co-insurance clause.

How does commercial property co-insurance work?

Co-insurance is a type of insurance in which the insured party pays a share of the payment made against a claim. With commercial property insurance, co-insurance is an agreement between the insured (i.e. the business that owns the property) and the insurance company to maintain coverage up to a stated percentage of the property value. Here’s an example of how this works when the co-insurance clause is included on a commercial property.

  • Your building policy limit is $700,000 with a 90% co-insurance
  • Due to inflation and other property upgrades, the rebuild cost is now $900,000
  • Your roof suffers extensive damage, and the repair cost is $100,000
  • Your insurance policy will only pay $77,777 for this claim, and you are responsible for the remaining $22,223

Here is an explanation of the formula used to calculate this insurance payment.Commercial Property Co-insurance payout formula and an exampleCommercial property insurance puts the responsibility on the business to ensure their policy’s building valuation is up-to-date. This means the building value factors in any inflation impacts and property improvements.

Most commercial property insurance policies will include a co-insurance clause making it important to have the expertise of an insurance advisor on your side. Our Bauld Insurance advisors can help you with all aspects of your commercial and business insurance policy and ensure your building value is adequate and up to date. Contact one of our Business Insurance advisors today to make sure you, your property, and your business are well protected.