The risk of losing insurance coverage due to building vacancies is a severe but little-known concern for commercial real estate managers. Property owners and managers must recognize that even partial vacancies can void commercial insurance coverage. Insurers often set strict thresholds. If you exceed these thresholds, insurers might reject your claims. Understanding these exclusions and mitigating vacancy risks is crucial to protecting your property.
What You Will Learn
- Why Carriers Dislike Vacant Properties in Commercial Insurance
- Understanding Insurance Vacancy Thresholds: When Coverage is at Risk
- How Is Technology Transforming Property Management?
- Steps Property Managers Can Take To Reduce Vacancy Risk
- Partner With Sahouri Insurance To Protect Your Vacant Commercial Properties
Why Carriers Dislike Vacant Properties in Commercial Insurance
Insurance carriers have a strong aversion to vacant properties, and for good reason. From their perspective, vacant buildings are significantly riskier to insure than fully occupied ones. When a building is vacant, it becomes more vulnerable to various perils, such as vandalism, theft, fire, and even deterioration due to lack of maintenance or oversight. Without the regular activity and presence of occupants, there is no one to immediately notice and address issues like water leaks, electrical failures, or security breaches. These problems, if left unchecked, can lead to substantial damage, making vacant buildings a costly liability for insurers.
Furthermore, vacant properties are seen as more susceptible to arson or squatting, increasing the likelihood of damage and, subsequently, insurance claims. Insurers calculate risk by evaluating the likelihood of these incidents occurring, and the more likely a property is to incur a loss, the less appealing it becomes to insure.
As a result, carriers typically respond by either hiking premiums, imposing stricter terms, or in some cases, outright canceling or limiting coverage when a building remains vacant for an extended period. This situation leads to a challenging scenario for property owners. Not only does the risk of an uncovered loss increase, but insuring the property also becomes more expensive and harder to obtain.
For property owners, it's crucial to fully understand their policy's vacancy clauses. Even a partially vacant building — as little as 30% to 40% unoccupied — can breach policy terms, resulting in reduced coverage or a complete denial of claims. The penalties for violating vacancy clauses are steep and can severely impact a property owner's financial stability. Therefore, proactively managing occupancy levels and maintaining communication with your insurance provider about any changes is vital to preventing unwanted surprises and ensuring that coverage remains intact.
Understanding Insurance Vacancy Thresholds: When Coverage is at Risk
Insurers set specific vacancy thresholds, typically 30% to 50%, that can significantly affect coverage. For example, insurance companies might label your property as "vacant" if more than 40% of the building remains empty for 60 days or longer. Such a determination could result in exclusions or claim denial.
The specific thresholds for vacancy vary depending on the insurer, and each company defines what constitutes a vacant property. Sometimes, even a partially used building could still be considered vacant if key operations are not taking place. Property owners must comprehend these thresholds to ensure they are well-informed and ready.
Here is a hypothetical but very plausible example of how an insurer could deny a property manager's claim due to the building's 35% vacancy for 90 days. The insurer could argue that the property no longer meets the occupancy requirements outlined in the policy. Situations like these highlight the importance of understanding how your insurer defines vacancies and maintaining constant communication among affected partners.
How Is Technology Transforming Property Management?
Advanced risk technology is revolutionizing how property managers mitigate vacancy risks. AI-powered monitoring systems, real-time security tools, and automated maintenance tracking help to reduce the risks associated with vacant properties.
These technologies provide insurers with real-time data, allowing them to assess and minimize the risk of loss, maintain properties, and extend coverage even for partially or entirely vacant buildings. Enhanced security systems that reduce the likelihood of vandalism or theft increase insurers' willingness to expand coverage. This technology gives property managers an improved sense of security and control over their properties.
As the NAR highlights, risk technology is becoming essential for maintaining insurance on vacant properties. Many property owners use these tools to remotely monitor buildings in real time, which helps them stay compliant with insurance policies and reduce their exposure to financial risks.
Steps Property Managers Can Take To Reduce Vacancy Risk
To protect your property, consider the following steps:
- Install advanced risk technology, such as security systems and AI-powered monitoring tools, to reduce risk and enhance property value.
- Communicate regularly with your insurance advocate to adjust your policy as vacancy levels change.
- Follow strict safety protocols and maintain routine building upkeep to minimize liability risks, even during low occupancy periods.
These steps will help you mitigate vacancy risks, maintain coverage, and avoid costly exclusions.
Partner With Sahouri Insurance To Protect Your Vacant Commercial Properties
Sahouri Insurance provides tailored solutions for managing insurance on vacant or partially vacant commercial properties. Our long-standing, strong relationships with national and regional carriers give us the unique ability to negotiate favorable rates and conditions for our clients. We can secure optimal terms that might not be available elsewhere, especially regarding the often tricky coverage issues surrounding vacant properties.
In addition to our deep carrier network, we offer access to affordable excess and surplus (E&S) markets, which provide greater flexibility for insuring vacant properties. These markets are well-equipped to handle more complex risks and can offer terms that traditional carriers may not.
Moreover, we leverage advanced risk technology specifically designed for real estate, helping property managers monitor and mitigate potential hazards. This technology plays a vital role in reducing risk, ensuring compliance, and maintaining favorable insurance terms even for properties with higher vacancy rates. Contact Sahouri for a personalized consultation on fully protecting your vacant or partially vacant properties.
