Blanket Insurance Limits

     So congratulations, if you've come to read about blanket insurance limits, it means you own more than one location. It means you opened one location, learned your lessons, made a few dollars and did opened another. This applies exactly the same to someone that owns two or more apartment buildings as it does to someone who owns two or more of any other commercial building.

    Blanket insurance limits means that a single limit of insurance applies to multiple locations. For example, an appliance retailer owns a total of three buildings, two showrooms and a warehouse. They usually have a total of $2,000,000 in inventory which moves between showrooms and the warehouse. Each showroom is valued at $1.5 Million and the warehouse building is valued at $1 Million. They have a total of $4 Million in insured buildings. They bought an insurance policy with blanket insurance limits for inventory and buildings. So instead of having to split the $2,000,000 of inventory coverage between locations, they have $2,000,000 of property insurance available for the inventory, for any one loss, at any of the three buildings. If they had a large delivery at the warehouse, and then a total loss fire, $2,000,000 would be available to pay for replacement inventory, even if there was still undamaged property at the other locations. It works much the same way for building limit. Since they have a total of $4,000,000 worth of buildings across all locations, They would have a total of $4,000,000 to cover repair / replacement of the warehouse building after the fire.

    So how would this have worked under a policy that listed multiple locations that wasn't blanketed? The insured would have had to select, at the policy inception, the inventory limit to carry at each location. If they said of the $2,000,000 only $1.5 million was in the warehouse, then they would have only had $1.5 million to cover the fire loss. And if they reported the building value as $1 million, thats all they would have had to pay for damage to the building itself.

    Blanketing insurance property limits is a great deal for the insured. It ensures that inventory will still be covered to its full value even if it moves between locations. With blanket limits, the insured can be comfortable that their building will be fully covered even if their replacement cost is somewhat outdated. So why do insurance companies offer blanket limits? Blanket insurance limits are an incentive that the insurance company can give people that are spending more to insure several buildings. From their point of view, it doesn't cost them extra, because the limits are still the same, just applied differently. And because the insured still has to report property values at each location, the carrier knows what the exposure is. Just like everything else, when you buy insurance in bulk you get a better deal.

Don’t fall victim to copper theft!

With copper currently trading at over $4.00/lb and scrap yards paying $3.25/lb or more, copper is becoming an increasingly attractive target for theft. And, to make matters worse, increasingly thieves are “scrapping” actively used copper to sell.

Most of us have heard of thieves breaking into vacant homes buildings to steal the wiring and old plumbing to sell for scrap value, but with higher prices thefts have become increasingly brazen. Currently, there is an uptick in theft of copper condenser coils from building air conditioners. The Des Moines Register reports on a case that a police officer said was his first experience with air conditioner copper theft, but I can personally testify it is common in Chicago.

Air conditioners contain a large copper coil that is used to exchange heat from the building with the outside. While home air conditioner coils typically weigh in the range of twenty pounds, commercial coils can weigh far more. This makes small and midsize commercial buildings attractive targets. Thieves cut the coils from the units at night. To operate these units must be located outside, and are often behind the building or on the roof. They have a flimsy sheet metal cover that is easily cut away even if locked. Coils are rarely removed delicately, often destroying the unit in the process. Building occupants often go unaware of the theft for days or weeks, until the air conditioning is turned on. The cost to replace the unit often runs into the thousands of dollars for what, at most, is a few hundred paid on the scrap value. To make matters worse, replacing the air conditioner on a commercial building can trigger that the system is brought into compliance with current HVAC building codes, costing thousands more.

As an insurance broker, I have personally been a party to three copper thefts from air conditioners this year. The smallest claim was for just under $6,000 and the largest was for over $25,000. No thief made off with over $1,000 of scrap metal. The economic impact of these crimes is large and growing.

So how can we protect ourselves? Most steps to prevent general vandalism and burglary will also discourage copper theft. Good lighting at night is a must. Exterior recorded cameras are better, and roving watchmen are best, but usually impractical. Don’t leave ladders around the exterior of your building, and fire escapes should be secured to prevent access from the street. When able, often building a fence around exterior mechanical units or the entire roof can discourage theft. Thefts are effectively discouraged not when it is impossible to commit, but when it is substantially harder than other similar targets.

Also – scrap yards enable this problem. Without scrap yards, thieves would have nowhere to sell their take. Scrap yards however provide a needed service for the community and should not be overly regulated. Most scrap yards are already required to record identity and take pictures, as well of keep a record of what was purchased. However, a balance should be struck. Clearly, scrap yard staff must be suspicious of condensers removed with bolt cutters still dripping with refrigerant. Law enforcement can partner with scrap yards to discover and prosecute offenders.

Until that happens, we must all remain vigilant and protect our own property from this rising cause of loss.

Insuring Vacant Buildings

Vacant buildings, especially recently, are a fact of life. There are a few things that everyone should be aware of with insuring vacant buildings, especially going into the winter.

A vacant building is any building, which contains no furniture, fixtures or equipment and is not used on an ongoing basis. It also has not been used for at least 30 days. Vacant buildings are prone different risks than occupied ones. They have higher rates of vandalism and theft of building property. Vacant buildings also have higher rates of frozen pipes because they are frequently not winterized.

There are real consequences for insurance on vacant buildings. If you do not tell the insurance company that the building will be vacant and you have a claim, payouts are often reduced by 15% and there is no coverage for loss by damage in the course of a theft or vandalism. Also, frozen pipe claims are generally excluded when the pipers were not drained or the building was not heated.

If you do tell your insurance company that a building is vacant, they may choose not to renew the policy. If there is a plan to re-occupy or dispose of the property, than the insurance company is likely to grant a "vacancy permit" which gives most coverage back on a vacant building and eliminates the claim payment penalty. If you happen to have a number of buildings, most companies have standards for vacancy percentages. Alternative insurance is available specifically for vacant buildings. These policies are easy to obtain, just ask your current broker.

It's best to have a plan for your vacant property. Even hold for 12 months pending market improvement then list for sale is better than not offering a plan to use the property. And while you hold the property, there are some things that you can do to minimize your risks. If it is a residential property, make it appear occupied. You could put some lights on timers, leave some furniture in the home, or install some "staging furniture" (made entirely from cardboard). At the very least, drop by the property on a weekly basis, keep the lawn mowed, and in the winter drain the pipes if the building will not have heat.

With a little time and effort, you can really minimize the chance that you will take an uninsured loss on a vacant building.

If you just need the insurance - call my office today - 312-566-9700.

Property Insurance Limits in a Declining Real Estate Market

It wasn't that long ago insurance agents were explaining to property owners and mortgage brokers that they didn't need an $800,000 homeowners policy on a 2000 square foot house, even though that was the market value. Property insurance valuations can be done on three valuations, replacement cost (what it would cost to rebuild), actual cash value (replacement cost less depreciation), or agreed value (a fixed number agreed with the underwriter).

The vast majority of property insurance is written on a replacement cost basis. The idea is that if there was ever a total loss to the building, most people would want the ability to rebuild. Replacement cost includes the increased (or decreased) cost of updated building methods and includes the cost of construction to current building codes. Replacement cost is not market value. Market value is what someone is willing to pay for the building and the land in its current state. Replacement cost does not include the value of the land, which can not be destroyed. Just a few years ago, in the booming real estate market, replacement cost was usually less than the market value of the home. Insurance agents were constantly explaining to insureds that just because their house appraised for double purchase price several years prior does not mean that the insurance value needs to be increased. This fight was often lost with the mortgage company with the processor saying over and over again "we need to insure the mortgage value" or "that's not what the appraisal says." Many homes went over insured, and premiums were inflated.

Now most homes have declined in market value. Especially in urban settings, market value of the home is now replacement cost. So what's a homeowner to do? Well, it depends on your objective. If there was a significant loss would you rather rebuild at the same location, or take one of the comparable properties on the market at a lower cost? If you would want to rebuild, you need to make sure the insurance policy limit covers the cost to rebuild. Sometimes that can be found on an appraisal, but most mortgage companies don't require it to fund the loan, so it's often not done. If it wasn't done, your insurance agent can help you determine a replacement cost for you. This number could be higher than the purchase price.

If you would just buy a new home for market value (assuming it's still less than replacement cost), than you would want to insure your home for actual cash value. This is the replacement cost of your home, less depreciation, and is closer to fair market value. The cost per thousand of insurance is slightly higher, but the overall policy cost can be much less. As always, don't let someone else make your choice. Your mortgage broker isn't interested in protecting you and your insurance agent doesn't know what you want. Both replacement cost and actual cash value are good options. In light of deflated home values and foreclosures, evaluate all your options.

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