Risk & Business Magazine CMW Insurance Fall 2015 | Page 27

Proper Protection

Measures Owners Should Take to Protect Their Buildings Against Losses
BY: GORDON LI, CLIENT EXECUTIVE, VICE-PRESIDENT, CMW

W

hen securing insurance for a
building, property owners tend to
overlook some important considerations.
As a result, they may find themselves
grossly underinsured in the event of a
claim. Here are a few of these matters of
concern that owners should keep in mind:
Getting an Updated Building Appraisal
Should your building experience a partial
or total loss, you do not want to be in a
position where there are inadequate funds
to repair or reconstruct. In order to ensure
that the building is insured at the proper
limit, a professional appraisal is required.
Only by commissioning an appraisal
will you have an accurate assessment
of the building replacement value.
This value will include current market
prices for materials, labour, equipment
and any additional costs for complying
with current bylaws. It is particularly
important to get an updated appraisal
after the building has undergone upgrades
as it is likely that the value would have
changed significantly upon completion.
Reporting the Appropriate Gross
Rental Income
A common mistake made by property
owners is providing the current rent
roll when asked to report gross rental
income. The rent roll being provided

should actually be a projection of gross
rental income two years ahead. Why? If
a claim occurs during the policy period
and the gross rental income was taken
from the time the policy was secured,
there is a high chance of underinsurance.
A lot can happen from the time a policy
comes into effect and when a claim occurs,
especially if the loss occurs near the end of
the policy period. In addition to normal
rent increases allowed by the Residential
Tenancy Branch, any turnover in tenants
may further increase the amount.
Being underinsured could cost you even
more than you would expect. Insurers
operate on a 100% co-insurance basis
when it comes to gross rental income. Coinsurance is one of the least understood
insurance concepts but can significantly
affect the amount of coverage that is paid
out. It is the requirement in your building
policy that you insure your property
or income stream to an appropriate
level. Otherwise, a penalty is applied.
Should a partial or total loss occur, and
the adjuster finds that the building was
underinsured, a penalty of 100% is applied
for the discrepancy. As the building
owner, you would be responsible for the
difference in the gross rental income.

Old Policy Wordings Pertaining to Gross
Rental Income
Depending on the insurer, some building
insurance policies will contain outdated
wordings that are detrimental to you if a
claim arises. In old policy wordings, there
was a common exclusion for rental income
lost due to repairs or upgrades being done
to adhere to bylaw requirements. Newer
policies no longer include this bylaw
exclusion. If you are purchasing a new
policy or in the renewal process, it is in
your best interest to ensure this exclusion
is not present. Be sure to ask your broker to
review your policy wordings to look
for this exclusion and have
it removed if found.

Gordon Li is a Client Executive, Vice
President at CMW. He specializes in
providing industry-leading insurance and
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