Insuring a commercial building: key factors for the right coverage

1. The nature of the activities carried out in the building

The type of activities has a direct effect on the level of risk and, consequently, on the premium. A dental office, a restaurant and an auto repair shop don’t share the same risk profile or commercial insurance needs.

Risk increases when activities involve:

• Flammable products
• Specialized machinery
• Heavy foot traffic
• Valuable equipment

The higher the risk, the stricter the conditions may become: higher prices, increased deductibles and, in some cases, refusal of coverage.

2. Risk factors

Certain other elements, beyond common risks such as fire, theft and vandalism, can also increase risk:

• Inexperienced workforce
• Poor maintenance or damaged buildings
• Outdated technology and equipment
• Insufficient staff training
• Premises not suited to their intended use

Location matters, too. The premium for a building in a flood-prone area will be higher. The insurer may also restrict coverage or, if the risk is too high, refuse to insure you altogether.

3. Occupancy status: owner or tenant?

As an owner, you bear full responsibility for the risks associated with your property. Your insurer may periodically request a professional evaluation to assess the building’s condition, necessary repairs and any associated risks. If the building is financed, your lender may also require specific clauses in your policy.

If you’re a tenant, you’ll need to cover your property and liability and take out tenant’s liability insurance. The building’s owner may also request:

• To be added as an additional insured on your policy
• A waiver of subrogation clause. This prevents your insurer, after compensating you, from suing the building owner even if they were responsible for the damage.

Before signing a commercial lease, discuss these requirements with your insurer to understand their impact on your coverage and premium.

4. Nearby commercial activities

Even if your own activities are low-risk, your neighbours’ operations can influence your insurance. If a business with higher-risk activities is nearby, some coverage types may be limited and your premium could rise. Your insurer might even outright refuse coverage.

Before renting, ask the landlord about their selection criteria to avoid bearing the consequences of decisions outside your control.

Ask the right questions before signing

Buying or leasing a commercial building is a business decision that involves far more than cost or location. Risk level and commercial insurance requirements can influence your choices.

Your insurance broker can help you clearly assess these factors so you can properly protect your investments.