There’s a reason we say risks are calculated; when left unmanaged, they can be costly to your business. Every industry sector and business faces unique challenges, and it’s vital that these idiosyncrasies are captured in an overall plan for mitigating risk exposure areas. A comprehensive risk approach can both control the ever-increasing cost of commercial property insurance and help your enterprise prepare for business continuity in an environment that continues to present new sources and severity of disruption.
Our list illustrates the top threats facing commercial real estate today.
1. Property Damage
Property holdings are a commercial real estate entity’s most significant asset. Long-term security relies on evaluating and managing threats that could be damaging to those assets – be they natural disasters or supply chain issues. One way to help manage risk exposure areas is to understand the full scope of what needs to be covered by your insurance policy.
If you have an incomplete or inaccurate inventory, you could find you under- or over-insured when it comes time to make a claim. Additionally, in the current commercial insurance market, insufficient data can put your organization on the fast track for being passed over by commercial insurance carriers. The more complete and accurate data insurance underwriters have, the better your coverage options will be. Head into your renewal period with a complete asset inventory, which can be accomplished through an insurance appraisal. Keep in mind that a traditional policy provides the building’s replacement cost value and the property’s actual cash value.
2. Business Interruption
We could all stand to go without hearing about a “disruptive year” again, but the reality is severe weather events are affecting more and more regions of the country, from wildfires in the West to flooding in coastal regions and in the Midwest to extreme cold in regions that are not well-equipped for sustained periods of freezing temperatures. Any of these events could make your properties unusable. Traditional property insurance does not cover temporary relocation or loss of income during repairs. Adding business interruption coverage to your property insurance policy helps mitigate this risk. It safeguards your business by compensating for operating expenses and lost income during closures and repairs.
Severe weather events may not be the only source of business interruption. The increasing sophistication of cyberattacks may also incapacitate networks and even cause temporary work stoppage. Undergoing a social engineering, red team or tabletop exercise can indicate how cyber interruption may affect your business and help you adopt the right mitigation procedures, including cyber liability insurance.
3. Liability Losses
Speaking of liabilities, it’s always wise to check in with your coverages for commercial general liability. The coverage can be a catchall for areas of unexpected risk, such as claims of bodily harm that arise from your properties, personal injury (such as libel or slander), advertising injury and property damage. Your commercial general liability insurance coverage helps you with defense and settlement claim expenses so that your operations can maintain a normal cadence during liability-related issues. Review your current coverages and consult with your team on whether those limits need to be adjusted for today’s risk environment.
4. Personnel Shortages and Losses
The labor market being what it is along with the public health emergencies experienced highlight how vital key personnel can be to maintaining day-to-day operations. If a critical employee suddenly or without much notice went out, your current performance level and revenue stream may be affected. Key person insurance can help you cover financial loss of the employee or compensate a temporary replacement. It is designed to provide financial stability and allow your operations to continue with minimal disruption.
Many organizations are also getting creative with their staffing arrangements by identifying where coverage might be undersized to meet their needs. Co-sourcing departments or bringing on additional third-party staff members to assist with transitional periods can also help mitigate the disruption that comes from personnel-related issues.
5. Environmental Exposures
Traditionally, commercial real estate has not be a sector at a higher risk for environmental liability losses. Depending on where properties are located, though, your operation may have environmental exposures as well. For example, most commercial insurance policies contain pollution exclusions. A comprehensive risk analysis can determine your business’ level of exposure and indicate whether separate environmental insurance coverage may be worthwhile.
6. Employment Practices
Employment risks affect every organization; 60% of employers will be sued by a prospective, current or former employee. Defending your organization even against groundless claims can be expensive and time-consuming. Employment practices liability insurance helps protect you against wrongful termination, discrimination (age, sex, race, disability) or sexual harassment lawsuits by helping to cover the costs of those suits. For a closer examination of how your approach measures up to your employment practice exposure, download our Assessment for Employment Practices Liability.
Every contract your business signs carries a potential for risk, but many leaders don’t have time or expertise for an adequate review of what they’re signing. This could lead to inadvertent risk transfer to your organization.
It also pays to take a closer look at contracts and arrangements, particularly with suppliers. You may find cost overruns or overages that can help you offset the cost of that additional contractual insurance coverage.
Next Steps for Managing Exposure Areas
Insurance is a key component of any comprehensive risk management plan, but successful risk management also involves prevention, training and contingency planning. Connect with a member of our team to learn more about the tools and resources we offer to help you manage risks.