As an insurance company underwriter, ordering a commercial inspection is standard procedure when looking at writing insurance coverage for a business. Whether a new policy or the renewal of existing coverage, a commercial inspection is needed for several reasons:
- To ensure accurate valuation of the building for replacement purposes
- To ensure the business is not being over-insured
- To create a full property description, more complete than that included in the summary found in the policy application
- To highlight specific maintenance and safety efforts and needs
- To uncover any problems that could be the cause of future losses
- To evaluate the basic insurability of a commercial concern
Commercial Inspection Communications
While some insurers may send their own safety engineers out to conduct a required commercial inspection, others will outsource the task to an insurance inspection vendor such as Insurance Risk Services (IRS). Inspectors will ordinarily notify the manager of the property or business that they’ll be conducting the inspection on a certain day but sometimes they may show up unexpectedly and unannounced.
It’s a natural tendency for those facing an insurance inspection to feel a degree of anxiety. Few business or property managers welcome the inspection process but it’s in their best interests to approach an inspection with a spirit of cooperation. They may feel that any problems uncovered by the inspector will have a negative reflection on their company or business. While it’s true that the primary purpose of a commercial inspection is to provide you, the insurance underwriter, with information needed to make accurate underwriting decisions regarding whether to insure a particular business and how much to charge for a policy, the proposed insured may also benefit in a number of ways. It may simply be viewed as a cost-free loss prevention inspection.
While the inspector will typically not communicate directly with the business being inspected about findings of the inspection, the report sent to you, the underwriter, may contain much valuable information that you can pass along to the proposed insured. Existing or potential hazards may be found that should be mitigated to qualify the business for insurance coverage. Handling these will enable the business to improve safety conditions for workers, occupants, and visitors. A business’s willingness to perform corrections you point out to them should also factor into your underwriting decisions.
A thorough, professional commercial inspection is also a good way of prolonging the useful lifespan of a property. It can help confirm that a particular property complies with all appropriate regulations, safety, and otherwise, and uncover any small issues that can be addressed before becoming larger issues.
What’s Checked During a Commercial Inspection?
Inspecting a commercial property typically involves checking the status of five systems:
- The roofing
- The building’s structural integrity
- The electrical system
- The plumbing system
- The HVAC system
The inspector will verify if these five systems are working properly, are in good condition, and estimate their approximate life expectancy. Also included during the building’s interior inspection will be checking fire safety systems and building alarms. A detailed fire safety inspection is especially important in occupancies with manufacturing, warehousing, or commercial kitchens on site. A check should be made of the fire sprinkler system, heat and smoke detectors, fire extinguishers, fire alarms, and emergency lighting.
Interior inspection will also include checking that the interior space of the building meets local building codes and any potential safety risks are uncovered. Included will be floors, walls, and ceilings. Checks will be made of offices, bathrooms, kitchens, and storage areas. Recommendations for any needed renovations may be made, especially in areas that aren’t up to current building or fire codes.
An exterior inspection will include the outside walls and roofing as well as the parking lot, sidewalks, landscaping, and any exterior structures. It should be determined that the exterior is structurally sound and note any need for repairs.
A commercial inspection will typically include the review of numerous documents such as:
- Floor plans
- Evacuation plans
- Building plans
- Construction permits
- Certificate of occupancy
- Environmental studies
- Fire safety system records
- Maintenance records and more
All inspection findings will be documented in a report to be submitted to you, the insurance underwriter. The report will include written evidence of findings as well as photos and/or videos for clarification. Included will be any recommendations on corrective actions required to mitigate problems found.
Timing of Inspections
Typically, a commercial inspection will be conducted within 30 days of a new policy being issued. This gives you, as the insurer, sufficient time to cancel coverage if it’s determined that a policy you’ve issued is no longer seen as advantageous to your company. There may be a number of reasons for this.
If it’s determined through the inspection process that a business or company is seen as a bad insurance risk, a policy that’s already been issued may be canceled within the allowable time limit set by the state. This allowable cancellation window may be different from one state to another.
Coverage could also be conceivably canceled if your insurance inspector has made multiple attempts without success to contact the person in charge of these types of things at the business to be inspected. While the inspector may make several attempts at contact, it’s the responsibility of a responsible individual at the business to be inspected to confer with the inspector. Time is a critical factor since the inspection must be made and the report completed during the cancellation or risk acceptance window. Another reason for cancellation may be if the recommendations suggested for mitigating risks at the business inspected are ignored.
Why Commercial Property Insurance Inspections are Needed
Commercial properties present complex risks to insurers in the hazardous climate of today. Besides the age-old risk of fire, which has always been an important consideration in underwriting a business’s insurance risk, things like property location, area crime rate, and internal business operations are all major factors when determining risk.
A thorough commercial inspection enables you, the insurer, to determine if the true risk presented within a facility matches up with the risk represented in the policy application. It helps in determining if a property is correctly valued and if the proposed insurance coverage is accurate.
How the insured responds to recommendations in the insurance report that you’ve brought to their attention can also be an important factor to be considered in the underwriting process. Some recommendations may not be critical to accomplish immediately, such as improved exterior lighting, while others such as a leaking roof or substandard fire safety systems will need to be tackled immediately. The insured’s willingness to comply is one indication of their true risk profile.
A High-Quality, Reliable Inspection Makes a Difference in Underwriting Accuracy
Insurance Risk Services (IRS) has been assisting insurance underwriters to make more informed and accurate underwriting decisions for decades. We deliver custom-tailored solutions to our partners’ unique underwriting needs. Our personalized service can help you decide which insurance risks are worth underwriting, helping your company in becoming more efficient and profitable. Contact us today to learn how we can help you too.