Bob - Industrial Property Insurance Question

[Joe T.]

Bob, this is probably a question for you.

I have been getting quotes for property insurance on some buildings in Winfield, KS. I have two, which have ~6,400 sq. ft. and ~2,800 sq. ft. The agents I have been able to find have given me extremely high quotes. I just want property insurance. My biggest concern is having a tornado destroy the buildings (they are on the same parcel). They all want to sell me 'business' insurance. They estimate replacement cost of the buildings at ~$400K!!!!! I paid just over a quarter of that 8 years ago and the property has not significantly appreciated. I would be happier than a hog in slop if they gave me $150K for a total loss. Most of the expensive stuff inside, cars, etc., are separately insured.

I also own a home in Kansas and one in SoCal, with now is a rental property. As background on insurance cost:

Annual Insurance Cost as a of Market Value

Kansas Industrial Property: 0.0414%

Kansas home: 0.00473%

California home before rental status: 0.0023%

California home as rental: 0.00159%

Comparing he Kansas industrial property insurance to the Kansas home insurance, it is a factor of 10 Higher!!

Can you explain this to me?

Thanks in advance,
Joe T.

[NautiBrit]

I'm a retired Property Adjuster and Insurance Restoration Contractor, not an Agent. Insurance is based on replacement value and not market value. What your insurance company is concerned about is the cost to rebuild your property in the event of a loss and therefore want you to insure it for what it would cost to rebuild.

Bob can give you the agent's perspective, but as an adjuster who handled thousands of property losses over the years, my only concern was that the property was insured to replacement value. There are business policies that insure for a stated value.

[Bob Denman]

He's right:
Insuring to what it would cost to replace the structure: keeps everybody out of Court...
Market value has absolutely no place in any conversation about insurance values...
(Personal experience: the replacement cost of my home is well over $300,000. The market value is about $200,000)

Rental properties versus owner-occupied properties is even easier: NOBODY looks out for the house that they live in, if they don't own it.

[Saluda]

Seems the new solution to insurance premiums is not to carry any. When they have a loss someone does a fund raiser for them. Have seen quite a few of these stories.

[Bob Denman]

So let's look at two possibilities:
Everybody has insurance
Nobody has insurance

If the claims damages are equal: you'll have two separate methods of settling those claims
Insurance pays the claims
Go fund me efforts pay the claims..

(Now it gets fun!)
If nobody has insurance, and everybody pitches in on the go fund me efforts:

The amount of money spent in both situations will be identical!

So you either pay the insurance companies: or the go fund efforts: it won't change anything!

[Joe T.]

Thanks for the replies.

"

There are business policies that insure for a stated value.

"

I have tried to get some brokers to work this way. They are very reluctant. Are there any 'insurance words' I could use that would help my case?

Regards,
Joe T.

[Saluda]

So let's look at two possibilities:
Everybody has insurance
Nobody has insurance

If the claims damages are equal: you'll have two separate methods of settling those claims
Insurance pays the claims
Go fund me efforts pay the claims..

(Now it gets fun!)
If nobody has insurance, and everybody pitches in on the go fund me efforts:

The amount of money spent in both situations will be identical!

So you either pay the insurance companies: or the go fund efforts: it won't change anything!

I'm referring to the guy that pays for insurance and then is expected to contribute towards someone that saved paying premiums but will accept someone else paying for his loss.

[Bob Denman]

Nobody is required to contribute to those go fund me campaigns... If you're responsible enough to carry insurance to protect yourself and your property: it's not unreasonable to expect others to do the same.

[PrairieSpyder]

I would also think, that besides the risk of your Kansas buildings getting blown away in a tornado, you'd also be covered for liabilities, etc. I'd also ask if being an absent owner makes the insurance any more expensive.

[UtahPete]

Nobody is required to contribute to those go fund me campaigns... If you're responsible enough to carry insurance to protect yourself and your property: it's not unreasonable to expect others to do the same.

[UtahPete]

I'm referring to the guy that pays for insurance and then is expected to contribute towards someone that saved paying premiums but will accept someone else paying for his loss.

Responsible people will take steps to protect themselves against devastating financial loss and not expect others (e.g. taxpayers) to bear the burden. That goes for health risks, not just loss-of-property risks.

[Saluda]

Nobody is required to contribute to those go fund me campaigns... If you're responsible enough to carry insurance to protect yourself and your property: it's not unreasonable to expect others to do the same.

Correct, which is the reason for me bringing up the subject. Just referring to what is becoming more common. People not taking care of their own needs and expecting others to make up for it. It seems there are more and more people willing to fund irresponsible situations such as these.

[Bob Denman]

Thank you...

[Joe T.]

I would also think, that besides the risk of your Kansas buildings getting blown away in a tornado, you'd also be covered for liabilities, etc. I'd also ask if being an absent owner makes the insurance any more expensive.

Basically, I am in the process of restructuring my 'business empire.' It will soon be a series of LLCs all under an S-Corp. There will be a Real Estate holding company, a maintenance company, a composite fabricating company, an equipment holding company, and an airplane design and assembly company. We are still working on the actual structure. It should be in place by summer. Some of the LLCs may actually be in Oklahoma on an Indian Reservation.

Regards,
Joe T.

[UtahPete]

Basically, I am in the process of restructuring my 'business empire.' It will soon be a series of LLCs all under an S-Corp. There will be a Real Estate holding company, a maintenance company, a composite fabricating company, an equipment holding company, and an airplane design and assembly company. We are still working on the actual structure. It should be in place by summer. Some of the LLCs may actually be in Oklahoma on an Indian Reservation. Regards,
Joe T.

I would think that because the properties are held by a business entity rather than an individual an insurance agent will have to quote business insurance coverages, which may be perceived by underwriting to carry very different risk. It's all based on actuarial risk and different insurance companies may view the risk / reward equation differently. Keep shopping.

[UtahPete]

Basically, I am in the process of restructuring my 'business empire.' It will soon be a series of LLCs all under an S-Corp. There will be a Real Estate holding company, a maintenance company, a composite fabricating company, an equipment holding company, and an airplane design and assembly company. We are still working on the actual structure. It should be in place by summer. Some of the LLCs may actually be in Oklahoma on an Indian Reservation. Regards, Joe T.

I hope you're doing this with the advice of a competent business attorney and CPA. If so, they will both be able to advise you on the kind of insurance coverage you should be carrying on your businesses (property and liability) and point you to a reputable insurance broker that represents multiple insurance carriers and can get you the best combination of risk protection and cost.

No serious business should try to operate without the advice of those 3 professionals; attorney, accountant and commercial insurance broker.

[Joe T.]

I hope you're doing this with the advice of a competent business attorney and CPA. If so, they will both be able to advise you on the kind of insurance coverage you should be carrying on your businesses (property and liability) and point you to a reputable insurance broker that represents multiple insurance carriers and can get you the best combination of risk protection and cost.

No serious business should try to operate without the advice of those 3 professionals; attorney, accountant and commercial insurance broker.

U.P.,

Working closely with my business Lawyer and CPA. I have a second lawyer who handles my property tax issues - Kansas such w.r.t. property taxes. I am trying to identify a commercial insurance broker. I have not setup the 'empire' yet. I am still a sole proprietorship. That is why the insurance companies want to umbrella every thing, I think.

Regards,
Joe T.

[Bob Denman]

You could always talk to my Legal Team:

My Lawyers.jpg

[UtahPete]

Basically, I am in the process of restructuring my 'business empire.' It will soon be a series of LLCs all under an S-Corp. There will be a Real Estate holding company, a maintenance company, a composite fabricating company, an equipment holding company, and an airplane design and assembly company. We are still working on the actual structure. It should be in place by summer. Some of the LLCs may actually be in Oklahoma on an Indian Reservation. Regards, Joe T.

One other thing. It looks to me that you are organizing for tax advantage reasons rather than business success reasons. There is a big difference between the two. I hope your CPA is a true business accountant and not a tax accountant; there's a big difference between those two also.

[NautiBrit]

Thanks for the replies.

"

There are business policies that insure for a stated value.

"

I have tried to get some brokers to work this way. They are very reluctant. Are there any 'insurance words' I could use that would help my case?

Regards,
Joe T.

Sorry, I don't know of any words that would help. Have you tried any direct writers, the companies that sell insurance without a broker? If you're a vet, you could try USAA, one of the best carriers out there.

[Bob Denman]

What have you got against Agents and Brokers...

[UtahPete]

What have you got against Agents and Brokers...

I guess he doesn't like paying commissions for a service he thinks he can perform himself. Probably not a good tipper, either.

[Bob Denman]

You might just be right... thanks!
The commission that you pay your agent; is for him to give you advice, argue on your behalf with the companies, help to settle claims, solve billing problems...
Call your direct-writer, and you're dealing with their employee: whose back, do you think that person will have?

[UtahPete]

Thanks for the replies.

"

There are business policies that insure for a stated value.

"

I have tried to get some brokers to work this way. They are very reluctant. Are there any 'insurance words' I could use that would help my case?

Regards,
Joe T.

NO.

You don't have a 'case'. You've just been given loads of good solid advice and ignored it all because you're determined to get a deal on insurance. I hope your customers take the same attitude toward your products and services because I think that's what it will take for you to wake up and smell the coffee.

[Bob Denman]

Let's look as this is another way...
There are three ways to settle out a property claim:
under a replacement cost basis
or Actual Cash Value...
or Stated value.

Replacement cost is pretty easy: you insure to what it takes to rebuild, and that's what you get if your worst nightmare happens to come true.
(Less the Deductibles: of course!)

Actual cash value basis: you insure for LESS than replacement cost, and the company will reimburse you for the depreciated value of what you had...

Stated Value: ( we use these a lot for municipalities and fire districts)
You and the company agree to a value on the building, and that's what you get.

The problem with ACV and Stated Value settlements?

People like to sue, when they don't end up with enough money in their pockets.
They sue the Agent, and they sue the company.
So it's our own fault, that you can't "buy cheap" anymore.