The U.S. commercial real estate market is still reeling from the effects of the COVID-19 pandemic. Building owners hoped that the dearth of occupancy would only be temporary. Not only did rental income plummet, but properties with significant vacancy are more likely to fall victim to vandalism, water damage, and theft. And most commercial property insurance policies include a vacancy clause which, according to the Independent Insurance Agents & Brokers of America, Inc. (IIABA), reduces coverage or, in some cases, eliminates certain types of coverage if a building falls below a specific level of occupancy (usually 31% of the property’s total square footage). Despite the wishes of these owners, however, the days of full-time onsite work requirements appear to be a thing of the past.
According to a report from Gallup published last Fall, only 20% of remote-capable employees reported having spent their entire week in the office. That number is down from 60% just five years ago. The report also adds that, “Eight in 10 chief human resources officers (CHROs) from Fortune 500 companies surveyed by Gallup report that they have no plans of decreasing remote work flexibility in the next 12 months.”
Insurance agents looking to provide their clients with options other than, “grit your teeth and wait for the inevitable vacancy clause,” have a few options. First, agents should recommend notifying the carrier of a change in tenancy or occupancy at a property. It may lead to a reassessment of coverage and a change in pricing, but it’s a safer bet than waiting until the time comes to file a claim, only to find that the client may be entirely on the hook for covering the cost of damages.
Another channel agents may want to explore with their clients is vacant property coverage. According to Mike Crowley of the Crowley Insurance Agency, vacant property coverage protects against fire, wind, lightning, and other basic losses. Some carriers may even provide protection against additional events, like vandalism and theft. Vacant property coverage also applies to home insurance, as well as those individuals who might own a small investment property.
Clients should consider vacant property coverage if they find themselves in any of the following situations:
● Their property experiences a significant loss of tenancy.
● They encounter a temporary vacancy while a property is undergoing renovations.
● They are the owner of vacant or unimproved land.
● They have moved into a new property and have yet to sell or sublet their previous property.
Finally, property owners should care for and maintain their properties at the same level they normally would if the property was occupied. In an article on real estate website Globest.com, Paul Cicerchia of McGriff Insurance Services says, “Insurers look to see if owners are making appropriate capital expenditures to protect and maintain them, and insurers will be more selective about those assets.”