Impacts Of The Recession On Insurance

Kathy Parker, CPCU, AIS, CPIW
Sr. Business Analyst, Professional Services - Insurance Solutions

As I drive to work and other places I notice more and more businesses that are closing their doors. My first thoughts go to sadness for the community and for the business owners. A second thought quickly follows regarding all the new and hazardous exposures now present for these vacant business and all the properties nearby. These perils and potential hazards arise out of property, crime and liability based concerns.

From a property insurance basis, there is, of course, a higher exposure to fire losses from a variety of risks. The property is quite often not being monitored and maintenance is usually minor or non-existent. The exterior of the building is exposed to trash, overgrowth of vegetation, and items dropped or left behind by people. Knowing that the building is vacant, people will pay much less respect to a property than when it is inhabited. A vacant property can additionally attract criminals, drug dealers and other unsavory characters who can more easily conduct illegal activities near or in the property. These activities can result in fires, vandalism, as well as theft of any business property outside or inside the vacant building. Fires, vandalism and other vulnerabilities can occur when a property is not being monitored and damage done more quickly than if the property has regular surveillance.

The vacant building is not just a liability for the building owner. Its vacancy and new potentially hazardous environment becomes a liability and insurance risk for any adjacent and neighboring properties. Those owners and tenants should be aware of the increased dangers to their property and take measures such as increased inspections, alarm systems and other key measures to ensure the health and well-being of themselves, their employees, tenants and customers. Failing to do so could result in property, liability and/or Workers Compensation losses.

There are also somewhat hidden dangers to property that is vacant. A building owner will want to conserve money rather than spending money on a vacant property. In an effort to accomplish this, water and heat may be turned off. During the colder months dropping temperatures could cause water pipes to burst when there is no internal heat to protect the pipes. Similar concerns exist around sprinkler systems as they can also be subject to bursting or breakage. In the event of a fire, broken or inactive sprinkler systems now cannot control the fire. And in any of these cases, lack of regular occupancy would certainly cause a delay in the discovery of damages and likely a more costly claim.

When a property becomes vacant there should be some key activities that the property owner should take on to better protect his property during its period of vacancy. First and foremost, he should notify his insurer. That contact could be to a risk manager, agent or his insurance company. They can ensure that his property is protected from an insurance standpoint. They can also provide important advice on actions that need to be put in place to keep the property safe.

Some of these key measures follow:

  • Provide exterior lighting; This action will help to decrease the chances of crime, fire and vandalism
  • Make regular inspections of your property
  • Restrict access to the parking lot and adjacent building(s), if possible
  • Maintain enough heat to keep pipes and sprinkler systems safe
  • Notify police and fire departments when a building becomes vacant and when it is again inhabited

Although there is nothing that can completely protect vacant property from additional risk, these items, along with proper insurance coverage, can mitigate the some of the potential loss factors.

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