A lot of factors go into determining the extent and cost of a building's insurance coverage: replacement cost, location, number of units, and claims history top of the list, but on closer inspection, there are plenty of ways to better position your building to qualify for lower premiums - and avoid some of the pitfalls of shopping for insurance.
When assessing a building for coverage, insurance providers go over everything with a sharp eye. They'll count the number of units, the size of the building, the presence of swimming pools or tennis courts, and the size of the lot the building is on. Most insurance companies will factor in the size of the building first, coming up with the estimated replacement cost per square foot. For instance, if your building is 10,000 square feet, the insurance company will determine the cost of replacing the materials in one square-foot, then take that dollar amount and multiply it by 10,000 to determine the overall initial replacement cost.
But that's only the beginning. When insurance companies talk about fire risk, for example, they usually follow the COPE acronym: Construction (is it fire resistant?), occupancy (is there someone in the building who makes explosives, or is there potential for a fire from a restaurant in the building?), protection (is there a sprinkler system in the building?), and exposure (is it next door to a hazardous site?)
Other factors are loss experience, the history of the property, and the record of losses - all factors which may lead to higher rates. "Insurance companies charge for frequency and severity [of claims]," says Herb Feldman, CEO of Great Neck-based Alpha Risk Management, an insurance consulting firm, who added that there are ways to get around frequent claims (see sidebar.)
Interestingly, while not necessarily a factor in and of itself, insurance companies and insurance consultants like to see owners value their property. "What we basically look for in a condo or co-op," says Carol Guerra, a commercial property and liability manager at Allstate, "is that the management has a pride of ownership and their morale is high about insurance."