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A commercial property always spells out business, be it office buildings, medical centers, shopping malls, lounges & hotels, warehouses, retail stores or farmland. Quite obvious that the word ‘profit’ keeps zooming in and out of focus whenever a transaction is finalized regarding the deal of commercial properties. To grade such a property on its suitability of being sell-able, it’s needed to review the properties on few parameters due avoid biased opinions and decisions. Primary factors behind the premium development for commercial asset can be shortlisted as:
• Coverage form (contents, building, business income, etc.)
• Cause of loss form (Broad Form, Basic Form, Earthquake Form, and Special Form)
• Building construction
• Building occupancy
• Property Location
• Insurance amount being written
• Applicable coinsurance requirement
The rating phenomenon can be categorized as class ratings (applicable to rate majority of the business classes) and specific ratings (referring to risks that are not eligible for class rating). These can be used to reflect how individual business is distinct from the others within the same class with the help of on-site inspections.
Loss cost is an important part of the estimation that helps one build a considerable conception on rate component covering only losses and the costs associated with settling losses. Depending majorly on provision for losses and loss adjustment expenses, ‘loss cost’ is mainly the payment made by the insurer to an insured under the insurance terms of contract. Another term that gets related in this regard, is ‘Coinsurance’, an insurance policy provision requiring at least 80% of the insurance to collect the full amount of a partial-loss claim, so as to facilitate achievement of rate equity and adequacy, lessening of both moral hazards that are commonly created by insurance, and assistance in maintaining the affordability of insurance premiums. Ratings parameter may undergo fluctuations depending the dynamicity of global factors, the main being economy. Along with population density and inflation rate, it is responsible for deciding the fate of an commercial estate within a country, special economic zone or location.
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