Inflation Guard: Mitigating Underinsurance issues for Commercial Property

Rising inflation heightens the risk of property undervaluation in your commercial property insurance policy. Factors such as labor shortages, wage increases, supply chain disruptions, and rising raw material costs drive up building expenses, potentially escalating the severity of insurance claims and increasing the likelihood of underinsurance for policyholders.

To address these challenges, policyholders can consider adding an inflation guard endorsement to their commercial property insurance policy. It’s important to understand the risks associated with property undervaluation and be aware of how inflation guard endorsements can help mitigate the financial consequences of underinsuring property amid inflationary pressures.

Coinsurance Considerations

Coinsurance is a provision in certain commercial property insurance policies that allows the insurer to reduce claim payments if the policyholder has purchased insufficient coverage. As a result, underinsured policyholders may face significant out-of-pocket expenses following a partial or total loss, potentially hindering their ability to resume normal operations. Inadequate coverage can lead to a costly coinsurance penalty affecting both a company’s buildings and its business personal property.

The Use of an Inflation Guard Endorsement

One potential solution to the risk of property undervaluation is an inflation guard. Adding an inflation guard endorsement to an existing commercial property policy can protect insureds by providing automatic, periodic increases in the amount of property insurance coverage.

The purpose of an inflation guard endorsement is to assist the insured in meeting coinsurance requirements and to protect against underinsurance caused by rising building costs. It may also lessen the need for constant monitoring of property insurance limits. The inflation guard endorsement option is activated by an entry on the declarations page of a percentage increase in limit of insurance applicable for each year.

In Conclusion

Proper and up-to-date property valuations are an essential part of making sure that your business’ commercial property is appropriately covered by your insurance policy. For more guidance on commercial property valuations and/or inflation guard endorsements, contact Concierge Insurance Group today.

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