There are a number of disasters people hope to never face and your business catching fire is up near the top of that list. As much as we don’t want to ever have to face this disaster, business fires do happen.
So what should you do if your company does experience a fire? We asked Kramer Agency Insurance Agent Michael Thomas that very question.
Q: What are the immediate actions a business owner should take if their business experiences fire damage?
A: Call to set up a property claim with your insurance company—this is important to do right away. When setting up that claim, most of the time, you are just going to need to have the address of the property handy. The fire station is going to have a report on all fire claims, and they’re going to send out a Fire Marshal to do a fire report. The only other thing I would say is to give your insurance agent some extra information on the extent of the damage if you can—let them know if it’s smoke damage or a total loss, things like that.
From there, you can give a local fire restoration company a call.
You can endorse your property limit at any time. So, with most of my clients I review with them yearly. We just review the property limit and make sure everything looks right.
We use tools like replacement cost tool software. We kind of have a good idea of what it costs per square foot to rebuild for different types of construction, like if it’s metal or frame construction, stuff like that.
Q: Can you explain the key elements of a typical business insurance policy that covers fire damage?
A: Property coverage will cover the cost to fix the fire and smoke damage. Loss of income coverage with extra expenses is also very important.
A lot of people don’t understand business income and extra expense coverage. Most businesses fail because they don’t have that coverage or they don’t have the proper limit for that coverage. If there was a fire at a restaurant, and they’re going to rebuild, that’s great, but if you don’t have income coverage, you won’t have any income for that year or two that it takes to rebuild. Extra expense coverage will help to make sure that you don’t lose your talent because it’ll pay your employees’ salaries even though they’re not working. And, in certain scenarios, it can also pay for a temporary place to work.
Q: What should business owners look for in their policy to ensure they are adequately covered for fire damage?
A: The Property limit is very important, especially now with the rising cost of construction.
Q: What types of documentation are essential for filing a fire damage claim?
A: The company is going to request a list of all business property that was damaged.
I always tell my clients that pictures are worth a thousand words and they’re worth way more money than that because all an adjuster needs is pictures of a business to figure out what everything’s worth. If you have pictures, everything is much easier.
I suggest that people go through every room, and take a snapshot. Open up drawers and take snapshots. If you have stuff in closets, open the closet and take a picture of the stuff inside the closet. For a typical business, a couple dozen pictures is all that’s needed.
Most businesses will have an inventory sheet as well. For both the inventory sheet and the photos, they should have copies uploaded offsite in the cloud.
Fire and explosions rank as the largest single cause of corporate insurance losses, making up 21% of insurance claims in recent years (Allianz Commercial).
In 2022, non-residential structure fires in the U.S. caused an estimated $4 billion in direct property damage, involving around 140,000 reported fires (NFPA)
Q: Are there any common mistakes you see businesses make in these sorts of situations?
A: The biggest mistake, especially in smaller claims, is people thinking that they can do the work or that they can have a normal contractor come in to do the work. You really want a fire and water restoration contractor—not getting the right contractor is a big mistake.
The second biggest mistake is not setting the policy up to your needs. Instead, sometimes, people will just go with an insurance agent because they have the cheapest price. They get an insurance policy because it’s what the bank requires them to have. These are completely the wrong things to do. The bank requires you to have just enough insurance to cover the building. They don’t require you to have any of the business income coverage or any of the extra expense coverage that you really need. So, what people really need to do is go to an insurance agent that specializes in commercial insurance. T
hen, of course, it’s a bad deal in a total loss when you don’t have proper documentation like photos and inventory lists.
Q: How long does the process take working with an insurance company?
A: The process can take only a few weeks to years depending on how bad the fire was. It is important to work with the adjuster to make the process go smoothly.
Q: What is the role of an insurance adjuster in the fire damage claim process?
A: The adjuster will help answer any questions or concerns pertaining to coverage. Q: WHAT OPTIONS ARE AVAILABLE FOR BUSINESSES THAT NEED TO TEMPORARILY RELOCATE DUE TO FIRE DAMAGE? A: They will need to make sure they have business income with extra expense coverage and talk to their agent about a proper limit for their business.
Q: How often should business owners review and update their insurance policies to ensure adequate coverage?
A: I would suggest you review your policy yearly.
You can endorse your property limit at any time. But I like to review the policy with most of my clients yearly. We review the property limit and make sure that it sounds right. We use tools like replacement cost tool software. We have a pretty good idea of what it costs per square footage of the building for different types of construction—like metal or frame construction.
But it’s really important to make sure you have enough coverage, especially with what’s going on in the marketplace.
Q: What changes in a business could necessitate an update or adjustment to their fire damage coverage?
A: Any changes to the building, a move, a purchase of additional equipment, or any building updates.
Q: What should people look for in an insurance agent?
A: I would ask an insurance agent if they insure a lot of businesses. I would ask them if they insured any of my competitors. I would look for someone who knows how to write for the specific business that I’m in. I would want to know what their expertise is.
Q: Is there anything else you want to say to our readers?
A: Right now, the insurance industry is a hard market. There are increasing rates and coverage cuts. They’re making big changes on policies, and it’s the insurance company’s right to make a change. They can do it every policy period— usually, this is once per year. So, just because you took a policy out three years ago, doesn’t mean that that policy is the same today as it was three years ago—it could be drastically different. It’s also very important to have an agent that educates you about changes that are being made to your policy.
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