Weather-related disasters have increased dramatically in recent years. Higher temperatures, more water vapor in the atmosphere and rising oceans regularly make headlines. While debates around the causes persist, most people agree that climate change plays a role, and the incidents are likely to continue and become more serious.
How do these changes affect a self-storage operator’s insurance policy? Let’s look at the short-term and long-term effects you’re likely to see when looking for coverage today and in the future.
Prepare for change
The combination of more frequent and destructive weather causes insurance companies to assess their ability to insure certain risks and exposures. This is increasingly true for areas where severe drought creates the perfect conditions for wildfires and bushfires. These are happening more often and spreading quickly, leading to greater losses for homeowners and insurance companies. This is also leading to changes in the insurance market that self-storage operators need to be aware of.
Expect to see changes in insurance availability and coverage terms for installations in high-risk areas. Due to the drought I mentioned above, areas that were not considered vulnerable to wildfires in the past are now potentially at risk. Wind, hail and hurricanes continue to be a concern in increasingly large areas. In fact, hailstorms are among the top issues affecting coverage. Not only have they become more common, hail is larger in size and causes significant damage to building roofs, siding, doors, signs, lighting, and anything outside. outside.
Another problem is ice storms. These are common in the Northeast, but they also occur in the Midwest and other parts of the country. As Texas and Oklahoma experienced last year, these storms can cause significant damage, especially if buildings are not prepared for this type of adverse weather.
Some factors that self-storage owners should focus on when evaluating their insurance coverage include premiums, availability, deductibles, terms, and the insurer’s ability to pay claims. Let’s examine them.
Premiums and Availability
The Prairie Fire that devastated a Colorado suburb in January is just the most recent example of wildfires becoming less seasonally discriminating and causing significant damage to properties previously thought have minimal exposure to disasters. The drought in the western states puts businesses at risk, even if they are far from a forest.
Firestorms like those in Colorado and Paradise, California occur when the heat from a wildfire creates its own wind system. The embers are picked up by the winds and carried for miles. Parched land allows the fire to spread further.
The upsurge in wildfires is driving up insurance premiums and reducing the availability of coverage. Self-storage owners may find themselves paying higher prices as insurers adjust to larger property claims. You may also find fewer options available to select your coverage from.
Efforts by insurance companies to reduce losses from these types of weather-related incidents – and ultimately retain the ability to offer insurance at a fair price – have included higher deductibles. high. In fact, a business can now charge what’s called an event deductible, which applies to any loss suffered by the insured property.
An insurance company may also apply a separate deductible for losses caused by wind or hail, thus reducing the deductible. This additional deductible is usually a percentage, but it can vary by policy, so make sure you understand how it’s calculated and how much of the loss you, as the self-storage owner, will be responsible for paying.
Another change you may see in self storage insurance is in terms of coverage. Instead of paying the replacement cost for roof damage, the policy can now pay the actual cash value. This means a deduction from the depreciation claim payment, which is based on the age and condition of the roof at the time of loss. Make sure you understand how your carrier views roof damage and be aware of what you will be responsible for if this type of loss occurs.
Whether it’s strong gales, tornadoes or hurricanes, the wind causes more and more property damage. In fact, tornadoes are becoming rampant even outside areas known for these types of events. These losses are generally treated the same as hailstorms in terms of insurance coverage. Your policy may even exclude wind and hail risks entirely. In this case, you will need to work with your agent to find a specialty insurance company that can provide separate coverage. Be warned: It may now cost more to have both policies than in the past and deductibles could be higher.
Ability to pay claims
Insurance companies have different financial strengths depending on the premiums collected versus the ability to pay claims. What’s important about this for a self-storage owner? It’s whether your carrier will be able to reimburse you for a loss. Ask your agent what the company’s financial rating is. Additionally, AM Best Company offers news, credit ratings, and financial data for the insurance industry, which can help you assess an insurance provider’s ability to pay.
There have been so many catastrophic events in recent years. Insurance coverage has evolved accordingly and will continue to do so. You can expect to see ongoing changes in product availability, pricing and terms. Working with an agent who understands your self-storage operation can help you navigate this dynamic environment.
Kay Schaefer is a subscriber to a self-storage program for Deans and Homeran insurance managing underwriter providing specialty coverage for the self-storage industry since 1974. For more information, call 866.753.2228.