Inflated material costs, supply chain interruptions and cybercrime have all created a challenging landscape for the commercial real estate industry.
As expenses rise, it’s understandable you may be looking for new ways to manage costs, including those within your insurance policy. There’s one caveat, though—your insurance policy is often one of the few ways to protect your business from the financial risks that could harm your bottom line.
The good news? You can still adapt to the current economy, protect your business and reduce long-term costs with a few updates to your policy. To help you protect your buildings and those who rely on them, I’ve compiled three trends that could affect the commercial real estate industry in 2023, including what you can do to prepare.
Trend 1: Increases in Building and Material Valuations
The building and property values you previously established, even as recently as one year ago, may no longer reflect current conditions due to inflation. If areas of your building suffer damage, the amount to replace or repair your structures could cost significantly more.
Including an inflation guard provision in your insurance policy and updating your property valuations can help you avoid underinsuring your facilities. An inflation guard allows you to set a percentage increase to your business’s property limits throughout the term of the policy, while an updated valuation can help make sure you have enough insurance to reduce the risk of paying out-of-pocket.
You can review your valuations and coverages with an agent to make sure it’s current for today’s environment. If you need to make updates, they can walk you through any necessary adjustments.
Trend 2: An Increase in Severe Weather Events and Business Interruptions
Fires, hurricanes, tornadoes and hailstorms can all damage or destroy your buildings. Over the past 50 years, a disaster related to weather, climate or water hazards has occurred every day, according to the World Meteorological Organization. The number of weather-related disasters increased by a factor of five during that 50-year period and resulted in $105 billion of insured losses in 2021. Throughout many regions, severe weather has become more unpredictable, and in some cases, more frequent.
With supply chain disruptions and material shortages delaying repair timelines, it may take months longer to fully restore your business than it did just a few years ago. Business income insurance can act like a form of disability insurance for your business. If your properties suffer a catastrophic loss, it can help you pay for overhead costs, employee wages, and lost profits while you rebuild.
While business income insurance has always been important for commercial real estate businesses, you may need to update your policy to account for longer recovery times. Your insurer can share what they’re seeing in your area, advise you on the right length of coverage for your business and help you develop a business continuity plan to protect your team.
Trend 3: A Rise in Cybercrime
Cyber threats are now a constant. Some estimates show a cyberattack occurs every 11 seconds. The advent of smart buildings has further exposed facilities to cyberattacks, with criminals infiltrating technology like environmental control systems as their gateway to channels that aren’t accessible from outside of the system.
There are several steps you can take to protect your business and its facilities, though. The first is to hire a security expert to assess your risks, address vulnerabilities and outline how to overcome them. It’s also important to provide security training to your staff and establish a backup system for the important data you store.
Finally, cyber liability insurance has now become just as important as other coverages like commercial property or auto insurance. This coverage can provide a safety net for your business when—not if—a cyberattack occurs. It can help protect you in cases of ransomware, data re-creation and business interruptions.
The Bottom Line
Insurance is one of the most valuable assets you own, second only to the buildings you manage. Don’t let an overlooked risk threaten what you’ve built. By being proactive, you can protect your property, reduce your costs, and improve the safety of your company in the upcoming year. Just don’t delay having the conversation. Talk with your team and insurance advisors to identify a plan that works for your business.
With adequate preparation, you can stay one step ahead of emerging risks and give yourself peace of mind in the year ahead.