In our continuing series “LRO Academy,” we look in this post at operational considerations around evaluating, recommending and selling Commercial Lessors Risk Only (LRO) policies. With building ownership comes great responsibility and for building owners who are also landlord and tenant, Lessors Risk is a vital part of doing business as a commercial property landlord.
LRO coverage is a safety net for clients if their actions and loss mitigation measures are insufficient or ineffective. Commercial or residential buildings with dedicated, professional management teams are usually well-maintained with good occupancy ratios, making them good prospects.
The status of maintenance, repair, and upkeep of a commercial building is an indicator of management’s commitment and the resources available to sustain the building’s condition over time. Understanding maintenance practices is an important part of the risk selection process for a commercial property underwriter.
What to Look For: Tenant Types and Locations
When recommending and selling a Commercial LRO policy, retail agents and brokers should consider their prospective client’s tenants.
For a residential property, what are the demographics of the typical resident, i.e., housing for seniors may be less risk than student housing.
If a building is primarily commercial, does the tenant mix add to the risk profile of the property? For example, bars and restaurants, by nature of the business and the clientele, increase risk to provide a sound evaluation of the tenancy.
The restaurant and bars will likely need to provide you information regarding the type of food served; ratio of alcohol/food sales; operation hours; fire suppression systems in the kitchen; use of fryers; ongoing maintenance contracts including exhaust ducts, plumbing, grease containment and recycling; whether there is live entertainment on premise.
Adjacent properties are also part of the equation – where are other adjacent business and residences located? Data on adjacent buildings, including exposed walls, hazards, construction, and distance, provides an underwriter with critical information. For example, a property near a high-hazard operation or next to a storage tank with flammable liquids can present serious potential risks.
Brokers and agents should also know about additional exposures, such as wildfire risk; potential for damaging winds or flood waters; and proximity to identified flood and/or quake zones.
Information on liability exposures can be of assistance to a commercial underwriter’s assessment of risk at properties they’re insuring. Premises exposures – such as storage areas, balconies, stairs, and handrails – can play a significant role in underwriting decisions. You also need accurate information on other premises exposures, such as swimming pools, animals, lighting, fire escapes, and elevators, to name a few.
Review, Evaluate Hazards
Every retail broker/agent should have an understanding of both common and special hazards. If you’re working with a commercial property client, everyone benefits when you give your insured recommendations for reducing hazards and improving protection deficiencies at the property.
Knowing the hazards lets us adequately price the risk based on current conditions. By example, common hazards include deficiencies in electrical components, heating systems, and housekeeping. Special hazards include flammable and combustible liquids, spray-painting operations, commercial cooking, welding, and cutting.
Novita Insurance Solutions is here to support you in being the best, trusted source possible for your landlord clients and prospects when it comes to Commercial LRO. Contact us; we’re here to help.