An Insurance Worry for Building Owners — Empty Offices

COVID changed the shape of businesses. It led first to total work at home, or remote locations, and following the pandemic came a strong push by employees for hybrid work. A few days at home, a few days at the office.

That has led to record levels of empty offices in U.S. cities and towns.

Office vacancy is now at record highs. Moody’s Analytics said in 2023’s fourth quarter, office vacancy was 19.6%. The previous record high was during 1991’s savings and loan crisis when vacancies hit 19.3%.

The 19.6% is up from 19.2% in the third quarter and 18.7% of the fourth quarter of 2022.

It has led to a suggestion from USI Insurance Services that the owners of these empty buildings take a hard look at their insurance policies. Vacancies — said Jeff Buyze of USI — can have a big affect on coverage.

He said with most policies “there’s a vacancy clause that specifies if, how and when coverage would be restricted if a property is vacant,” Mr. Buyze said. “After 60 days, restrictions typically start coming into play for certain perils. For theft, water damage, malicious mischief, vandalism.”

Exclusions start to apply after that.

Rick Miller of Aon PLC said unoccupied buildings have become an insurance concern because of questions about how well managed they are, and whether the owners of those buildings are doing to work to make sure they are properly maintained.

“Does the building owner have the resources to continue to do everything right, to keep security up, to keep the sprinklers on, to keep the heat going?” Miller said. “It’s not to say it’s an automatic. It’s not to say a vacant building isn’t properly taken care of, but it increases the potential for that increased hazard or that unforeseen component of a loss happening.”

Buyze said another big concern is security.

“We’ve had that happen where carriers want to see a watch service, whether it’s a nightly watch service or 24/7, hiring a third-party security firm to look after the location while it’s vacant,” he said.

Pathpoint’s Ralph Blust took a different look at the problem. He said demand for coverage for vacant buildings is rising and many admitted insurers aren’t willing to provide much coverage for a building with less than 50% occupancy.

“It’s not just 100% vacant, it’s also where the majority of the structure is vacant and you have limited occupancy. Those are higher risk,” he said.

Source link: Business Insurance —

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