Auto garage and body shop owners must consistently be aware of the fine print when it comes to their property coinsurance policies. Coinsurance is especially important for owners in your industry because when damages are incurred on your company property, you’ll need to make sure you have enough coinsurance to reimburse you so you’re not left scrambling when it comes to your auto repair shop insurance.
Many small business owners do not understand coinsurance or do not have the necessary information in order to get the right rate that will be most beneficial to them. Most commercial property insurance policies contain a coinsurance clause that may leave you with a large bill if you happen to miscalculate our insurance needs. The basic reason coinsurance policies exist is to make business owners are insuring their property to an adequate value.
Coinsurance requires an insured party to be a coinsurer in the event that the policy limits are not sufficient to the amount of insurance required. Here’s an example:
The basic formula for determining adequacy of insurance limits is:
(Actual amount of insurance/required amount of insurance) x amount of loss = amount insurer will pay
Putting this formula to use, let’s assume we have a building valued at $100,000 with contents valued at $150,000. The total insurable value is the sum of these numbers, $250,000. Under an 80% coinsurance clause, a business owner would be expected to insurance 80% of his valuables, or $200,000.
In one scenario, if the amount of the loss in a certain incident is $50,000 and the insured only carries $150,000 in coverage, then:
($150,000/$200,000) x $50,000 = $37,500. Subtracting this number from $50,000, the business would have to cover $12,500 in costs.
On the flipside, the insured has the full $200,000 required:
($200,000/$200,000) x $50,000 = $50,000. In this case, your policy costs would be taken care of.
Coinsurance can have a major effect on your business in the short-term and long-term. Make sure you square the terms with your insurance provider of your coinsurance policy for the property of your auto garage.
For more information on coinsurance and how it can affect your business and your garage insurance, contact Wolpert Insurance & Risk Management today.