Wildfire season typically occurs between July and November in California. However, the California Department of Forestry and Fire Protection maintains global warming is causing wildfire seasons to start earlier and last longer. In 2021 alone, wildfires burned approximately 2.6 million acres across California. The damage wildfires cause continues to increase, year after year. How many property owners were properly insured, and how many will be as conditions continue to change?

We’re approaching this year’s wildfire season, and it is likely to be another bad one. Fortunately, there is still time to ensure your business and commercial property are adequately covered under your insurance policy.

Below are some policy provisions to be aware of, an explanation of the importance in conducting an annual insurance check-up, and some key preventive measures you can take to protect your business property.

Policy Provisions and Coverages of Which to Be Aware

Watch out for coinsurance provisions and penalties for being underinsured, as well as business interruption coverage. These are policy provisions all commercial property owners must become aware of in order to adequately protect your businesses in the face of threatening wildfires.

Some commercial property insurance policies contain a coinsurance clause. If such a clause exists, insuring the property for too little will subject the policy holder to a potentially significant penalty. The purpose of these clauses is to ensure the property is insured properly at an appropriate value and that the insurer receives a fair premium for the risk to be insured.

Coinsurance is typically expressed as a percentage. For example, an 80% coinsurance provision would require a building valued at $1,000,000 to be insured for no less than $800,000. If the property is underinsured, the policyholder will be subject to a coinsurance penalty, calculated by a formula set forth in the policy. Coinsurance clauses can apply to business interruption coverage as well; thus, it is very important to insure your business’s revenue stream at an accurate level.

Business interruption coverage is included in many commercial property insurance packages. This type of coverage became more commonly invoked during the Covid-19 pandemic but traditionally operates to protect business owners in the context of perils such as wildfires. Business interruption coverage allows for a policyholder to recover for losses the business has incurred through various forms of business interruptions. The type of recovery allocated varies from policy to policy, although loss of profits is often included.

Often, business interruption coverage will allow a policyholder to recover for loss even if the insured property does not experience any physical damage. For example, there may be coverage for loss of profits or extra expenses if the business was forced to evacuate due to a threatening wildfire, even when the wildfire never reached the property. Therefore, it is imperative to know whether your policy contains business interruption coverage and to what extent you are covered if your property were to be affected by a wildfire.

The Importance of Conducting an Annual Insurance Checkup

An annual insurance checkup is when you call your insurance broker or company to discuss your current policy’s limits and coverage. Although doing this on a yearly basis may seem excessive to some, this annual checkup will likely save you money in the long run.

The terms of your insurance policies can change year to year, just as your business is likely to change each year. Therefore, the policy provisions, coverages, and limits that were best for you last year, may not be what you need this year. In addition, certain changes to the physical property itself should be reported to your insurance provider to guarantee full and proper coverage. Some policies contain requirements, such as the installation of sprinklers within the building, as a condition to coverage under the policy.

As it applies to coinsurance, changes to your business or revenue could affect the amount of coverage required under your policy.

By conducting an annual checkup, you will be putting yourself in the best position possible for the disaster that a wildfire can cause to your business and property.

Preventative Measures Businesses Can Take for Fire Season

As a business owner, it is also extremely important to take preventative measures to prevent or limit the damage a fire could inflict upon your property.

You should pay special attention to the surrounding areas within five feet of your building. Removing dead vegetation or debris, and eliminating objects made of combustible material from this area will limit a fire’s potential damage.

Choose noncombustible materials for sections of the property such as signs and decks. Install mesh screens over vents to prevent embers from entering your building. Additionally, regularly clean and use noncombustible materials for roofs and gutters.

Finally, if your building unfortunately catches fire, it will make a grave difference if you have created a clear path for firefighters to access your property and previously confirmed there are fire hydrants within a close proximately to your primary building. Be sure these fire hydrants are also connected to a reliable water source. Moreover, installing sprinklers is not only required under some policies, but sprinklers will be beneficial in the face of a wildfire for almost all commercial buildings.

Implementing some or all of these preventative measures will not only physically protect your property from fire damage, but taking such measures may even save you money on the cost of insurance. Recent proposed California insurance regulations regarding wildfire safety and lowering insurance costs are emphasizing the importance of insurance companies providing incentives for property owners to take proactive measures. Business owners who fail to follow these initiatives may even face higher premiums since insurance companies may consider the preventative safety actions in place when determining the property’s “wildfire risk score.”

Conclusion

Although policies vary greatly, these are starting points for ways you as a business owner can protect your business and property. Further assistance from an insurance coverage practitioner who can interpret the nuances within your specific policy may prove invaluable as we get further into what is likely to be another record-breaking wildfire season.