Franchises and commercial property owners both small and large are feeling the effects of increasing insurance rates across their markets. These increased rates are a result of insurance company losses from the rising costs of building materials and overall replacement costs.

The trends we are seeing across the property market also are a result of material hardening. That is, rates are being driven up by economic uncertainty and declining conditions. Market experts say conditions are only likely to become more drastic this year as rates are expected to continue their climb. In times of market hardening, it is more important than ever to get ahead of disaster by ensuring your insurance policies have you covered.

Franchise brands that use vehicles in their business model (home services or moving and storage brands, for example) take note. Automotive rates in particular are seeing dramatic increases. Changes in market conditions mean the monthly rate you secured when first purchasing a vehicle may no longer be sufficient to cover the actual cost to settle the loss. This inadequate pricing requires that rates be increased because auto insurance is based on an actual cash value policy. Whether you own a single car to take your kids to soccer practice or a fleet for your franchise use, learn how to adjust your policy to reflect changes in market behavior to ensure you are sufficiently covered in the event of a loss.

How to calculate your needed coverage

While the auto market in particular is seeing dramatic changes, the market conditions can also affect other property policies. The coinsurance clause present in commercial and residential insurance contracts safeguards insurance companies by ensuring they get a fair premium for assuming the risk of loss. This clause requires a property owner to purchase 80% to 90 % of the actual replacement cost coverage to qualify for replacement cost. If your properties are underinsured, they will not qualify and you will become a coinsurer and take responsibility for paying the remaining percentage in the event of a loss. The customer and the agent are responsible for determining what the current replacement costs are for your market. True replacement cost can vary wildly for markets across the country.

If the policyholder fails to meet the coinsurance requirement, a coinsurance penalty will apply when a claim is filed,

Consult a professional

While these steps can help find a starting point for insurance coverage, always consult with your agent for your specific needs and current coverage. To better understand your coverage and make necessary changes, take into account market fluctuations and consult with your insurance provider to make sure you and your business are covered and, in the event of an accident, you are not left responsible for more of the cost than expected.

To protect your business, your customers, and even your personal property, a review of your insurance policies with a qualified provider is vital to ensuring that variations in market behavior don’t leave you vulnerable.

Doug Groves is the founder and principal of Program Insurance Group and its affiliate EZ Cert Management. He specializes in working with franchises and has more than 30 years of experience in the insurance industry.