05/22/2026
Hereās the scoop on co-insurance. šØ
To all commercial property owners: youāve probably seen this clause buried in your insurance paperwork.
You should understand it.
ā ļø Co-insurance is a penalty clause, and it applies even on a partial loss.
Iām seeing a growing number of commercial properties that are unintentionally underinsured. In most cases, itās not because the owner knowingly chose lower limits.
Itās because inflation and rebuild costs have increased so dramatically over the last few years.
A building that was properly insured 5 years ago may no longer be adequately insured today.
š Hereās an example:
š¢ A commercial building currently costs $10,000,000 to rebuild.
š The policy has an 80% co-insurance clause.
That means the building must be insured for at least $8,000,000 to avoid penalty.
But the policy still reflects an older rebuild value of $5,000,000 from years ago.
š„ Then a fire happens.
Not a total loss but a partial loss causing $1,000,000 in damage.
Because the building was significantly underinsured relative to todayās rebuild cost, the insurer applies the co-insurance formula.
šø Instead of receiving the full amount of the loss, the insurer may only pay approximately $625,000 before deductible.
Ouch.
The property owner is now responsible for the remaining balance out of pocket, despite having insurance in place. š¬
This is becoming more common because rebuild costs have surged due to:
šØ labour shortages
š¦ material inflation
š¢ building code upgrades
š¢ supply chain disruptions
š° increased contractor pricing
The good news? Properly insuring to value does not always mean a massive premium increase.
A big part of what we do as brokers is advocate for our clients by:
ā
structuring coverage correctly
ā
negotiating with underwriters
ā
finding competitive markets
ā
protecting the asset properly without overpaying
In many cases this year, weāve increased building limits substantially to reflect accurate rebuild costs and still delivered overall savings for the client.
šÆ The goal is not just ācheap insurance.ā
The goal is making sure the building actually responds properly when thereās a loss.
