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Chubb Group of Insurance Companies: As Economy Worsens, Vacant Real Estate Poses Increased Risks

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^{Published in Business and Finance on Friday, March 13th 2009 at 10:05 GMT, Last Modified on 2009-03-13 10:06:00 by Market Wire}  

WARREN, NJ--(Marketwire - March 13, 2009) - Property owners beware: As commercial vacancies increase, so do the insurance risks, warns the Chubb Group of Insurance Companies. With vacancy rates continuing to rise due to the sagging economy, real estate companies face a dual challenge of finding new renters and reducing their increased exposure to losses caused by physical damage to their property and third-party liability claims.

Studies by the National Fire Protection Association show that an average of 14,900 fires a year occur in vacant buildings, causing upwards of $118 million annually in direct property damage. In addition, theft, vandalism, water, collapse and wind losses figure prominently in increasing real estates firms' loss costs.

"Vacancy rates in office buildings exceed 10% in most U.S. cities, and that number is expected to rise to 16.7% this year," said Tim Ehrhart, vice president, Chubb & Son, and real estate market manager, Chubb Commercial Insurance. "Vacant buildings are particularly vulnerable to risk because of the absence of people performing day-to-day activities that mitigate common hazards."

Ehrhart added that owners of vacated real estate can reduce risk by:

 -- Notifying their insurance company and checking policy terms and conditions applicable to vacant property; -- Advising local authorities of vacated buildings; -- Removing unnecessary materials and combustibles from the premises; -- Informing local fire departments of remaining materials that could impede fire-fighting; and -- Inspecting facilities weekly or hiring a guard service for daily drive- by observations. 

As the result of falling demand for commercial real estate, lenders are valuing commercial properties considerably less than even a year ago. However, building owners should think twice before they reduce the scope and amount of insurance to help offset lost revenues.

"While property owners may think this a time to reduce their limits of insurance and save money, the reality is that the cost to repair or replace lost or damaged property has not decreased, and therefore, reducing limits could leave property owners underinsured and exposed to catastrophic losses," said Michael Chang, senior vice president, Chubb & Son, and real estate market manager, Chubb Specialty Insurance.

Beyond property hazards, vacant buildings present dangers to the public. Building owners face potential liability exposures from those who are injured or become victims of crime at their properties. Owners should heed safety and maintenance advice to help protect themselves from the array of property exposures vacant buildings present.

The member insurers of the Chubb Group of Insurance Companies form a multi-billion dollar organization providing property and casualty insurance for personal and commercial customers worldwide through 8,500 independent agents and brokers. Chubb's global network includes branches and affiliates in North America, Europe, Latin America, Asia and Australia.