First-party basics
Commercial property covers the insured's own buildings, contents, equipment, stock, and improvements against direct physical loss. It is first-party coverage. The insured is the claimant.
Where liability lines (GL, auto, EL) protect the insured against money owed to third parties, property protects against money lost to physical damage of the insured's own things. The trigger is "direct physical loss of or damage to" the insured's covered property by a covered cause of loss. The form pays repair or replacement cost (subject to limit, deductible, and valuation method), plus ancillary coverages like business income, extra expense, and ordinance-or-law upgrade costs. Property is the line that pays when the warehouse burns, when the hurricane peels the roof, when the boiler ruptures, when the freezer fails and a tank of high-value frozen goods spoils, when a vandal breaks into the storefront and strips the copper.
"Direct physical loss" is the trigger. Indirect losses (business income, extra expense, contingent BI from a supplier loss, dependent property losses) are covered only when the form explicitly extends to them, and almost always require an underlying direct physical loss to a covered location to engage. The COVID-era BI litigation turned on whether virus contamination constituted "direct physical loss." Most courts said no.
The BPP form
The Building and Personal Property Coverage Form (CP 00 10) is the standard ISO commercial property form. It is paired with a Causes of Loss form (Basic CP 10 10, Broad CP 10 20, or Special CP 10 30) and various endorsements to build the actual coverage package.
The three property categories
- Building. The structure itself, completed additions, fixtures, machinery and equipment permanently installed, outdoor fixtures (within 100 feet), and certain personal property used to maintain the building.
- Your Business Personal Property (BPP). Furniture, stock, machinery, equipment, leased property the insured is contractually obligated to insure, improvements and betterments made by the tenant.
- Personal Property of Others. Property of others in the insured's care, custody, and control, with the limit applying as a sub-limit (often $2,500 standard, often increased on bailee/storage exposures).
A tenant typically carries Building coverage on improvements and betterments they have installed (the new flooring, fixtures, partitions) plus Business Personal Property on their own contents. The landlord carries Building coverage on the original structure. Misreading this split is a common cause of underinsurance: a tenant assumes the landlord's policy covers their $200K kitchen build-out, the landlord assumes the tenant insured it, and after a fire neither policy responds correctly.
Special vs named perils
The Causes of Loss form determines what perils are covered. There are three forms, in increasing order of breadth:
| Form | Covered causes | Use |
|---|---|---|
| Basic (CP 10 10) | Fire, lightning, explosion, windstorm/hail, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action | Smaller accounts, hard-to-place property |
| Broad (CP 10 20) | All Basic causes plus falling objects, weight of snow/ice/sleet, water damage, glass breakage, collapse | Mid-market |
| Special (CP 10 30) | "All risk" / "all perils" except those specifically excluded | Standard for most commercial accounts |
"All risk" is a misleading term
Special form is sometimes called "all risk." It is not. Every special form has a long list of exclusions (flood, earthquake, war, nuclear hazard, mold above $15K, ordinance/law without endorsement, certain types of theft, certain mechanical breakdown, wear and tear, and a long list of others). The shift from named perils to special is a shift in the burden of proof: under named perils the insured proves the loss came from a covered cause; under special, the insurer proves the loss came from an excluded cause. That burden shift is worth real money in claims.
COPE in detail
COPE is the property underwriter's mental model: Construction, Occupancy, Protection, Exposure. Every property risk gets evaluated against these four axes. Modern modeling has formalized them, but the framework predates the models by decades and remains how underwriters think.
The Statement of Values
The SOV is the spine of every commercial property submission. Get the SOV right and the submission is half-underwritten. Get it wrong and nothing downstream works.
A Statement of Values is a schedule listing every covered location with the values, attributes, and details required for rating and modeling. A small account might have a one-page SOV with five locations. A large national insured runs to thousands of locations and tens of thousands of rows. The SOV is the primary input to property cat models (RMS, Verisk AIR/Touchstone, KCC, Moody's RMS) and to per-risk underwriting.
Required SOV fields
| Field | Why it matters |
|---|---|
| Location address | Geocoding for cat models; territory rating |
| Year built / year of major renovation | Code era; construction quality proxy |
| Construction class (ISO) | Base rate and severity |
| Number of stories / square footage | Size, occupancy density |
| Occupancy class | Use and contents profile |
| Sprinkler coverage | Protection credit; sometimes a knockout |
| Alarm / central station | Theft and fire credits |
| Roof age and type | Wind/hail severity |
| Building value | Insured value (replacement cost basis) |
| Contents (BPP) value | Replacement cost |
| Business income / extra expense | Time element exposure |
| Total Insured Value (TIV) | Sum of all above |
A "dirty" SOV (missing geocodes, wrong construction codes, stale values, unmatched parent-child location structure) produces a model output that misstates cat exposure by 20–40%. Carriers either price the bad data conservatively (overcharge), reject the submission, or accept it and end up adversely selected. Cleaning SOVs is one of the highest-leverage applications of IDP in the property line.
RC vs ACV vs Functional
Valuation is the rule for how loss is measured at claim time. Three options dominate the commercial market.
- Replacement Cost (RC). The insurer pays to repair or replace with new like-kind-and-quality, no deduction for depreciation. Standard on most commercial accounts. Subject to actual repair/replacement happening (insurers withhold the depreciation portion until the work is done).
- Actual Cash Value (ACV). Replacement cost less depreciation. The default for older buildings, many roofs (especially in convective storm zones), and certain personal property. Also the default for buildings in poor condition.
- Functional Replacement Cost. The insurer pays to restore function with modern materials, even if the building was historic and would cost vastly more to replicate. Used for older buildings where like-kind-and-quality replacement is uneconomic or impossible.
The roof valuation question
Convective storm states (Texas, Oklahoma, Kansas, Colorado, Alabama, parts of the Midwest and Southeast) have driven carriers to write roofs on ACV with cosmetic damage exclusions. A 20-year-old asphalt shingle roof with hail damage gets paid out at depreciated value; the insured pays the rest. This is one of the more material valuation moves of the last decade.
Coinsurance and Agreed Value
Coinsurance is a penalty mechanism that incentivizes insureds to insure to value. The standard property form includes an 80%, 90%, or 100% coinsurance clause. If at the time of loss the insured has carried less than the coinsurance percentage of the actual replacement cost, the loss payment is reduced proportionally.
The coinsurance formula
Loss payment = (Limit Carried / Limit Required) × Loss − Deductible. With an 80% coinsurance clause, on a $1M building, the insured must carry at least $800K. If they carry $600K and have a $200K loss, the insurance pays $200K × ($600K / $800K) = $150K, less deductible. Coinsurance disputes often surface only at the time of a partial loss, which is when buyers learn that a fire that destroyed half the building exposed them to a coinsurance penalty.
Agreed Value
Buyers can avoid coinsurance by submitting a Statement of Values and getting the carrier to accept it as Agreed Value. The carrier waives coinsurance in exchange for a commitment that the values declared are accurate. Most middle-market and large commercial property is written Agreed Value because brokers and buyers want the coinsurance penalty off the table.
Agreed Value puts more pressure on the underwriter to verify SOV accuracy at quote, because once Agreed Value is accepted, the carrier loses the coinsurance defense at claim. Stale values that were under-stated produce undercharged premium and unrecoverable coinsurance shortfall.
Business income and extra expense
Time element coverages are the other half of property. They pay for the consequential losses of a covered direct physical loss, specifically lost income while the property is being restored and the additional costs of operating in a temporary location.
- Business Income (BI). Net income that would have been earned plus continuing normal operating expenses (including payroll), for the time it takes to repair or rebuild.
- Extra Expense. Costs to operate while the property is being restored, above what normal operations would have cost. Examples: rented temporary location, expedited freight, overtime to recover production.
- Period of Restoration. The time from the date of loss to when the property could reasonably be repaired or rebuilt with reasonable speed and similar quality. The clock does not stop because the insured chose not to rebuild promptly.
- Waiting period / time deductible. Often 24, 48, or 72 hours, after which BI begins to accrue.
- Limit options. Monthly Limit of Indemnity, Maximum Period of Indemnity, Extended Period of Indemnity (continues paying as the business ramps back up).
Contingent BI covers loss arising from physical damage to a supplier or customer's property. A manufacturer dependent on a single supplier in another state can buy contingent BI to cover the case where that supplier's plant burns and shuts down the manufacturer's own production. Underwriters look hard at concentration of dependent locations because a single supplier loss can cascade into a large insured BI claim.
Cat aggregation: wind, quake, flood, wildfire
Property carriers manage their books by accumulation, not just by per-risk underwriting. The single biggest risk to a property carrier is a tail-event catastrophe that triggers many policies at once. The discipline of managing this exposure is cat aggregation.
The four cat perils that dominate US commercial property
- Tropical cyclone (hurricane / windstorm). Florida, Gulf Coast, Carolinas, Mid-Atlantic, with extreme tail in Northeast (Sandy 2012, Helene 2024). Cat models (RMS Hurricane, Verisk Touchstone, KCC) produce per-location AAL (Average Annual Loss), 250-year PML (Probable Maximum Loss), and 1-in-100/1-in-250 metrics that carriers use to manage zonal accumulation.
- Earthquake. California, Pacific Northwest, New Madrid (Missouri / Memphis), Charleston SC, Wasatch (Utah). Quake is typically excluded from BPP and bought back as a sub-limit or written standalone. Buyers in California carry quake separately.
- Flood. Excluded from standard property. Buyers carry NFIP (federal program, $500K building limit max for commercial) plus excess flood from private market. SFHA (Special Flood Hazard Area, the 100-year zone) status is the underwriting flag.
- Wildfire. California, Oregon, Washington, Colorado, increasingly the Mountain West. Wildfire is a covered cause under standard property forms. Carriers manage exposure via WUI (Wildland-Urban Interface) flags and have non-renewed heavily in California in recent years.
Severe convective storm
Hail, tornado, straight-line wind, derecho. A growing share of US insured cat losses comes from "secondary perils" rather than the headline hurricane events. Severe convective storm losses topped $50B in 2023 alone. Carriers are tightening roof coverage, applying wind/hail deductibles in convective storm states, and reweighting their cat appetites accordingly.
Cat deductibles in convective and tropical zones are typically expressed as a percentage of TIV per location, often 2%, 3%, 5% or higher. A $10M building with a 5% named storm deductible carries a $500K retention before the carrier responds. These deductibles are not negotiated at claim; they are agreed at binding and apply automatically when the named peril triggers.
Where IDP earns its keep
Property submissions are SOV-driven. The SOV is structured-but-messy: 50 columns, thousands of rows, inconsistent geocoding, missing fields, varying construction codes, dirty roof ages. Cleaning, enriching, and validating the SOV is the single most valuable IDP application in the property line. Behind the SOV sit appraisals, ITV (Insurance to Value) reports, engineering assessments, loss runs, and prior policy declarations, all of which need to be parsed and aligned.
The property workflows where Indico shows up
- SOV normalization. Multi-format SOVs (broker spreadsheet, prior carrier export, manuscript schedule) all to a single normalized schema with construction and occupancy mapped to ISO codes.
- SOV enrichment. Geocoding, distance-to-coast, distance-to-fault, flood zone (SFHA), wildfire WUI, PPC lookup, third-party hazard data joined per-location.
- Appraisal and ITV extraction. Replacement cost numbers and component breakdowns pulled from PDFs into structured records that can be reconciled against the SOV.
- Loss run normalization. Property losses by location, peril, paid/reserved, status, with multi-year aggregation.
- Renewal SOV diff. Compare prior SOV to renewal SOV and surface added locations, removed locations, value movements, attribute drift.
For property carriers, the cleanest demo is an SOV that arrives as a 5,000-row broker spreadsheet with missing fields and inconsistent codes, processed in seconds into a model-ready schedule with geocoding, hazard joins, and exception flags. Property underwriters spend more time wrestling SOVs than any other single task. Showing that wrestling go away earns the rest of the meeting.