Most insureds are not even aware that an empty house or building should have some sort of coverage. Many assume their normal homeowner or commercial property policy will provide coverage.

Nothing could be further from the truth.

The current standard market providing coverage to the property when occupied usually no longer considers it eligible for coverage when it's unoccupied. The standard market simply won't touch vacant. There's too much exposure.

Enter the excess and surplus market. E&S carriers know how to underwrite these risks and have the rates and know-how to produce an underwriting profit in this class.

Vacant property exposure can run the gamut, from a fire started by partying teens to destruction caused by vagrants using the premise as a shelter. Good coverage can help ease the pain should a claim need to be filed.

Most managing general agents have access to one or more insurers offering coverage for vacant properties on a nonadmitted basis.

Depending on the state, there are different requirements for coverage. For instance, some states require that the property be boarded up, and others simply require that the property be reasonably secured. This can mean that the building has a central alarm system and that someone will physically check the property on a regular basis.

A basic vacant policy, which is what most insureds need, covers fire, vandalism and provides extended coverage for wind and hail. If the property is a high-valued home–a home valued at least $1 million or a commercial building–it may be necessary to use a special form to include coverage for theft.

Many, if not all, basic policies will not cover theft. If a home or building has something of value still located in it–such as copper wiring, which is often the target of thieves–it's important to add theft coverage. It's surprising that even if a building is empty, it can be exposed to theft.

In addition to covering theft, extra coverage can include coverage for frozen pipes.

The one thing not covered in most policies is mold. Additionally, it will be very difficult to insure a property if it has been left vacant for more than two years, especially if, in that time, it was never insured.

Vacant coverage is offered on a short-term basis, usually three, six or nine months. In rare circumstances coverage can be offered for a year. The term depends on the status of the risk as it might be sold in the near future.

Insureds should expect reduced coverage and higher rates if the property isn't occupied, but obviously, if the premise isn't occupied, exposure is much greater anyway.

For coverage, it's generally a risk-by-risk evaluation. The age of the home or building and central alarm access need to be taken into consideration. A building or house is an important investment, and it must be protected. In most cases, it's required that an empty building be checked at a minimum weekly.

Most policies can be written with any amount; however, the minimum for a basic policy for a residential building is $35,000 and for a commercial building the minimum is $50,000. The policy generally covers the building and general liability. The general rule is that a policy should be for the actual cash value of the property.

Not all vacant properties are created equal, however. Knowledge of the risk is essential. Key questions agents must ask relate to the status of the property:

o Is it vacant or just idle (furnished but not in use)?

o How long has it been vacant? Is it for sale?

o What is the legal status? Is it still owned by the original insured? In bankruptcy? Foreclosed?

oMost importantly, how is the property protected from unwanted damage? Is it in a high crime area? Is it fenced or boarded up?

All of these questions are important points for the E&S underwriter to consider when determining if the risk is eligible for the carrier, what the rate will be and what coverage terms to offer.

Rehabilitated properties and remodels are other situations in which vacant properties coverage can be applied.

Rehabilitated or remodeled properties are structures being fixed or modified for a new tenant or to improve its chances of selling. If this is the case, most E&S carriers will revise coverage or modify it for the changed exposure. In this situation, new questions will arise, such as cost of the rehab and details of the contractor doing the work.

As with all E&S coverage, it's important to choose your wholesaler wisely. A good MGA will have multiple markets for your vacant risk and only will offer “A”-rated carriers. In addition, many MGAs offer coverage on other risks (i.e., high-valued dwellings) which too often become vacant as well. Look for an MGA that can offer $5 million and up limits when needed.

Bottom line, agents should not avoid vacant risks. They should actively solicit them from as many sources as possible– financial industries, real estate agents and others. The class can be a money-maker for agents and boost the flagging commissions experienced in this competitive market.