Parts of the Midwest have been called the rust belt. This includes the natural fact that many of our manufacturing buildings are outdated. These structures contain building materials that are obsolete, and frankly are very costly to rebuild or reproduce.

Does your business have a building or buildings that are older and built in an era that used more expensive building materials such as brick or ornate fixtures? Do these buildings contain several floors that are not needed for your business? If so, you may want to consider endorsing your commercial property insurance policy with the Functional Replacement Cost option (FRC).

As you may know, insurance carriers require business owners to insure their buildings based on their replacement cost. This means that you would need to insure a brick/stone, two story structure based on what is would cost to re-build the same brick/stone two story building. If you could operate your business in a single story metal or non combustible building, that would cost perhaps 50% less - then why not insure it for the metal building amount and save yourself some premium?

FRC coverage may be more favorable for certain items than another option called actual cash value. Most FRC loss settlement provisions provide that losses will be settled following one of these two methods: replacement with a less costly, but functionally equivalent building; or, in the case of a partial loss, restoration of the damaged portion in the same architectural style, but with less costly material (for example replacing a damaged wall with drywall instead of plaster).

The primary reason for asking for this option is to save premium dollars. With the FRC endorsement you can insure for less and still make sure you are protected. Has your agent discussed Functional Replacement Cost with you?

Joe Buick
Vice President
Client Executive