For any business owner in Québec, their property, whether it’s a shop, office, or warehouse, is the foundation of their livelihood.
Protecting it with commercial property insurance is essential, but understanding how those insurance costs are actually calculated can be confusing.
This guide explains everything clearly and simply.
You’ll learn how insurers calculate your premium, what factors matter most, and how to use that knowledge to control your costs.
What Your Insurance Policy Actually Protects
Before diving into cost, it helps to know what you’re paying for. A commercial property insurance policy protects your business from physical and financial losses when damage occurs. It’s not just about rebuilding your property; it’s about keeping your business alive after a loss.
A complete policy typically includes:
- The Building: Covers the physical structure—foundation, walls, roof, plumbing, and electrical systems.
- Business Contents: Includes everything inside the building that isn’t part of the structure, such as computers, inventory, furniture, tools, and machinery.
- Business Interruption: Protects your income if an insured event (like a fire) shuts down your operations temporarily. It helps cover lost income, rent, and payroll so your business can stay afloat during repairs.
The foundation for calculating your premium is your Total Insurable Value (TIV)—the cost to rebuild your property and replace its contents based on today’s prices. Remember, this isn’t your real estate or market value. It’s purely based on reconstruction and replacement costs.
How Insurers Calculate Risk: The COPE Framework
Every commercial property insurer uses a standard evaluation called COPE to measure the risk your property presents. COPE stands for Construction, Occupancy, Protection, and Exposure. It’s essentially a detailed report card on your property’s safety profile. The better your COPE score, the lower your premium.
C — Construction: What Your Building Is Made Of
This is the starting point. Insurers look at the materials used to build your property to understand how it would behave in a fire or major loss. Fire resistance is the main concern.
The major construction types are:
- Frame: Mostly wood or other flammable materials. High fire risk = higher premiums.
- Joisted Masonry: Exterior walls are non-combustible (brick or concrete), but floors and roof are wood. Moderate risk.
- Non-Combustible: Metal walls and roof; materials won’t burn but can buckle in extreme heat.
- Fire-Resistive: Reinforced concrete and protected steel designed to withstand intense fires. Lowest risk = best premium rates.
Example: Two identical warehouses in Laval—one wood-frame, one concrete. The fire-resistive concrete structure could cost 25–50% less to insure simply because of its superior construction rating.
O — Occupancy: What Happens Inside
This part looks at how you use your building day-to-day. A quiet accountant’s office carries far less risk than a metal fabrication shop.
Typical risk levels:
- Low Risk: Offices, retail shops, clothing stores.
- Medium Risk: Restaurants, garages, or bakeries (heat and flammable materials).
- High Risk: Woodshops, factories, or chemical plants (fire, fumes, or explosion risk).
Example: A bookstore and a bakery occupy the same size unit. The bakery’s ovens and oils make it a higher fire hazard, raising its insurance cost compared to the bookstore.
P — Protection: How Well the Property Is Defended
This looks at both public and private protection measures—how well-equipped you and your community are to prevent or control damage.
Public Protection: How close are you to the nearest fire hydrant or fire station? Does your area have a full-time fire department or volunteers? Being within 1 km of a hydrant and 5 km of a staffed station can lower rates by up to 10–20%.
Private Protection: These are the features you can control:
- Monitored Alarms: Fire and burglar alarms linked to emergency services can lower premiums by 5–10%.
- Sprinkler Systems: The most effective protection, often reducing fire-related premiums by 40–60%.
- Fire Extinguishers: Properly serviced units add credit and show good risk management.
E — Exposure: What Surrounds You
Even if your building is safe, nearby risks still matter—this is what insurers call ‘exposure.’
- Neighboring Businesses: Being beside a gas station, auto shop, or fireworks supplier increases your exposure risk.
- Environmental Risks: Properties in flood zones or wildfire-prone regions often face higher premiums.
- Urban Density: Attached buildings in city centers are more likely to suffer from fires spreading from adjacent properties.
Example: A stand-alone warehouse in Trois-Rivières will likely pay less than a similar unit squeezed between two repair shops in downtown Montreal.
How the Premium Is Calculated
Once your COPE profile is complete, insurers move to the actual calculation process. The process is typically completed in three steps.
Step 1: The Base Rate
The insurer assigns a Base Rate, which is a set price per $100 of insured value—usually based on construction and occupancy.
Formula: (Total Insurable Value ÷ 100) × Base Rate = Base Premium
Example:
- Building value (TIV): $2,000,000
- Base rate: $0.40 per $100
- Premium = ($2,000,000 ÷ 100) × $0.40 = $8,000
This $8,000 is your base premium before adjustments.
Step 2: Credits and Debits
Insurers then apply discounts (credits) and surcharges (debits) based on your COPE features.
Example using the $8,000 base:
Credits:
- Sprinkler system: -40%
- Monitored alarm: -10%
- Updated wiring and no prior claims: -25%
Debits:
- High-theft neighborhood: +15%
- Moderate housekeeping issues: +5%
Net result — Credits = -75%, Debits = +20%, Net = -55%.
Step 3: Final Premium
$8,000 - (55% of $8,000) = $3,600 per year
So, a well-protected, low-risk property could save thousands each year simply by improving its COPE score.
How You Can Reduce Your Commercial Property or Business Insurance Costs
You can reduce commercial Insurance cost by focusing on the factors below -
- Upgrade Safety Systems: Install sprinklers, alarms, and updated electrical systems. These not only reduce premiums but also protect your business from real losses.
- Maintain Your Property: Keep up with roof, wiring, and plumbing maintenance. Document every upgrade—you can share this proof with your insurance broker to earn better rates.
- Protect Your Claims History: Avoid filing small claims. One large claim is fine, but several small ones can raise your rates dramatically.
- Work With a Broker Who Knows Your Industry: An experienced commercial general liability insurance broker understands your business and knows how to negotiate with insurers. They can help you find every possible credit and make your profile more attractive to underwriters.
How Location Impacts Commercial Property Insurance Cost
Location plays a big role. For instance:
- A retail store in Montreal might pay 20–30% more than one in Saguenay, simply due to fire service costs and population density.
- Properties near rivers or industrial areas face higher exposure-based rates.
- Suburban warehouses with good access roads and low traffic typically enjoy better pricing.
Other Factors That Influence Premiums
- Deductible Size: Higher deductibles reduce your premium but increase out-of-pocket risk.
- Age of Building: Older buildings may lack safety upgrades and cost more to repair.
- Claims-Free History: A spotless record can reduce rates by up to 15%.
- Bundling Policies: Combining property, liability, and vehicle coverage can save 10–25%.
- Industry Trends: Inflation and rebuilding costs have increased by about 6–8%, which directly affects insurance values.
Example: A Complete Calculation
Let’s put it all together.
Building: $1.5 million, non-combustible construction
Contents: $500,000
Total Insurable Value: $2 million
Base rate: $0.45
Base premium = ($2,000,000 ÷ 100) × $0.45 = $9,000
Protection credits: -50%
Exposure debit: +10%
Final premium = $9,000 - (40% of $9,000) = $5,400 per year
This means a business owner who invests in protection systems and regular maintenance can reduce their annual cost by nearly half.
Disclaimer: The example above is provided for illustrative purposes only and does not represent an actual insurance quote.
Ready to Get Started?
Your property is too valuable to leave unprotected or to overpay for insurance. Get the clarity and confidence you deserve with a no-obligation quote from Qubit Insurance. We’ll walk you through your coverage options, explain each cost, and help you secure the right policy for your business.
Contact Qubit Insurance today for your personalized quote and protect what matters most.
