Insurance companies require commercial property owners to adequately insure their properties by way of imposing “coinsurance clause”. While it is relatively easy to assess a building’s worth at any given time, which has a stable value, it is not as simple to value an inventory of goods, which can fluctuate vastly from the beginning to the end of a selling season.

Policyholders whose property fluctuates during the policy year is likely to find it burdensome to make coverage increases and decreases to avoid being penalized by the Coinsurance clause in the event of being under-insured without over-insuring when the property values are low. For high value policies, the insurers offer reporting form policies, under which the policyholder reports the values at risk at predetermined periods throughout the policy term. At an audit at the end of the policy, the final premium is calculated on the basis of the actual values reported. If the policyholder sets the coverage amount high enough to cover the peak seasons, he is protected against being penalized by the coinsurance clause, as well as waste of premium for being over-insured.

Reporting form policies employ one of following five reporting options:

1. daily values reported monthly;
2. weekly values reported monthly;
3. quarterly reporting of monthly values;
4. monthly values reported annually; and
5. monthly values reported monthly.

Tenants who lease the insured building from the policyholder often make improvements, additions or changes in the property which will make the building better suited to his purposes. Almost all commercial leases provide that the improvements and betterments will become part of the building and the property of the landlord as soon as they are erected. The tenant retains the right to use the improvements, but only for as long as the lease term. Insurance against loss to such improvements is determined in the following manner:

1. If repair or replacement of the damaged improvements and betterments is made by the landlord promptly, the policyholder is entitled to the actual cash value of the improvements and betterments.
2. If such repair or replacement is not made promptly, the insurance company pays for the proportion of the original cost of the damaged improvements which the remaining term of the lease at the time of the loss bears to the period from the date such improvements were made to the expiration date of the lease.
3. If repairs or replacements are made by the landlord, the insurer is not liable for the betterments and improvements.