What is commercial property insurance?
Commercial property insurance is one of the most important things to remember when purchasing your new property. As a commercial property owner and commercial property landlord, you will have a large number of responsibilities. Whether you have just acquired a new office, shop or restaurant, as a freeholder it is your responsibility to ensure your buildings and your contents are protected. A standard policy would typically cover the cost of repairing or rebuilding the structure as a result of material damage. This material damage must result from an ‘insured peril’ in order to be valid under an insurance policy.
There are a range of perils such as fire, storm, flood, escape of water, malicious damage and subsidence which are typically covered as standard under a commercial property policy. However, insurers will also offer several extended perils such as accidental damage, terrorism and legal expenses should you require these. Incidents arising from wear and tear are excluded from commercial property policies.
Even though commercial property owners insurance isn’t a legal requirement, it’s common for some mortgage providers to insist you have this cover and note them as an interest on your policy schedule. When insuring your property, it is important to ensure your rebuild value is accurate. The best way to do this is by getting the property surveyed. This is due to ‘average’ applying on some policies – this means that if the sum insured at the time of a loss is less than the insurable value of the property, the amount claimed under the policy will be reduced in proportion to the under-insurance.
However, when purchasing a policy it is not just your physical assets to think about. Loss of rent & alternative accommodation is also an important aspect of cover to consider. Should the worst happen and your tenant not be able to operate from the premises they may look at renting elsewhere in the meantime resulting in a loss of earnings for you. Therefore, this aspect can look at subsidising any loss of rental income should any damage occur as a result of an insured peril. However, do note this doesn’t cover you should a tenant simply default on their monthly payments.
Not only this, a standard policy will include property owners liability covering any third-party property damage or injury arising from your negligence. This will typically be offered at either a £2million or £5million Limit of Indemnity but can be extended to £10million should this be required. Though far less common on a property owners policy, insurers are also able to offer employers liability should you hire any caretakers, gardeners or maintenance men to upkeep the property.
Please note, it is important to read through your policy schedule and policy wording for full details of covers, endorsements applicable and perils excluded as these can vary from insurer to insurer.
Does commercial property insurance cover theft?
Theft and theft by tenant is covered under commercial property policies. However, most policy wordings state that there must be evidence of entry by “forcible or violent means” in order for a claim to be valid.
When offering their quote, the underwriter will look at the local crime map to analyse the crime rate in the surrounding area of the property. Should this be in a high crime area, an insurer may look to increase their excess or restrict cover. However, the stance on this can vary from insurer to insurer therefore as a broker we are able to search our markets and find a quote with a high quality of cover for a competitive rate.
Does commercial property insurance cover fire?
Fire is covered under all commercial property policies, including when the property is unoccupied.
The very basic cover offered by insurers, in particular when a property is vacant is for fire, lightning, explosion and aircraft. However, it is important to note that explosion from fire is typically excluded and this is restricted to explosion of gas boilers or gas used for domestic purposes. Subterranean fire is also excluded.
Does commercial property insurance cover flood damage?
As defined by AXA in their policy wording, flood is defined as “The escape of water from the normal confines of any natural or artificial watercourse, lake, reservoir, canal, drain or dam. Inundation from the sea. Rain-induced runoff. Whether resulting from storm or not.”
When considering whether to offer flood cover, an underwriter will look at a range of factors. These include The Environment Agency’s Flood Map; how far away the property is away from a river, sea or lake and; the history of previous flooding in the surrounding area. With these three factors in mind, they will decide whether to offer standard terms, increase the excess or exclude flood completely.
A commercial property policy will provide essential flood and storm cover for the structure and landlords contents looking only to exclude damage in respect of fences, gates or moveable property in the open.
Does commercial property insurance cover water damage?
Water damage caused by a burst pipe, also known as ‘escape of water’, is a cover often found on a commercial property insurance policy. Despite a common misconception that the pipe itself is covered under the policy, this is not always the case; however, instead, the damage arising from this escape of water is covered by the insurance. For example, a pipe suddenly bursts in your property and damages the floor and several appliances. The pipe itself would be excluded, but the material damage to the structure and contents would be covered by your insurance policy.
However, many policies offer ‘trace and access’ cover as part of their policy. This means that should there be some evidence that there is a water leak occurring, you may have to call someone in to remove plasterwork or floorboards to identify where this is coming from. This can prove costly. Therefore this trace and access will cover the cost of locating the source of the leak, and any costs necessary in repairing and making good any damage caused in locating this. The main reason insurers offer this cover is to find the leak quickly, therefore avoiding further widespread damage and minimising claim costs both for yourself and them as a result.
Does commercial property insurance cover terrorism?
The definition of terrorism, as interpreted by insurers, is the “acts of persons acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majesty’s Government in the United Kingdom of any other government de jure or de facto.”
With recent events dominating the headlines, terrorism cover is becoming more prevalent especially within larger cities: so much so that ‘Pool Re’ was created. This scheme was originally set up in 1993 in response to the market failure which was triggered by a series of terrorist incidents in and around London at this time. Since then it has accumulated hundreds of insurers who are all members of Pool Re who agree to offer terrorism cover as part of their policies in accordance with the conditions of this scheme. The insurers pay a premium to Pool Re, who then in turn reimburse the insurer should any claims occur. Should a loss become too big they are even able to withdraw funds from the UK Government.
A mortgage provider may insist that you have this cover, especially if your property is in London or another large city. It can cover the structure, landlords contents and any loss of income as a result of terrorist activities. However, please note some insurers may look to limit their property owners and employer’s liability limits and will require the Treasury to issue a certificate declaring the act committed was terror-related.
Does commercial property insurance cover termite damage?
Typically commercial property insurance does not cover damage caused by vermin & pests on the premises.
Read more: Commercial landlord insurance FAQs