AUSTRALIA'S MOST TRUSTED COMMERCIAL PROPERTY & BUILDING INSURANCE SPECIALIST

Commercial Property insurance is a type of insurance policy designed to protect the physical assets of businesses and property owners from a range of risks such as fire, vandalism and natural disasters as well as any associated financial losses such as lost revenue. It can also include liability protection for legal costs and compensation if someone is injured or their property is damaged.

Your commercial lease will specify who is responsible for paying outgoings including commercial property insurance. Many commercial tenancies will place this onus on the tenant to pay the building insurance as their business activities will directly impact the premium. If there are multiple tenants, it is important to have a fair way to apportion this premium as different tenants will have a different impact on the risk (e.g. an office risk is cheaper than a tenant with commercial cooking).

A commercial property package can include coverage for building, contents, glass, fittings and fixtures, as well as associated lost rental income if the premises are damaged by a claimable event (e.g. fire, vandalism, natural disaster). It can include coverage for machinery breakdown (e.g. air-conditioning or HVAC units) and public liability for the landlord if someone is injured or their property damaged onsite.

Commercial property insurance is not a substitute for property maintenance and ongoing building management. Claims relating to wear & tear, gradual deterioration or other maintenance issues including rust will be declined. Landlords must take active steps to maintain and take reasonable care of their properties to avoid these exclusions.

Commercial landlords should be aware most policies will have exclusions if the property (or a portion of it) becomes vacant, and they must tell insurers immediately if tenancies change during the year. There is also generally no cover for situations where a tenant just stops paying rent (“tenant default”).

Commercial Property insurance is designed to protect your physical assets and the income your investment provides. This includes cover for physical damage to the building itself (including fixtures and fittings) but can also protect against financial losses if the premises are untenantable as a result of an insured event. Other common areas of cover include liability for personal injury associated with the building, as well as unexpected machinery breakdown and broken glass. Depending on the lease agreement, the tenant may be responsible for insuring glass or fixed machinery such as air conditioners or hot water systems instead.

A basic insurance for a commercial property might include the following sections:

• Building / Fitout
• Loss of Rent (often called ‘Business Interruption’)
• Public Liability
• Machinery Breakdown
• Glass

The cost of commercial property insurance depends on the risk, which in turn reflects how likely you are to make a claim and expected value of the claim. Key rating factors for commercial property insurance include:

• The value of the physical assets insured (e.g. Building replacement value)
• The value of the rental income insured
• Fire and security details of the commercial property
• Construction materials (especially EPS/Cladding)
• Location of the commercial property
• Age of the building
• If the property is fully occupied or partially vacant
• The tenants’ occupations and business activities
• The landlord’s 5-year claims history

The same commercial property can have very different premiums depending on the insurer or underwriter who provides a quote. Having an experienced commercial property insurance broker who can take your property to market will help make sure you get a policy that represents good value and covers you properly.

You could be very surprised by just how much premiums differ and how much a good insurance broker could save you!

Underinsurance or co-insurance is a part of the fine print in your commercial property insurance policy which obliges you to try and insure your building for the full replacement value. If you insure for less, the insurer may be able to reduce how much they pay you in the event of a claim.

This can catch people out as they may think they are insured enough to replace their roof, but find the insurer only pays a portion of the actual cost if there is a claim.

An experienced commercial property insurance broker can help guide you on this with some general cost estimates and direct you to a formal valuer if required.

While every building will have a different premium as every building is unique, it is important to keep in mind how much location affects the total cost due to the risk of natural disasters.

A basic $1.0M industrial shed in Victoria might be $4,000, but the same building in Cairns in North Queensland could be $20,000 or more to insure – 5 times the price! Certain insurers that will quote in the southern states may not be willing to quote on anything in WA or Queensland that is above the “26th parallel” giving a much more limited market for commercial building insurance due to cyclone exposure.

If you are near a river with flood risk, or bushland with fire risk, your premiums may also be affected. Having a broker with a panel of insurers to quote broadly across Australia will give you the best opportunity to find cover that is good value and fit for purpose.

You should seek building insurance as soon as you have a financial interest in a property. This can be almost immediately upon signing a contract for a new property purchase. Check with your solicitor when “risk passes” – this could be long before the property is “unconditional”!

Without insurance, you would be personally responsible for covering costs of repairs or rebuilding in the event of a loss. You could even be obliged to purchase a property that has burnt down (which could be a financial disaster!).

No, building insurance is a variable cost with many factors that influence the price. This includes building replacement value, location, construction type, age of the building, tenant occupations, vacancy rate and risk mitigation measures (e.g. alarms, sprinkler systems).

In addition to this, premiums can change from year to year as building costs fluctuate with increased construction costs, inflation, or simply changes in underwriters’ rates for risks and how much competition there is between insurers.

First and foremost, a building insurance policy should always include cover for the full building replacement value for the property. If it does not, you might be subject to the fine print with “underinsurance” or “co-insurance” clauses that reduce how much you get paid if you have a claim.

So, make sure to index your building insurance value every year as construction costs keep rising. Secondly, you will always want to make sure you have your landlord liability cover included, and thirdly, you will insure your rental income.

After that you can choose to add on cover for things like broken glass or machinery breakdown; and choose whether you want to be insured for certain optional risks such as flood.

Commercial building insurance is almost always an annual policy. You may be able to choose to pay it via monthly installments with “premium funding” but it is important to understand that funding arrangements are separate loan agreements with third parties, and your actual insurance policy is still an annual contract with the insurer.

The property owner should always have the building insured in their name – even if the tenant is responsible for paying the premium as part of their outgoings. Having the landlord correctly named is critical for all parts of commercial building insurance from the replacement of the building to the landlord’s liability if sued.

Compared to a home insurance policy, a commercial building insurance policy is a little different – it is very modular. You have to pick the sections of cover you would like to be insured for, and you are not automatically insured for things like flood – you may have to ask for that cover separately.

You will start by picking a value for your building replacement, and this must be as close as possible to the current cost of rebuilding – if it is not, you might be subject to “underinsurance” or “co-insurance” if you have a claim. You then list your rental amount and choose how long you would like to insure your income for if the building was destroyed and had to be rebuilt (e.g. 24 months).

From there you add in your landlord liability cover and choose if you want to insure glass or machinery breakdown. Most landlords will not have contents to insure – but if you do, you need to list these too, and decide if you need cover for theft.