Commercial building insurance

Most commercial building policies carry an average clause. Insure the building for less than 80 per cent of what it would cost to rebuild, and the insurer can cut your claim. Say the rebuild is $2 million and you insured it for $1.2 million.

If part of the building is damaged and the average clause applies, the insurer pays only part of the repair bill. In this example, the two ways the policies do the sum give three-quarters or nine-tenths of the repair bill, before the excess. The rest is yours.

If the whole building is lost, most of the policies we place pay up to 20 per cent above the amount you insured it for. Anything the rebuild costs beyond that, you pay out of your own pocket. If the policy pays $1.44 million towards a $2 million rebuild, you find the other $560,000.

In a 2025 storm claim we handled, a regional NSW landlord had insured a retail building for $500,000 against the roughly $1.99 million we advised in writing. He could not accept that a rebuild would cost much more than the building's market value. We found two points in his policy that brought the figure the insurer tested him against down to about $1,308,000, and the average clause still cut his payout on the partial loss to about 48 cents in the dollar (the full storm claim, with its settlement).

Some policies call it co-insurance, and some leave smaller claims out of the test. The co-insurance clause explained works through the sums. Underinsurance in commercial buildings shows why buildings end up short, and by how far.

Insure to the full cost of rebuilding today, including demolition, debris removal, fees, code upgrades and inflation. Make that figure your sum insured, the amount your building is insured for. We commission a desktop building replacement estimate when you first ring, and again at every renewal. How it is worked out is on Desktop Building Replacement Estimate.

On several of the wordings we place, if your sum insured is the full figure in a current valuation, the underinsurance penalty comes off your policy. That is what the wording says; the insurer still decides each claim. A desktop building replacement estimate does not automatically meet that condition. Before you rely on it, we confirm what the insurer requires.

An owner at Virginia, on Brisbane's north side, accepted a 40 per cent higher sum insured after our desktop building replacement estimate. Within three months, in February 2022, the building flooded and the insurer paid about $745,000 with no underinsurance cut. That was one claim on one building, not a promise that a desktop building replacement estimate prevents a reduction.

For a first read on your own building, check your underinsurance risk in two minutes.

Across the renewals we are shown, the premium is commonly up 15 to 20 per cent while the insurer has indexed the sum insured by only 5 to 10 per cent. Indexing only moves the old figure along, so a figure that started short stays short. What moves a building premium, and what owners pay, is in what commercial building insurance costs.

Underwriters, the people at the insurer who price the risk, do not value your building or advise you on the number. In our experience a short sum insured can renew for years without the insurer testing it.

1. It starts with your building. What it is, how it is used and what it is insured for today.
2. What the figure is based on. We ask where your sum insured came from and when it was last checked. That is often where a gap shows.
3. Then the number. We commission the desktop building replacement estimate.
4. Then the prices. If your sum insured is close to that figure, we go on to find you suitable options. If there is a real gap, we ring you back to go over it and give you prices at more than one sum insured. Sometimes a higher excess is what makes full cover affordable.
5. You choose. You pick the sum insured and the price, and nothing is placed until you tell us to go ahead.

Five things in the policies we place catch owners out.

• Flood is an option on most policies. On some it is included; on most it is covered only if it was added and shows on your schedule (the pages that list what your policy covers). Many of the insurers we place with offer flood, and if your policy has none, we show you what adding it would cost. Storm surge and the action of the sea are excluded, and the flood option does not add them.
• Storm damage to fences and signs is capped. Storm, rain, wind or hail damage to gates, fences, signs and retaining walls is capped at $25,000 in total for one event, whatever the building is insured for. Some policies let the schedule show a higher limit, so check yours. Fabric awnings and shade cloth sit inside that cap too. We had a claim for an awning over an outdoor dining area, destroyed in a wind storm, that cost about $40,000 to repair. Whether a claim like that is capped turns on the awning and the wording you hold.
• A slow leak is usually excluded. Sudden water damage from a burst pipe can be covered, even where repairing the pipe itself is not. A leak that has dripped for months usually is not, because gradual causes, seepage, rust, mould and dampness are excluded. We can explain whether your policy helps pay to find and reach the leak.
• Air conditioning needs its own breakdown section. Machinery breakdown is not part of the property cover, so air conditioning, lifts and other plant need a breakdown section on the schedule.
• An empty building can lose cover. On most of the policies we place, cover for fire, storm, water damage, malicious damage and theft stops once a building has been empty for 90 days in a row, unless the insurer agrees in writing.

A serious fire can also stop the rent and reach contents and the neighbours, which fire insurance for a commercial building sets out.

Your contents and stock, your income if the building cannot be used, lost rent and your liability as the owner are separate covers. They are set out by who owns what on commercial property insurance, with the ownership questions on commercial property owners.

Where a building is leased, the lease usually says who insures the glass, the air conditioning and the fit-out. Check both the lease and the policies. A lease that tells the tenant to insure the glass is no proof the tenant did. We work through what you and the tenant have each insured, and what is still left open. A commercial landlords policy can carry lost rent and your liability beside the building. Who pays the premium is a lease question, answered in who pays for building insurance on a commercial property.

If fire or storm leaves the building unusable, a lease can stop the rent until it is fixed. Only a loss of rent item on your schedule replaces it.

Most of the business packs we place exclude named cyclone and bushfire damage in a new policy's first few days. The policy may make an exception if you are replacing existing cover without a gap, or have a contract to buy or lease the property. Tell us the dates while you are arranging the purchase or lease, so we can confirm which exception applies before cover starts. Moving from another insurer? Start the new policy the day the old one ends.

What a lender usually asks for, and how to have it ready before settlement, is in what a bank requires before it settles a commercial property loan. Sometimes the bank asks for a higher figure than a rebuild needs. Before you question the bank's figure, remember that a rebuild also pays for demolition, professional fees and costs that rise during construction. Insuring for more than the rebuild needs still pays only the costs your policy covers. We give you the rebuild figure in writing; what you agree with your lender is between you and the bank.

In our experience, damage that was already there is the biggest thing roof claims get reduced for. We see insurers use aerial imagery as well. They use it to decline a building where they can see rust or ponding on the roof, and at claim time to reduce a payout under a gradual-deterioration clause. So at quote time we review aerial imagery of your roof and tell you what condition it looks to be in. It is a view from imagery: nobody attends the building, and it is not a building inspection. We run more than 1,200 aerial roof condition checks a year.

1. Relying on an online calculator. A calculator's figure can still leave you short of the rebuild cost, and if the gap is wide enough, the average clause can cut your claim payment. An older building can also cost more to rebuild to current codes than its age suggests.
2. Not telling the insurer about a renovation, an extension or a new kind of tenant. The commercial building wordings we place require notice before alterations or building work begin, and an undeclared change is a reason insurers give for declining a claim. What a new tenant does inside the building can also move your premium a long way, up or down.

After a fire or storm, the claims manager deals with the insurer, keeps the claim moving and looks at the whole loss: the damage, the make-safe costs (the work to make the building safe and secure), debris removal, professional fees and the rent lost while the building cannot be used. They check where things stand with the insurer and the loss adjuster (the person who assesses the damage for the insurer), and set a clear plan for the repair or rebuild and the rent. We tell you what records to keep. We explain each step of the insurer's decision as it comes. If a decision overlooks cover your policy provides, we take that up with the insurer.