Tuesday 26 April 2022

Is Your Property Insured to Its True Value? When did you last review your building insurance?

It’s no secret that construction costs in Australia have skyrocketed in the last 12 months. Some commentators are signalling a 20% - 30% increase! It’s so significant that it’s led to the collapse of 2 major building companies in the last few months alone.

If you’re a commercial property owner, this does impact your insurance coverage.

Insurance companies require you to insure your building for full replacement value in today’s market. If you haven’t updated your building sum insured in the last 12 months, you may be Under Insured.

While this may not sound like the end of the world, a lot of property owners are not aware of the Under Insurance clause written into all commercial insurance policies. This clause allows insurers to reduce claim payments if a building is not insured for full replacement value.

For example, let’s assume storm damage to the roof of your commercial property. Pretty common claim in Queensland. The cost to repair your roof is $200k. 

Upon assessment, the insurer discovers that your building is only insured for 70% of replacement value.

Under these circumstances, the insurer will pay you $140k and you will need to pay out of your own funds the remaining $60k.

 

It’s a pretty nasty shock, and not one we want you to experience. So please review your building sum insured. We are here to chat if you need more information or provide alternative insurance quotes to try and keep costs down for your tenant.

 

Whether I am speaking with a first-time property owner, or someone who has owned commercial property for over 30 years, there are a handful of questions I am consistently asked. Below are the 4 most common.

1. My tenants have Public Liability, do I need my own?

Yes, for two reasons. First, the tenant’s insurance will only protect themselves, not you.

Second, you as the owner of the property can be held responsible for someone getting injured at the premises. Example – if you don’t repair a hole in the carpark and someone trips and injures themselves, you will be held liable, not the tenant.

2. Is my tenant responsible for repairing damaged glass at my property?

It depends on what is in your lease agreement with your tenant. If the agreement states that the tenant needs to take out Plate Glass insurance, then the tenant is responsible.

Otherwise, you as the owner are responsible for any damages.

3. What insurance cover do most property owners need but don’t know about?

Machinery Breakdown.

Most owners aren’t aware that damage to the building doesn’t automatically include breakdown of machinery and equipment.

If your property has items such as air conditioners, generators, cold rooms or lifts, you should look at taking out machinery breakdown cover, as breakdown of these items can be quite expensive.

Also, although your tenants may be responsible for service and maintenance of equipment,

if there is breakdown, the costs to repair and replace will be the responsibility of the owner.

4. Is 12 months loss of rent enough?

Probably not. From our experience with claims, if there is a major loss, such as a fire, it will be 3-6 months before building work even begins. First the claim needs to be assessed and approved, then builders need to be appointed. Finally, you will need to discuss and approve the repairs with the builder.

 

To better protect yourself as an owner, you should look to insure rent for 18 to 24 months.

Jeff Dias | Senior Account Manager | Guard Insurance Brokers