Claims Preparation Costs: An Essential Yet Overlooked Insurance Cover
Claims Preparation Costs is often overlooked as part of a Property insurance policy, as it is not necessarily one of the main sections of cover – yet it could be an absolute lifeline in the event of a major claim.
The fundamental purpose of a typical Commercial Property insurance policy is responding in the event of a physical loss to the Building (Material Damage), resultant Business Interruption through Loss of Rent/Income and any Public Liability related events (Third Party Injury/Property Damage).
In addition to this, you may often see the following additional covers included in a Commercial Property insurance policy:
- Machinery Breakdown (e.g. hydraulic, mechanical or electrical failure of machinery)
- Glass (e.g. replacement of internal and/or external glass panels)
- Rent Default (e.g. if tenant defaults on rent or is evicted while under contract)
- Environmental Liability (e.g. sudden or gradual escape of pollutants)
If you dig a little deeper into a policy, there are numerous sub-limited coverage sections which are not always discussed between the broker and insured. Examples include:
- Removal of Debris
- Additional Increased Cost of Working
- Extra Cost of Reinstatement
- Flood (if applicable)
Claims Preparation Costs
The role of a broker is to advocate and negotiate on behalf of the insured during the claims process, however, in a complex claim the brokers may not always be best placed to ensure the full entitlements of a policy are reached. Claims Preparation experts are exactly that – experts. They have the skills and time needed to dedicate themselves to what can be a hugely time-consuming process.
Ensuring your policy is set-up correctly is a straightforward process:
1. Make sure your Claims Preparation limit of insurance is sufficient
If you have an Industrial Special Risk (ISR) policy for a high insured value – let’s use a $30,000,000 replacement value as an example – we recommend a Claims Preparation limit of $500,000 to ensure the policy will respond sufficiently. For smaller assets in the circa $10,000,000 range, it’s not alarming if the limit is set at the $250,000 mark.
2. Build in a Claims Preparation expert into your insurance policy
Collating the information to put yourself in the best possible position to negotiate a payout with your insurer can be an all-consuming task. It can include lab testing and multiple follow on reports, dealing with lawyers, loss adjusters, establishing scope of works with engineers, architects and builders’ reports – the list goes on. Outsource this by building a specialist service provider into your policy. The role of a Claims Preparation expert is to unlock the full entitlements of an insurance policy during a claim and a good one can be absolutely priceless.
A recent real-life example of a Claims Preparation expert showing value was during a major apartment fire:
The apartment was recently valued at $5,000,000 and was badly damaged during an electrical fire. The insurer carried out an assessment of the damage and their appointed builder provided a scope of works at a cost of ~$150,000. With several rounds of back and forth with the insurer, we decided it was time to engage a Claims Preparation expert to advocate on the client’s behalf. They brought in their own engineers and builders who formulated an alternative scope of works which was far more detailed than the original.
The alternative was backed up by laboratory testing showing evidence of hazardous smoke residue which provided an airtight case for a total renovation of the entire apartment.
The outcome was a cash settlement offer of over $700,000 - a huge increase on the sum originally put forward by the insurer.
Fortunately, the Claims Preparation Costs limit of insurance was $500,000 – just one of 30+ sub limits of cover on an Industrial Special Risks policy. It shows the value of reviewing your overall insurance cover with a broker that knows what they are looking for, and having the right services built into your policy for when it matters most. Our recommendation is to have your policy constantly reviewed and designed to reflect the insured risk as it changes – by someone who knows what they are looking for.
Have any questions?
Talk to one of our Commercial Property Experts today!
KBI is a national specialist insurance brokerage that has rapidly developed a reputation for being the insurance partner of choice for the Commercial Property and Strata sectors, providing expert knowledge and specialised solutions across a range of asset types.
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By Phil Hughes
Phil Hughes is an Account Manager at KBI with a focus on Commercial Property and Strata insurance.