How to Make your Commercial Property more Insurable?
It is becoming more difficult each year to obtain a favourable commercial property insurance renewal, which is why it is more important than ever to put yourself in the best possible position when renewing your policies. Implementing certain practices, procedures & improvements will encourage insurers to offer more competitive terms on renewal, while also helping to prevent claims.
To help, we have put together a guide on how to make your commercial property more insurable.
Table of Contents
What’s happening in the commercial property market and why?
For the past five to seven years, we have experienced a relatively soft market with low premiums and insurers aggressively competing for business. However, over the past few years, we have seen an increasing cost of claims driven by larger and more frequent catastrophic events, including bushfires, floods, and storms. While Australia has been particularly affected by these events, it has also been a noticeable global trend.
Over the last 24 months, insurance premiums for commercial properties have been on the rise. All indications currently point towards these increases continuing as fewer and fewer insurers compete for business. Therefore, commercial property managers and owners should be looking to work with their insurers and brokers in order to implement risk management practices. This is the best action you can take right now as it will prevent claims and help secure the most competitive insurance possible.
Water Damage Risk Mitigation
Many water damage claims are a result of leaking pipes caused by corrosion, pipe bursts, or system failures. One of the main issues with water damage is that the pipes and systems are internal and remain hidden behind walls or ceilings, meaning a leak can remain unchecked for some time. and early detection can be difficult. A water damage mitigation plan, including preventative maintenance and water detection technology, is imperative if water damage to a building is to be kept under control in the event of a leak or system failure.
This plan should include a list of the personnel involved in the water damage risk mitigation and action plan. Senior management personnel within commercial businesses should be fully behind the plan and should proactively promote and enforce it. Notification charts should be upheld on an organisational, employee, and contractor level. The plan should outline how you will inform personnel as quickly as possible, including staff within the areas of risk management, facilities, security, maintenance, and engineering.
Employees should be trained each and every year on how to shut down systems effectively and promptly, as well as isolating those in need of attention. An accountability coordinator should be assigned to be in charge of the water damage response. This figure should then be given annual performance goals and incentives relating to training needs.
Fire Prevention and Mitigation
Fire prevention and mitigation is all about being proactive and stopping a problem before it manifests. In order to do this, you must first highlight the high-risk places within your building/establishment. For the vast majority, this includes things such as cooking equipment, heat processes such as welding and plastic extrusion, and activities that produce dust or other flammable material like woodworking and spray painting.
These areas should be treated with care in terms of prevention techniques and safety measures. Ensure that you clean equipment thoroughly, store it safely, turn everything off when you finish using it, oversee the regular removal of all dust, and use dust extractors and spray booths while working. These simple measures can cut the risk of fire and damage dramatically.
It is also crucial that you conduct adequate maintenance and detection within the building to prevent the accumulation of risk factors. A fault that goes undetected and is allowed to manifest can spell disaster in the long-run. You should have all equipment scheduled for annual inspections in order to stay on top of any necessary maintenance
Your building should have a clear fire policy to prepare for the worst. Where is the designated fire exit? Where is the fire-fighting equipment? Is there a fire marshal in charge in such an event? All clutter around the building should be kept to a minimum, ensuring that any fire-fighting equipment, such as extinguishers, is easily accessible at all times. This means keeping walkways clear to assist in a swift exit if needed. Enforcing a no smoking policy within the building is also a necessity in the fight against fire hazards.
Storage areas represent a common fire risk, especially when people rarely visit them throughout the day. As such, you should keep storage away from ceilings and walls where possible. You should also avoid using HID lights as they have been known to burst and ignite within storage rooms.
Other fire prevention equipment and practices to consider
For cooking tenants:
Security Considerations and Risk Mitigation
Vandalism, theft and malicious damage can be a concern for property owners, especially if there are vacancies in the building. Vacant buildings are a particular concern and require stringent security protection. (See our blog on vacant buildings for more information.)
Deterring vandalism and preventing break-ins is the first step on the road to reducing risk and improving insurance renewal outcomes. Therefore, it is important to ensure that you implement as many of the following measures as possible, with insurers actively looking out for such systems and practices:
Risk Improvement Surveys
Carrying out an independent insurance risk survey by a professional service provider is also a great way to satisfy the insurer’s requirements. This typically includes internal and external photos, full details on the fire and security protection, and presents the risks in a way the insurers like to see.
If insurance companies do not know exactly what they are insuring, they will tend to price on the side of caution, which could make it more difficult and expensive to insure. This is especially the case when it comes to larger or more complex commercial buildings, for example, large shopping centres or industrial buildings.
Change in Tenants
Tenant’s operation is a key factor that drives the cost of insurance and changes in tenancy can have a major impact on the policy. You can engage your broker to get information on how different tenants may impact the building insurance policy, ensuring that there are no surprises when it comes to your renewal.
For example, if a panel beater moves out and a wholesaler moves in, how would that impact the insurance?
You can also engage your broker for pricing indications as part of your due diligence when leasing to new tenants. When welcoming a new tenant, you should also ensure that the risk management of the building is appropriate for them and their business.
Considerations for a Risk Mitigation Plan
While the following does not cover every single aspect of a risk mitigation plan, it does provide some valuable guidelines regarding things you should consider. You should be looking to establish a plan and ensure that property owners and managers promote it. Identify the contact details of key personnel required to manage a water damage event including Engineers, Maintenance and Facilities Management. If you can establish a pre-existing relationship with these people, you will be all the better for it in the future when it comes to call-out and replacement costs.
When it comes to inspections, you should look to organise a periodical check plan for older pipes, water heaters, and connections, as well as the roof and boiler rooms. Establish your property’s high sensitivity areas and install leak detection and/or automatic shutdown devices in these parts of the building accordingly. It is also important to identify and tag safety valves to indicate which part of the system they control. Finally, pay special attention during times of heavy rain and storms as gutters and drains may become blocked, resulting in a build-up of water and potential property damage.
With the current financial state of the insurance market, putting your risk management practices in place is a necessity when it comes to obtaining the most competitive quotations from insurers. Similarly, if you want to open negotiations with as many insurers as possible, these practices must be implemented to do so.
Have any questions?
Talk to one of our Commercial Property Experts today!
*The Content is for informational purposes only, you should not construe any such information or other material as financial, or other advice. This information is general and does not take into account your objectives, financial situation or needs. When considering the purchase of an insurance policy, you should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
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.
If you have any questions or concerns regarding commercial property insurance, please contact us directly, we’re happy to assist.