Whether you are a Developer, Property Manager, or Property owner, it is important to protect your investments from the many risks affecting Commercial Properties in Australia.
What is Commercial Property Insurance?
The foundation of a Commercial Property policy is based on Building Insurance, Rental Income, and Public Liability; however, Commercial Property Insurance has evolved to include a wider scope of coverages, such as:
- Machinery Breakdown: Complex coverage for large machinery, plant, and mechanical equipment, with options to include coverage for the resultant business interruption costs.
- Rent Default: Protection against the loss of income resulting from tenant eviction, receivership, cease of rental payment, and tenants vacating the property.
- Lease Incentives: Coverage for the costs required to attract new tenants to a property following a loss, including cash payment, reduction of rent, and additional fit-out expenses.
- Additional Increased Cost of Working: This provides coverage for advertising costs, rent free periods, and to pay tradesmen overtime to speed up repair times and limit downtime. It also limits any reduction in turnover or revenue to maintain normal business operations.
- Claims Preparation Costs: Covers the cost of professional fees for the preparation, presentation and settlement negotiations for various types of large commercial property claims.
- Developments Costs: Allocates additional funds to the development of a property to attract new tenants if a property is damaged or destroyed.
- Loss of Attraction – General Area: Coverage for loss of rental income or disruptions in normal business operations if caused by the damage to a property adjacent from the insured property.
- Loss of Attraction – Anchor Tenants: Provides coverage for the loss of rental income or disruptions in normal business operations should a key tenant vacate the premises (ex. A large supermarket in a small suburban shopping centre).
- Inducements: This covers the expenditure necessary to induce tenants to lease or re-lease a building following reinstatement after a loss (including partial leases).
- Fixed Costs Not Recoverable from Tenants: This covers certain after-loss expenses such as cleaning, taxes, pest extermination, building maintenance, and electricity.
Key Areas of Focus in Commercial Property Insurance
Insuring to Value
To ensure a claim is fully paid by the insurer, it is important that the property is valued at its full replacement cost.
We recommend having a professional insurance replacement cost valuation completed every 3 years to keep the value up to date.
Calculating Rental Income
When calculating the annual rental income for a property, one should factor in:
- Indemnity (recovery) Period, consider the following:
- Time to demolish and rebuild.
- Time for Council approvals.
- Time to re-tenant the building.
- Minimum of 24 months recommended, your rental income will be covered for the period you select.
- Outgoings, which includes parking and utilities.
- Escalation costs over this period.
Industrial Special Risk (ISR) Policy VS Business Package Policy
An Industrial Special Risk policy provides property damage and business interruption cover by any cause not specifically excluded by the policy. This all-encompassing policy is designed for mid to high-value properties, typically from $5,000,000 upwards.
The Business Package offers protection for small to medium size properties against insured perils stated in the policy wording (fire, theft, vandalism, impact damage, water damage, etc ). Typically not as comprehensive as the ISR policy, but can be more price competitive if the property is valued under $8,000,000.
Knowing Your Duty to Disclose
It is the legal responsibility of the person applying for insurance to disclose relevant information to the insurer before a contract is entered into.
The insurer is within their rights to remove themselves from a policy if they become aware of a risk they did not previously know of.
Why should I contact KBI?
At KBI we have leveraged our networks, strong relationships, and our depth of knowledge of the Commercial Property space to customise insurance solutions for Property Owners, Developers and Property Managers.
As experts in this area of insurance, we work closely with our clients to understand their unique needs. We approach insurance companies on your behalf to get a range of coverage and pricing options. We compare these options and present our recommendations to you. We then secure the insurance that you select and review it with you annually.
Our Key Commercial Property Insurers
Learn even more about Commercial Property Insurance
When we said we were experts, we weren’t joking. Presented below are several articles that we’ve prepared specifically on the topic of Commercial Property Insurance. Take a look at these articles at these articles and contact us if you have any questions or if you’d like to speak further.