For most enterprises, commercial property insurance is high on the list of priorities when it comes to risk mitigation. After all, your premises and equipment are the lifeblood of your operations. Downtime due to damage can be more than just inconvenient and expensive. It can also potentially damage your reputation if you’re unable to operate as normal and can’t fulfil your customers’ needs.
However, many large organisations take out commercial property insurance and believe they’re fully covered, only to find out that they’re not. Usually, you won’t find out if you’re not insured or under-insured until something goes wrong. Therefore, it’s important to review your commercial property insurance periodically to ensure it still fits your specific needs.
For example, if you operate from retail premises which is rendered unsafe because of an earthquake, fire, flood, or other damage, your customers won’t be able to buy from you. If the repairs are likely to take a long time, you may want to set up a temporary location so you can keep trading while your original premises are being repaired. However, not all commercial property insurance policies will cover the cost of temporary premises, not to mention the cost of communicating your new location to your customers.
For other businesses, a temporary location isn’t feasible. For example, if a manufacturer’s factory is destroyed by fire, it can take significant time and resources to get back up and running. You need to buy new equipment and materials, secure new premises (or wait until your current premises are habitable again), and catch up on the customer orders you weren’t able to process while you were making the arrangements.
In this case, the right insurance policy needs to cover the extra costs of getting the product manufactured elsewhere. These additional costs of working can be insured.
Finding out after an incident has happened that your insurance is inadequate can be distressing, particularly if the losses are significant and the entire business depends on the insurance cover to pay people’s wages and keep them employed.
You can reduce the risk of this happening by making sure your commercial insurance policy covers these five things:
1. The building and exterior features
Your insurance policy should cover you if your building is damaged. This includes signs, fences, driveways and parking areas that are outside your building but associated with your business.
The contents of your building include everything from the office furniture, the leasehold fit out, to equipment and computers. This means any inventory or stock stored at the main premises should be covered, along with things like manufacturing equipment and important documents or records. Don’t forget to account for these items that are away from your main premises.
3. Earthquakes and floods
Most insurance policies automatically include cover for events such as fire, theft, vandalism, and storms. However, if you’re in an earthquake-prone area, it’s important to know that your policy won’t necessarily include coverage for earthquakes unless you specifically add it to the policy. Similarly, damage due to flooding may not be automatically included. Your broker will be able to advise you about the availability of these covers and any special deductible (the amount you pay before the insurer pays the claim) that applies.
4. Assets taken off the property
As suggested under Contents earlier, if a substantial amount of business items are taken off-site they may not be covered under your standard commercial property insurance. Therefore, if you run a mobile business or staff members regularly take company property to other locations or to their homes, it’s important to make sure your policy covers them.
5. An adequate insured amount
In New Zealand, insurance policies are based on a valuation of your property and cover you up to a maximum amount. If you’re hit with a disaster and your losses are more than that amount, you will not receive any more money, which could mean you’ll be out of pocket despite thinking you were properly insured. It’s therefore crucial to make sure your policy covers you to a total sum insured that matches your potential losses, usually the cost to replace the property. Keeping your total sum insured amount low to avoid paying higher premiums is a risky approach and is not recommended.
It’s advisable for businesses to seek advice from an insurance broker who is experienced with commercial property insurance and who can help you understand what policy is right for your business. Working with a broker helps you get the right insurance policy for the right price, and can also make it easier if you need to make a claim.
To find out more, contact a NZbrokers member today.