Commercial Property Insurance

Why do I need commercial property insurance?

If you own any kind of building used for business purposes, you should consider commercial property insurance. This includes residential accommodation that is let out, shops, offices and workshops.

As with other forms of insurance, there is no one size fits all policy! To be sure that you have covered all your risks (at an appropriate level) you must look for a commercial insurance policy that matches your building and its uses.

This guide to the commercial property will help you to do that.

What does commercial property insurance cover?

Unlike normal building insurance, which largely focuses on the cost of rebuilding, commercial property insurance factors in the business activities housed within the premises. In other words, your business risks.

Therefore, the sort of thing the policy takes into account includes:

• Fire, flood and severe weather – the potential impact of damage caused by a major incident or an ‘act of god’.
• Accidental damage – issues such as a forklift truck crashing into a major structure.
• Trace and access – costs involved in finding out where the damage is and fixing it, such as broken underground pipes.
• Theft – any damage that could be done by burglars.
• Riots and vandalism – the potential for someone to damage the fabric of your building deliberately.
• Subsidence – the likelihood of your building sustaining damage due to local environmental conditions.
• Business interruption – the financial impact of having your building damaged or inaccessible for any length of time. This could include loss of rental income.
• Stock and inventory – any losses that could be incurred if one of the other insured risks results in damage or loss to goods or equipment.
• Legal cover – a payout to help you meet legal costs, in the event of a building-related problem resulting in litigation. Such as a public or employer liability issue (see below).

What does commercial property insurance not cover?
With many policies of this kind, you can’t make claims for loss of equipment or stock when the issue is unrelated to building risks. You need a separate policy for your business contents.

How is commercial property insurance calculated?

The premium you pay for commercial property insurance will be in direct proportion to any risks and potential claims. In other words, the cost depends on what goes on in your building and what sort of pay-outs may be needed when a problem occurs.

So, the calculation would be based on:

Your business and its impact.

Different businesses carry diverse risks. For example, an office complex and a building used to store chemicals involve contrasting ‘liabilities’ or responsibilities. Clearly the larger and more complex the business is, the greater the insurance premium will be.

The scope and structure of your building.

The premium will be calculated to include the likely cost if you had to rebuild or repair your premises. So, the value of your building will be significant. It will also take into account any special features that are expensive to replace or repair, such as complex electrical wiring, large showroom windows or expensive flooring materials.

You should also consider whether the building’s location puts it more at risk from things such as flooding or vandalism, as these factors may increase your premiums.

Do I need commercial property insurance?

As an owner, you are not legally obliged to have commercial property insurance, but it is highly recommended. It’s an important form of protection for your business and can help you to recover quickly from problems that could affect your ability to trade.

Also, you may find that commercial lenders will ask to see evidence of your commercial property insurance.

If you are a tenant within business premises, it will be the landlord’s responsibility to take out a commercial property insurance policy. It makes sense to ask to see this and check any obligations that it entails, such as limits to the way you can use the building. You may also need separate business contents and employers/public liability cover.

Empty commercial property insurance

Do you need to insure a business property when it is empty? It is highly recommended that you do, as some of the major risks can still be an issue, such as fire, flood and deliberate damage.

The policy cost will take account of the fact the premises is not currently being used. So, your premium will be adjusted to take out elements such as business interruption or stock/inventory impact.

See our unoccupied commercial property FAQs for more detail on insuring empty or unoccupied commercial premises.

Property owners liability

Another thing to consider when taking out commercial property insurance – for occupied or empty premises’ – is whether the policy covers your liabilities or responsibilities to other people. For example, if someone is hurt while in your building because you neglected to commission repairs to the premises, you could face legal proceedings and heavy fines.

It is important to read your policy carefully to familiarise yourself with what it does and doesn’t cover, the levels of payment you would receive from a claim, any exceptions and restrictions and any special obligations it places on you as the owner of the property.