There are many hazards associated with running a business, and damage to business property or offices could impede the daily running of a company and have long-term financial implications. This could include the cost of moving or setting up a temporary location or rebuilding premises from the ground up.
Repairing or rebuilding the commercial property in case of disaster can cost extremely large sums of money, and commercial building insurance is designed to protect the property owner from these costs as well as liability. Policies can be written to cover ‘all risks’, or more commonly for ‘certain risks’ that will be specified in the policy documentation.
Anything that poses a threat to the building will need to be assessed and included in the policy, but coverage can be provided for damage arising from events such as:
- Fire
- Flood
- Earthquake
- Explosion
- Lightening
- Malicious damage
- Theft
- Civil commotion
Any eventuality that may cause a risk to the building should be included in the policy. If the coverage obtained is for ‘certain risks’, then the insurance will not cover any incidents from unspecified causes or events not listed in the policy.
For those that lease a building for business purposes, commercial building insurance will not be required. The responsibility for the property lies with the building’s owner, and tenants are not responsible for obtaining this type of insurance.
What does commercial building insurance cover?
To protect against property damage caused by events like fire, flooding, or damage from theft, commercial buildings insurance is available to cover the cost of rebuilding or repair. Things like fire damage, burst pipes, or windows broken during a burglary are all covered with commercial building insurance.
Commercial building insurance can also include building owner liability protection for policyholders. The small print should be checked carefully as not all policies include this automatically. But it will protect property owners from claims arising from third parties or members of the public owing to loss, damage, or injury. A trip caused by uneven flooring or injury caused by sharp protruding shelving will be covered by the liability portion of a commercial building insurance policy.
Some exclusions should be taken into account, and under certain circumstances, there are some things that a commercial building insurance policy will not protect against. In the same way, some items will not be replaced under the policy such as computers or contents of the premises.
Unoccupied properties that suffer damage will not be covered against theft or theft-related damage by commercial buildings insurance unless the insurer has agreed to cover an unoccupied premise. Neither will damage that occurs from wear and tear or dampness, corrosion, or pests like vermin or insect infestations. Exterior structures like gates and walls will not be protected against weather damage, and any lost revenues related to damages or loss are generally not covered by a policy.
Vacant commercial buildings insurance is more limited and harder to obtain because theft or damages may go undiscovered for long periods of time, causing even more damage as a result.
How much is commercial building insurance?
The costs of commercial building insurance are calculated using several factors. The rebuild cost is a primary factor, taking into account the size of the building and its contents. These factors and others are assessed against a level of risk to determine the level of coverage needed. Properties that are determined to have a high level of risk will pay higher premiums than those with lower risk levels.
The business type also impacts insurance costs. NimbleFins ran some sample quotes for commercial buildings insurance with £200,000 of cover and found the following sample costs for different types of businesses. It’s no surprise that the coffee shop would pay the most, as they have more third party liability risk (e.g., someone slipping on a wet floor after a customer spills a drink; or a hot coffee burn) and more risk to the property (e.g., higher risk of fire due to kitchen equipment).
Office Services: £169
Retail Gift Shop: £196
Coffee Shop: £268
As the value of the property increases, so too will the annual payment. Across the UK, small businesses can expect to pay an annual premium average of around £218 for a property with a £200K rebuild cost, but a £1M rebuild cost would be more likely to start from around £750. Along with the building value and contents of the property, other factors can influence the risk assessment. Non-standard construction, building use, and whether the property is occupied or unoccupied can all influence the premium payments.
Can I cancel my commercial building insurance?
There may come a time where you need to cancel your commercial building insurance. Businesses close, sell, or relocate with reasonable frequency, and as such, insurers recognise the need to cancel policies part way through.
When initially purchasing the policy, there will be a cooling-off period which can be taken advantage of should you change your mind about the policy. This period allows you to read the policy terms, conditions, and small print (including cancellation fees and terms). If the policy is not as expected or contains errors, you may cancel the insurance without penalty during the cooling-off period, although some insurers and brokers still impose cancellation fees during this time.
Cancelling a policy that is in effect does not necessarily mean that you will get all of your premiums back for the unused portion. While insurance providers allow you the option to cancel, many will also charge a fee and may return less than a pro-rata amount of the remaining premium. Depending on the company, the cancellation charges will vary.