The importance of commercial property insurance

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Shortly before four thirty on the 19th of September 2018, the fire brigade attended a fire in a beauty salon in the City of London.

Although the blaze was quickly contained – thanks to the rapid response of the fire services – seven people had to leave the shop and a further 27 people were evacuated from the offices above the salon.

The cause of the fire is believed to have been something as simple as the fumes from a bottle of nail polish remover igniting from the flame of a burning candle.

Commercial property insurance

The incident is just one of thousands which occur on a regular basis across the country and attended by fire brigades – although in this case dealt with quickly and thankfully without any casualties.

This incident and others like it, also serve to underline the critical importance of commercial property insurance.

But fire is not the only peril which puts commercial property at risk – count in floods, explosions, storm damage, impacts (by vehicles and falling objects), escape of water, vandalism and theft and you gain a picture of the potential for loss or damage to the property.

And that is just the physical damage. The threat of claims from members of the public who may be injured or have their property damaged through some connection with the commercial premises and the loss of rental income which a landlord suffers following a major insured event – it becomes clearer than ever why any owner of commercial premises gives such high priority to adequate insurance cover.

What safeguards does commercial property insurance offer?

Building insurance

  • purpose-designed commercial buildings insurance has at its heart the protection of the very structure and fabric of the commercial premises – from the physical threats already mentioned;
  • the total building sum insured should be typically sufficient to cover the cost of completely clearing the site and rebuilding the premises after a major incident;

Contents insurance

  • commercial property frequently has a range of appliances, equipment and fittings – as was the case in the example of the beauty salon fire;
  • commercial property insurance may provide cover for the owner’s contents – contents owned by a leaseholder or tenant are their own responsibility;

Public liability insurance

  • if the salon fire quoted in our example had led to customers, residents above the shop or passing members of the public being injured or having their property damaged, the salon’s owner may have been held liable and ordered to pay substantial compensation;
  • typically, therefore, commercial property insurance also incorporates a minimum of £1 million public liability indemnity insurance – although for larger commercial premises this might be increased to £2 million, £5 million or even more;

Business interruption

  • the Association of British Insurers (ABI) also notes that a common element of commercial property insurance is business interruption insurance, which provides compensation in the event of your being unable to conduct business as normal after an insured incident;
  • this might be measured by the shortfall in your pre-tax profits as a result of the incident, for example; or
  • the increased costs you may have occurred – such as accountants’ or solicitors’ fees.

If you own commercial property, therefore, you might want to ensure you are adequately and securely protected against the wide range of risks to which those premises are exposed.