Commercial insurance policies provide cover for buildings and property against all kinds of perils, but it is important to consider what it would cost to get your buildings reinstated following a total loss catastrophe such as a fire or major flood, and to ensure that your business insurance policy contains provisions to cover all the costs of reinstatement expenses.
If you under-estimate the total rebuilding costs of your commercial premises when initially applying for cover, then following any future claim, any payouts agreed will be subject to reductions by what is called ‘average’.
Average will reduce the claim payout proportionally by the amount of under-insurance of the declared value from the actual current rebuilding costs. For example if your premises costs 150,000 to rebuild and you have declared the sum insured at 120,000, your claim will be reduced by a fifth.
If allowances are not made for all the costs of rebuilding, including those that may not at first be apparent, when applying for a commercial property insurance quote, then it is more than likely that the premises will be under-insured.
Commercial buildings cover may or may not include cover for fees for architects, surveyors or consultant engineers that may be required before rebuilding work can be commenced. These will usually work alongside any loss adjusters appointed by the insurer to minimise costs and agree any rebuilding proposals. Insurance companies will not pay rates for fees above those set by the governing professional trade bodies.
It is important to establish whether professional fees are included in the policy cover and if not, add an amount to cover these to the declared sum insured. When doing so be aware that these professions usually charge a very high hourly rate, and inflation should be allowed for.
Another area that can often cause disagreement between an insured and an insurance company following total loss of the premises, is that of debris removal and clearance of the site in preparation to rebuild.
Most commercial policies will include a section outlining the insurance companies responsibility as regards the insured premises site clearance and debris removal. This typically includes cover for dismantling and demolishing buildings, shoring and propping up dangerous or adjacent buildings and site clearance. More often than not the amount for this is included in the sum insured, in which case this should be calculated and also added in to the rebuilding cost at proposal.
Debris clearance can be extremely expensive, especially if for example hazardous building materials such as asbestos have to be removed, or if the site was storing chemicals or dangerous machinery that have to be treated and removed by specialist clean-up teams.