Essential Guide to Commercial Property Insurance

The information provided in this article is for editorial purposes only and not intended as financial advice. SwitchPal is an Introducer Appointed Representative (IAR) of Seopa Ltd. (FRN: 313860).

Whether you own or rent your business premises, or if you rent commercial property out to others, commercial property insurance is essential. Regardless of your relationship to the premises, the costs of repair and maintenance can get extremely high, especially in the event of unforeseen circumstances. Landlords may find themselves losing a vital stream of income. Owners and renters may find themselves without the very building they need to keep trading. Commercial property insurance can help to plug those gaps. 

Understanding Commercial Property Insurance

It’s important to understand commercial property insurance because, while the principles of it are fairly straightforward, it can start to get a little more complex when we look at it more closely. There are a plethora of options available in the market, some of which can get extremely specific, and balancing your business needs against cost is critical, if you’re to get the maximum value from it. 

What’s the Difference Between Commercial and Residential Property Insurance?

There are several key differences between commercial and residential property insurance which may make a difference to the policies that you end up choosing. With residential property insurance, only named individuals or cohabiting couples will be covered. However, with commercial property insurance, any number of parties could be listed depending on the ownership structure of the business or property.

There are other differences, too. Residential property insurance will only cover one named property, but companies with more than one location will find coverage available that covers more than one, while commercial property insurance also covers more industry-specific forms of coverage. In addition to this, risk levels can be different. 

Coverage for both commercial and residential properties may address similar risks. Both will cover, for example, unexpected weather events or vandalism that can occur at a property, but residential insurance is much more standardised. This is because businesses have many different needs due to the additional risks they face that residential insurance doesn’t address.

Types of Commercial Property Insurance

There are different types of commercial property insurance, and understanding the differences between them will help you to pick the one that best suits your needs. 

Building Insurance

The very structure and fabric of your building is exposed to a very wide range of different risks, which could include fire or smoke damage, subsidence, flooding, water damage (particularly from burst pipes), or vandalism. Building insurance covers the very building itself. 

Contents Insurance

Of course, the building itself isn’t the only thing that matters here. What’s inside does too, and contents insurance covers this, whether against theft, loss or damage under similar risks to those covered in your building insurance. Plant material, IT equipment or damaged supplies can be very expensive to replace!

Business Interruption Insurance

In the event of a major insured risk, your commercial property may be left temporarily unusable, leading to considerable disruption to your own business if it is being run from the premises or to the loss of rental income if it is let to tenants. Business interruption insurance provides a degree of financial cover against these unexpected interruptions. 

Public Liability Insurance

Whether you're the owner or a tenant of business premises, you owe a general duty of care to ensure that no member of the public, customer, or visitor suffers an injury or has their property damaged as a result of any negligence on your part. In the event of such an incident, you could face a very substantial claim for compensation. Public liability insurance indemnifies against such risks.

Who is Responsible for What in Commercial Property Insurance?

Unlike residential property insurance, the responsibilities over commercial property between landlords and tenants can get messy and overlap. But broadly speaking, there are clear dividing lines over responsibility for the main types of commercial property insurance. 

Building insurance is the responsibility of the Landlord/Freeholder/Property Owner, though the tenant may pay this indirectly through their tenancy agreement. Any building insurance claims settlement will be paid to the policyholder (the Freeholder/Landlord/Property Owner) and not the tenant. Business continuity insurance will of course be the responsibility of the tenant, should they want it, though for those who own premises that they use as a place of business, these can be rolled together.

A commercial tenant is normally responsible for arranging their own business insurance including cover for any of their own business contents, fixtures or fittings within the commercial property that they rent. This will of course be the responsibility of the tenant, should they want it, though for those who own premises that they use as a place of business, these can be rolled together.

Public liability insurance can get a little more complex. Property owner liability covers claims made against the owner for any injury or damage to third parties arising from alleged defects in the property or maintenance of the property. Employer liability will usually be paid by whoever the employer is, be it the landlord or the tenant. 

It’s worth paying extra attention to these responsibilities, as a sizable proportion of insurance claims end up being disputed in court or elsewhere concerning the question of who was responsible or covered for what. 

What Does Commercial Building Insurance Typically Cover?

Commercial building insurance typically covers natural disasters like flooding, storms, and subsidence,  damage to your building from fire, deliberate vandalism, including from break-ins, arson, burglary, or rioting, accidental damage as long as it isn’t considered negligence, and damage caused by burst pipes on your property. 

It’s also worth considering what isn’t covered as well. An empty building usually isn’t covered if it’s unoccupied for 30 days, while damage caused by negligence by you or your employees, poor craftsmanship, DIY repairs and general wear and tear are highly unlikely to be covered. Many policies also exclude damage from pests and other animals.

Depending on the exact nature of your business, other more specialised coverage may be available. Specific landlord insurance, for example, is not uncommon for those who own commercial property, while businesses that deal in large amounts of cash can insure themselves against loss through theft. 

Companies who are heavily dependent on technology can take separate electronic equipment insurance, which may include cover for portable items if taken off the business premises, protection against unauthorised use of mobile devices, or cover for the cost of recreating business records, computer records, plans and designs. More specialised coverage is available across a range of different business types.

Cost Factors

There are numerous determining factors for commercial property insurance premiums, some of which may be beyond your control. For example, the actual constitution of the building is important. Construction is primarily determined by the building materials used, as well as the size and age of the structure. The building materials influence the building’s flammability or combustibility, as well as its durability. Other factors may include occupancy (what actually happens inside the building), and exposure, which is determined by your geographical location, how close your building is to a forest fire area, a coastal area, a high wind area, a flood zone, or even proximity to other buildings.

Although some of the above may be beyond your control, there are still things that you can do to lower your commercial property insurance premium while maintaining adequate coverage. Enhancing security measures at your business, mitigating fire risks, bundling insurance policies (where possible) and maintaining a good claims history may all help.  

Choosing the Right Policy

With so many options available, selecting the best insurance for your commercial property can feel like stepping into a minefield at times! But ultimately the right insurance policy for your business is the one that hits the sweet spot between affordability and giving you the maximum coverage possible. Get quotations from more than one company, and compare and contrast them. Be careful to check any small print.

Although it can get complicated, it’s always worth taking a moment to review the insurance needs of your business. Many fall into the trap of only covering the bare minimum or legal responsibilities alone and find themselves uncovered when something unexpected happens. Now’s the time for you to carry out that review. The costs of not having the right commercial insurance can soon start to mount up if you don’t pay attention to it.