Risk managers must understand the specific property risks of their business and match them with a detailed and tailored insurance policy

Business property risks are primary covered through three major types of insurance coverage: Industrial all risks; property all risks with machinery breakdown; and business interruption, according to Joseph Kung, Lockton’s chief technical officer and director of international risks.

Kevin Snowdon, regional director Asia, engineering and risk management at Willis, says that a property all risk offering is the primary policy for property risks coverage.

As this type of insurance coverage excludes only risks that have been specifically outlined in the contract, Snowdon says the title “is a misnomer since the policy covers all risks expect those that are excluded.

“At Willis, we must first fully understand a client’s business before we can recommend a suitable coverage,” he adds. Snowdon explains that a property all risk policy includes various sub-limits that may limit cover for a client’s property risk. Key clauses to be tailored for various property risks include business interruption; increase in cost of working; additional increase in cost of working; machinery breakdown; suppliers and customers extensions; infectious disease; denial of access; debris removal and demolition; and natural perils limits.

‘For smaller risks, insurers have developed business pack policies, with some having specialist package policies for farm, motor trades or office risks’

Allan Manning, LMI Group

Designing to size
Managing director of Australian firm LMI Group Allan Manning explains that for clients with assets of more than US$10m, the most common policy used is the industrial special risks policy. “For smaller risks, insurers have developed business pack policies, with some having specialist package policies for farm, motor trades or office risks,” says Manning.

“These policies have multiple sections, including a property or sometimes a so-called fire section, which is designed to protect the physical assets. Other sections that include property are the money, burglary/theft; transit, and/or general property sections, which provide cover away from the insured’s premises. This is good for, say, a tradesperson who takes their tools to site.”

Eamonn Cunningham is chief risk officer at Scentre Group, which is the combined property interests of each of Westfield Retail Trust and Westfield Group in Australia and New Zealand. He says the firm carries the typical policies for property risks, including business interruption, casualty and terrorism. “The classes of insurance themselves are not unique to the business, but the true value comes from specifically tailoring or manuscripting your individual insurance form to suit your circumstances,”  Cunningham says.

Major mistakes
Irene Lye, head of risk management at Ascendas, points out that a common mistake when arranging property risk insurance is not understanding how insurance covers are structured and the risks exposure of the buildings to be covered.  Manning takes the view that under-insurance is the biggest mistake to avoid. “Most policies penalise the insured if they do not insure their property fully,” he says. “For example, if they insured the contents and stock for, say, US$1m and the value at risk at the start date of the policy was US$2m, then the insurer would not pay the full loss suffered by the insured.”

Singaporean risk manager Gordon Song says that a general property damage/business interruption policy, otherwise known as property all risk policy, would normally cover most property risks. “However,” he adds, “the devil’s in the details when it comes to property risk cover, and the risk manager must work closely with the broker or advisor to ensure that specific exclusions in the policy do not render the company with financial exposures.”

Song suggests that issues in relation to master versus local policy are “key considerations for a company with multi-territorial operations, particularly in some jurisdictions where the local insurance market may not be well aligned with global standards”.

“It is therefore important to select a strong lead broker and insurer with multinational coverage and expertise,” he adds.  “Another important consideration is whether bailee’s customer coverage is required and available under existing policies, such as coverage for third-party property.”


Property insurance checklist

LMI Group has produced a property insurance renewal checklist, which it suggests is best used every year about 60 days prior to the renewal of commercial insurance policies.  It states:

  • If you own or are responsible for insuring the building, have you reviewed the replacement value of the building?
  • Have you conducted a thorough review of the value of your machinery and plant, tenant’s fixtures and fittings, office equipment and stock (including raw materials, work in process and finished goods), and customers’ good?
  • Have you reviewed your policy sub-limits for removal of debris, extra costs to comply with changes to the building code, theft, and others? If no, speak with your insurance adviser
  • Have you reviewed the range of perils that your policy provides protection against, including accidental damage, flood, machinery breakdown and others?
  • Have you added or removed any security, alarms, bars, security systems or the like?