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Calculating commercial property insurance

Navigating the ins and outs of insurance can be tricky – especially for a business owner. Trying to get the right type and level of insurance, understanding how a premium is calculated and pricing the nature of risk to your business requires placing your biggest assets in the hands of a trusted adviser.

And the price of inaction can be high.

Losses from a commercial property can have a devastating impact on a business. When disaster strikes, it’s not just the building that is affected. Equipment and stock are lost, income dries up and potential earnings walk out the door.

Let’s consider the basics.

Insurance is the calculation of risk

In any insurance premium, risk is a significant part of the calculation. There are plenty of factors that go into understanding the level of risk. Since all businesses have unique characteristics, each of these features need to be taken into account.

Having a business next door to a fireworks factory or located in a flood zone is obviously going to make insurers squeamish.

Insurers also consider the materials of the building. For example, brick is cheaper to insure than wood. And new electrical wiring and fire-proof doors are all going to drive down premiums. Fire detection and alarm systems are useful building protections. An office-based premises will also be cheaper to insure than a place where sparks are flying from the welder.

Your equipment

Business equipment and inventory are expensive and can really hit your bottom line if they’re out of action. It’s important to ensure proper equipment maintenance procedures and registers are in place and followed through. Retaining proof of purchases and photos is an important aspect of calculating an appropriate sum insured and also assists when making a claim. Of course, a yard with expensive mining equipment will be more expensive to insure than a clothing store.

When it comes to content, there are as many different costs and combinations as there are businesses. Being clear about what is in stock and what has been damaged is key to a smooth insurance process. An inventory management system is critical.

Future earnings and employees

It’s not just goods. Livelihoods also need to be insured.

Injuries to key personnel, directors and the self-employed can have a devastating impact on the business. Income protection insurance should be considered to protect against contingencies where income is lost through the inability to work due to injury or sickness. Additionally, workers compensation covering injury to employees arising from their work is mandatory across all Australian States and Territories

Changes in property

We’ve already seen that a wide range of factors go into the calculation of a premium to protect your business building and contents, your earnings and your employees.

But what about the cost of repairing or replacing the building?

Most policies provide replacement which is the cost necessary to replace, repair or rebuild the Property Insured to a condition substantially the same as, but not better or more extensive than, its condition when new.

The sum insured should be sufficient to cover a number of contingency costs. This is where we can help you understand what is included in your sum insured or is an additional benefit.

Inadequate cover can have a devastating impact upon a business when something goes wrong and the proceeds from the insurance claim do not fully cover the repair or rebuilding costs.

Speaking to us is one of the first steps in getting ahead of any threats to your business.
To discuss your insurance program, please contact us on (08) 6279 2300 or email us on info@cwib.com.au.
Article originally published by Insure, November 2020.