Property insurance

What it means

Property insurance covers buildings, plant, equipment and stock against fire, water, wind, hail, theft and vandalism. The policy wording defines the scope, not the client’s assumption.

The sum insured should match replacement value, what buying the same thing costs today. The accounting net book value is usually far lower and leads to underinsurance.

Policy wordings are built in one of two ways. Under named perils only what the contract lists is covered; under all-risks cover every loss is included except the exclusions. The second is usually dearer, but in a dispute the only question is whether the loss falls under an exclusion.

How it works in practice

At renewal, work through the current asset register from the books. New machines, refurbishments and capital improvements otherwise never reach the policy, and a loss reveals it too late.

Business interruption cover is the natural companion: repairing the building does not save a company that cannot produce for three months while fixed costs run on.

In rented premises the landlord usually insures the building, while the company insures its own equipment, stock and the fit-out it has added. For assets on a lease the leasing company sets the insurance. When reviewing policies we therefore go through lease and rental contracts too, so that nothing is insured twice or not at all.

What to watch out for

Underinsurance cuts the payout proportionally: at half the correct sum insured the company receives half the loss, even where the loss is below the sum insured. That is what surprises people most.

For theft, the required security decides: lock types, bars, an alarm, a safe with a cash limit. If security does not meet the wording, the insurer reduces or refuses the payout even though the sum insured is right. Know the requirements before moving into new premises, not after a break-in.