With many Australian businesses in a state of flux as a result of Coronavirus, some commercial properties are being left temporarily vacant, and others without occupants for the foreseeable future.
If you own or lease a commercial property, and this applies to you, it is essential to inform your insurer of this change in risk.
Why do I need to tell my insurer?
You need to tell the insurance company, to ensure you do not breach your Duty of Disclosure, and have sufficient cover in an insurance claim.
Before entering into a contract of general insurance with an insurer, you have a duty, under the Insurance Contracts Act 1984, to disclose to the insurer every matter that you know, or could reasonably be expected to know, is relevant to the insurer’s decision whether to accept the risk of the insurance and, if so, on what terms. You have the same duty to disclose those matters to the insurer before you renew, extend, vary or reinstate a contract of general insurance.
When properties are unoccupied, there is an increased risk associated with insuring the property. Why? Put simply, insurance claims are more likely to occur. Vacant properties tend to experience events like break-ins, fire, vandalism, and severe water damage with greater frequency, as there is nobody there to deter criminals or respond quickly to something like a burst pipe, thereby limiting any damage that occurs.
As a result of the increased insurance risk, you are bound by the Insurance Contract Act 1984 to disclose to the relevant insurer(s) when a property is left unoccupied. If there is a failure to inform the insurer, insurance claims lodged could potentially be declined, or the policy cancelled in full due to non-disclosure.
What is the most likely response from an insurer when a property is unoccupied?
An insurer’s response to this change in occupancy risk will vary depending on which insurance company is covering your property, and their risk appetite. Typically, insurers apply additional policy terms and conditions in these circumstances. Often this can include:
- An increase in premium;
- An increase in policy excesses / deductibles; and/or,
- Other special policy conditions imposed e.g. cover exclusions, limited levels of cover i.e. $10,000 as opposed to $50,000 for water damage.
When should I tell my insurer?
This depends on the insurer and the policy in question.
Generally, insurers provide full cover for 30 days of continued vacancy before they require notification. Some policies allow 30, 60, 90 or even 100 days of complete cover, however after this time, the policy may only provide partial protection, and cover is limited to restricted events. Other insurers may completely exclude cover if they have not been advised of this change in risk from the outset.
To protect yourself, it is always prudent to notify your insurer or insurance broker as soon as there is a change in occupancy circumstances at your commercial property. This will help ensure your property is still protected by insurance in the event you need to make a claim.
How can I manage the increased risk of having an unoccupied property?
Implementing risk management measures that reduce the risk of an insurance claim can sometimes help minimise additional insurance premiums and excesses, or reduce the likelihood of special cover exclusions / reductions.
5 Tips to manage risk of an unoccupied commercial property
- Security measures – Implement increased security measures at the premises e.g. security cameras, bollards, security lighting, monitored alarm system.
- Turn utilities off – Turn off all utilities off at the mains e.g. water, gas, electricity. This can reduce the risk of fire, flooding, water damage.
- Remove valuables – Removing valuable items from the premises can limit break and enters.
- Keep it clean – Keep the property neat and tidy, removing any combustible materials that may present an additional fire risk.
- Random inspections – Where possible implement a timetable of inspections to check all locks and security to deter break-ins. It can also ensure that if something has happened, you know about it, and can act early before even greater damage can occur. E.g. a burst pipe can cause serious damage if left unnoticed for a week as opposed to a day. Security cameras can also assist in managing this risk.
For professional insurance advice, connect with a CBN Authorised Broker.
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