As a commercial property owner, there may be a number of different tenants conducting business from your premises. But are you aware of their exact business activities? Are these up-to-date on your commercial property insurance policy schedule?
It’s important to be aware that incorrect or missing details on tenant business occupations can have implications for your insurance cover. This is particularly relevant with the shift COVID19 has brought to our economy, pushing many businesses to innovate and tweak their core business activities.
Why do I need to ensure my tenant business activities are up-to-date on my commercial property insurance policy?
Even though you’re not involved in your tenants’ business(es), the commercial activities they undertake has an impact your property insurance. It is essential to ensure tenant business activities are listed correctly on your policy, or you may experience coverage issues in an insurance claim.
How can inaccurate tenant business activity information affect my insurance coverage?
You may be without cover in an insurance claim.
Different business occupations present different risks to insurers. Some business activities pose a greater likelihood of claims occurring, and others may have an increased probability of larger scale losses in a claim. For example, a tenant who stores combustible chemicals at your premises is deemed a far greater risk to insure, than a tenant who uses the premises as an office space.
Under the Insurance Contracts Act 1984, it is your duty to disclose to the insurance company anything that you know, or could reasonably be expected to know is relevant to an insurer’s decision on whether to accept the risk of insurance, and on what terms. Tenant business information is paramount for insurers when deciding whether to offer you insurance, what premium to charge, the excesses to apply, and any specific policy conditions / cover exclusions.
If tenant occupation(s) are incorrect on your property insurance schedule, and the insurer rates the risk and offers insurance based on this incorrect information, you may experience coverage issues in a claim, which may even lead to denial of a claim. This is based on a failure to accurately disclose to the insurer key information that affects their decision on whether to accept the risk of insurance for your commercial property. If the tenant business risk is outside the insurer’s risk appetite, you could be without cover in an insurance claim.
What other issues could I encounter if tenant occupations are not accurately listed?
- Increase in premiums and change in policy conditions
If an insurer offers coverage for a commercial property based on incorrect tenant information, and this information is updated during the policy period, you may experience a change in premium and policy conditions.
If the tenant presents a lower risk to the insurer (i.e. less likely to experience a claim, and claims tend to be low in severity and cost) the premium may be reduced. If the tenant presents a higher risk where claims are more likely, and tend to result in a higher loss, the insurance premium may increase, and level of coverage offered may reduce in line with the insurer’s risk appetite.
- Business activities are excluded by insurer
If an insurer agrees to insure your property based on an incorrect tenant activity and the real ‘high risk’ business activity comes to light during the period of insurance, you may find yourself without cover.
Each insurance company has a specific risk appetite, where they prefer to insure some tenant business activities over others. If the higher risk tenant business activity sits outside the insurers preferred risk appetite, insurers can withdraw their offer of insurance cover, or cancel the policy mid-term.
Steps to ensure your tenant information and insurance coverage is accurate:
- Speak to / visit your tenants – make sure your tenants have provided you with an accurate description of their business activities. Can they get tenants to sign a declaration that this information is true?
- Inform your tenants – educate your tenants on the importance of updating you with any changes to their business activities. Communicating expectations can help ensure tenants are proactive on informing you of any changes.
- Check current tenant business occupations against your current policy – If in doubt, or you notice slight discrepancies, contact your insurer to check if this could present a coverage issue. If it does, this will give you the opportunity to have the policy updated.
- Speak to a CBN insurance broker – as professionals, CBN Authorised brokers can navigate the complexities of insurance on your behalf, providing advice and solutions to ensure your insurance policy aligns with your property portfolio risk exposures. Aside from ensuring you have coverage in a claim, it can help avoid the risk of underinsurance.
For professional insurance advice, connect with a CBN Authorised Broker.
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