Commercial property insurance – any leeway on the rebuilding cost?

When we are asked for a commercial property insurance quote, there are many questions we fire back at the customer. As a broker, we planto market someones business around to get the best price possible, for the widest cover. The slight problem being that not every insurer asks the same questions. We therefore need to ask for all the relevant information so that we can approach a range of insurers, because that is what a broker should do.

Mainly though, quotes are based on three key pieces of information. Firstly, the address, secondly, how the building is occupied and thirdly the sum insured. Contrary to the way domestic policies are sold, for commercial insurance, you need to tell us the sum insured for your building. There are no online calculators or easy means of calculating the exact rebuilding cost. The only usual way is to pay a valuation expert otcome in and see the building. Otherwise, you just use a rough guide of between £100 and £200 per square foot.

The problem, for the policy purchaser, you, is that if you under insure, or do not have an adequate sum insured, you can be penalised in the event of a claim. The relevant clause in your policy wording is called Average. If you have a building that should cost £1,000,000 to re-build and you only insure it for £100,000 then you are only paying one tenth of the required premium. You can understand that if there is a claim above £100,000 then you will not be covered. But, the way average works, quite correctly, is that if you have a claim for £100,000 then your insurers will only pay out one tenth of that loss, is £10,000.

The good news though, is that insurers do build some leeway into these figures. They understand that rebuilding costs are changing on a month by month basis. Most average clauses do build in a leeway of 10 to 15%. It depends on the insurers, as mentioned above. Make sure though that you are working with an independent business insurance broker, who can get you all of the different options.


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