Australian commercial property owners lose millions of dollars each year due to insurance gaps caused by avoidable errors. Underinsurance is particularly problematic during claims. Storms can often result in losses exceeding $50,000 per building. Additionally, rebuild costs increase by 7 to 10 percent each year due to inflation and supply chain issues.
This guide outlines the seven biggest mistakes to avoid in commercial property insurance. It provides straightforward solutions for reviewing your policy now, helping you make informed decisions.
Mistake 1: Using Purchase Price for Sums Insured Instead of Rebuild Costs
Many owners choose the original purchase price for their coverage amount. They do not think about the real cost to rebuild today. Shortages of workers and higher prices for materials make this a big risk.
You avoid this problem by working out the rebuild value using a quantity surveyor or trusted online calculators. Make adjustments for your specific postcode. Add 20 to 30 percent to account for demolition costs, professional fees, and temporary works needed during repairs.
For example, a 1,000 square metre warehouse may require $3.5 million in coverage instead of $2 million. Check this figure every year. Insurers use an average clause that reduces payouts if you underinsure. They call it the average clause.
Here are some additional steps:
- Schedule a professional valuation every two years for properties worth more than $5 million.
- Refer to standard construction cost guides for quick estimates.
- Track the quarterly CPI construction index to stay current.
- Request a commercial building insurance quote to verify your sums match real needs.
Mistake 2: Overlooking Business Interruption or Loss of Rent Cover
Numerous owners skip these important extensions. They believe basic property coverage takes care of all issues. However, storm damage can shut down tenants for several months. Weekly rent losses frequently reach $10,000 or higher.
You prevent this by making sure
- Interruption limits provide coverage for 12 to 24 months of gross profit or rent.
- Base these on full indemnity values.
- List each individual lease separately in buildings with multiple tenants.
- Review waiting periods, which usually last 72 hours.
- Align them with the cash reserves your business holds.
- Shorten the periods for properties with high-value leases.
- Calculate the maximum interruption period based on your longest supplier lead time plus the time needed to rebuild.
- Include coverage for extra expenses such as relocating to temporary premises.
- Confirm the policy responds to failures from key suppliers as well.
Mistake 3: Ignoring Tenant Improvements and Fit-Outs
Landlords frequently exclude changes funded by tenants. Items like shop fronts and office partitions lead to disputes during claims. Insurers refuse payment without specific listings on the policy.
How to Avoid this?
- You sidestep this by requiring tenants to declare their fit-outs once a year.
- Include this requirement in your lease agreements.
- Add the declared values to your contents sum insured.
- Plan for $50,000 to $200,000 per tenancy as a typical range.
- Clearly specify “tenant improvements” in the policy wording.
- Many standard policies exclude these items unless you name them.
- Take photographs of changes during routine inspections to create a record.
- Review lease make-good clauses carefully.
- Confirm ownership of fixtures such as lighting or racking. Update your sums insured right after any tenant moves out or in.
Mistake 4: Auto-Renewing Without Checking Exclusions and Limits
Insurance policies often renew exactly the same year after year. New additions like EV chargers or solar panels introduce coverage gaps. Regional dangers, such as floods in Queensland, increase exposure over time.
How to Avoid this?
You dodge this by reviewing exclusions once a year.
- Confirm that flood and earthquake coverage applies if your area needs it. These options typically raise premiums by 1 to 2 percent.
- Increase public liability limits to $20 million or higher for areas open to the public.
- Make sure portable contents coverage includes items like laptops when they leave the site.
- Compare your policy against those held by similar properties.
- Avoid accepting automatic renewals without question.
- Examine the product disclosure statement for silent cyber exclusions.
- Verify that terrorism coverage remains active.
Ensure the indemnity period lasts at least 12 months.
Providers like ACS Financial identify these issues early during commercial building insurance reviews.
Mistake 5: Choosing Excesses That Don't Match Cash Flow
Excesses higher than $10,000 lower your premiums. However, they quickly exhaust reserves when glass breaks or small claims pile up.
How to Avoid this?
- You handle this by selecting excesses equal to 1 to 2 percent of your annual premium.
- Choose levels your business can pay from its own funds.
- Opt for $2,500 (typical, can vary) in retail spaces and $5,000 (typical) in industrial properties.
- Choose step-down options for claims below $10,000.
- Match these with body corporate rules in strata-titled buildings. Mismatches can cancel your coverage entirely.
- Review your claims history from the last three years to test suitability.
- Negotiate caps on aggregate excesses. Confirm that payment terms allow installments if needed.
Mistake 6: Not Listing All Sites, Plant, and Machinery Correctly
Owners of multiple sites often forget air-conditioning units and other secondary items. This oversight results in complete claim denials.
How to Avoid this?
- You correct this by maintaining a detailed schedule for each site.
- List all buildings, fixed plants such as lifts and HVAC systems, and machinery breakdown coverage.
- Boilers older than 20 years require current inspection certificates.
- Include leased equipment under “non-owned” clauses.
- Update everything after renovations begin.
- New approvals take 4 to 6 weeks to process.
- Tag assets with serial numbers for easy identification.
- Keep annual maintenance logs for plant items.
- List signage, awnings, and fencing as separate items.
- Note the mix of tenancies to split liability coverage properly.
Mistake 7: Skipping Specialist Advice for Complex Properties
Brokers without commercial experience miss key details like electrical fusion coverage or cyber risks in modern smart buildings.
How To Avoid This?
- You overcome this by working with providers who specialise in your property type. ACS Financial manages strata, industrial, and retail properties effectively. They focus on real needs without pushing unnecessary extras.
- Share your lease summaries, floor plans, and three-year business plans at the start. Specialists detect underinsurance 80 percent faster than general advisors.
- Ask for side-by-side policy comparisons before renewing. Request examples of claims from similar properties.
- Insist on plain English wording in policy documents.
- Start the renewal process 90 days ahead to secure multi-policy discounts. Owners who review their policies actively recover more on claims.
- Retrieve your current policy schedule, calculate your rebuild numbers, list any recent changes, and address gaps with purpose; your property and tenants depend on these actions.
Conclusion
Avoid these frequent pitfalls and enhance your commercial building insurance for dependable protection. Property owners in Australia who take proactive steps tend to recover more swiftly and enjoy greater peace of mind.
This week, focus on correcting one specific mistake. Grab your policy schedule immediately. Perform those rebuild calculations. Reach out to a specialist for a commercial building insurance quote. ACS Financial streamlines these processes for busy property managers. Effective coverage stems from well-informed decisions every time.
