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Transferring insurance risk to your tenants? Think again.
If you’re a commercial property owner, you may have considered transferring your property insurance program to your tenants. It would be one less thing to worry about, right? Wrong. Transferring responsibility for insurance over to your tenants opens up a myriad of risks; some of which we’ll take a look at, so you can discuss with your risk adviser in full.
Property owners sometimes look at transferring the property insurance to their tenants to save on costs; but would it actually save any money? Perhaps, but the small savings are offset by the additional risk owners expose themselves to.
First and foremost, with this type of insurance, the sum insured must be correct. If not, you as a property owner could be exposed to costs far-exceeding the small savings made by transferring the insurance.
Getting the sum insured right includes accounting for things such as costs for removal of debris after a loss – particularly if it involves dangerous materials (i.e asbestos & other harmful chemicals). It also means the Replacement sum must provide for extra costs to rebuild the property to current building regulations. These regulations could significantly add to the scope and overall cost of the rebuild.
If your property was damaged in a catastrophe, the building costs may rise significantly, as they tend to do in those scenarios. Extra sum insured needs to be provided to cover these costs.
There are also risks associated with getting your Lessee to arrange the cover. For instance, it is impossible for you to stipulate how to insure in a lease, meaning there is no guarantee that your Lessee will include the necessary covers. The Lessee may also have special terms and conditions imposed on them because of their past insurance history, which may affect the amount of any payout in a disaster.
Property owners’ insurance policies often include small details in the cover that could make or break your business in a loss scenario. For example, if the premises have sprinklers, heat detectors or burglar alarms, some policies void cover if they’re not adequately maintained. This is a small consideration that could end up placing your property in jeopardy if not properly addressed with an insurance risk adviser.
As we’ve illustrated, the savings made from transferring your property insurance to your tenants are far outweighed by the risks you expose yourself to as a commercial property owner. To make sure you have the most comprehensive cover possible, talk to your risk adviser today.