As a commercial or small business owner, there are many things you might be liable for but one of the most costly is property damage. We look at which types of damage to look out for and how to ensure you are covered whether you are a tenant or a property owner.
What is property damage?
The term ‘property damage’ can actually refer to a number of things that are not just bricks and mortar buildings and structures. Firstly, property in business insurance terms is anything that belongs to the business, from its stock and furniture to machinery and money kept at your premises. As long as money (up to a specified amount) is kept safely at your premises, it will be covered, however any money or goods in transit require specific insurance.
Secondly, property damage could also refer to damage to your client’s property. So if you own a business that requires you to visit other premises - such as a client’s house or business, or if you work in public - property damage is something that usually included under your liability insurance. If, for example, you or a staff member are at a client’s offices and spill or break something, then any claim made against you could be covered by having property damage liability insurance in place.
Finally, if you are the owner (landlord) of a property, damage to the actual structure of the property can have significant repercussions, both from a loss of income point of view and in terms of your legal liability.
Property damage for commercial property
Commercial property owners in South Africa have to be well informed when taking out property insurance to ensure that they are not underinsured at claims time. Often, buyers take out property insurance with their bank or bond originator to the original bond value - not the true replacement value. Therefore, it’s important to properly value a property once the purchase is completed and to continuously value it. With Santam, it’s possible to add an escalation clause to your policy to allow for inflation.
The second common pitfall of commercial property insurance is that landlords misjudge the replacement value of additional fixtures and fittings besides the ‘bricks and mortar’ building. Depending on your building, you may have to reinstall elevators and escalators, air-conditioning systems, gardens, paving and so on. Furthermore, if a building is occupied by tenants, it’s also important to bear in mind the potential loss of income should a building burn down.
With Santam, business insurance policyholders will enjoy comprehensive cover for buildings, including theft of fixtures and fittings (loss or damage with forced or violent entry/exit from your building), storm, flood, malicious damage and fire. This cover automatically provides for loss of rent up to 25% of the sum your buildings are insured for, e.g. if your buildings are insured for R1 000 000, you will be covered for loss of rent up to R250 000. Plus, you will get property owners’ legal liability cover included for R1 000 000. While that is a nice bonus, it’s imperative to have adequate legal liability insurance - especially if you have a number of residential or commercial tenants who may suffer damages during a disaster, for which you might become legally liable.
Understanding the time frame around reconstruction
It’s important to remember just how long the process can take to get a building reinstated, from removing existing damaged structures and debris, the design stage of the replacement structures and getting plans approved, to construction, finding new tenants and so forth.
The ‘buildings combined’ section of Santam’s business insurance covers landlords against loss of rent, however only until the building is inhabitable. Of course, just because a building is ready for tenants to move in, does not mean that you’ll have tenants ready to unpack their boxes. You still have to advertise, sign contracts and so on. Therefore it’s important to understand the time frame until the building is ready for occupation again, but also consider wider cover options like business interruption insurance, which is more flexible to your needs.
Property damage if you are a tenant
For many business owners, it makes more financial sense to rent a property than own it outright, or you may run a restaurant or shop in a big shopping mall or complex. You could be held responsible for damages should, for example, a fire break out on your premises. Therefore, it’s important to check what type of insurance your landlord has on the building you are renting and how that policy affects your coverage. Your insurance broker can help you look through your rental contract to ensure that your business insurance policy covers anything your landlord insurance will not cover.
Also bear in mind that while a landlord is responsible for structural damages caused by things like storms, hail, fire, burglary, you as the business owner is still responsible for your own stock, machinery and cash.
Get in touch with your broker if you have any questions about business insurance or call us on 0860 444 444 for a free quote. Visit the business advice section on our blog for more articles tailored to business owners, such as the top festive season risks for retail businesses.
Remember: if you’re an existing Santam client, you can add policies and make changes to your cover right here on the Santam client site.