Commercial Property Insurance - Meeting the Challenges

Since 2019 the commercial property market has had to contend with an increased frequency in severe claims, inflation concerns, and a surge in extreme weather events.

Despite the growing frequency and intensity of weather-related events, after a four-year period of intense rate correction, average rate increases for insurers broadly returned to single digit percentages by the latter half of 2022.

Although we are perhaps some distance away from a return to soft market conditions, these remediation efforts have mostly proved successful for insurers and the market has broadly returned to profitability, with Combined Operating Ratios for commercial insurers now almost all below 100% for the second year running.

The insurance market has also passed on through rate increases the impact of inflation on their operational costs.

We are pleased to report that the Masonic Mutual Limited has been able to shield its members from the worse excesses of market rate hikes and during the same four-year period we were able to maintain average rate increases to less than 10%.

What next?

In earlier publications we have looked at the effect of higher material costs and shortages of skilled labour as economic inflation impacts property valuations.

An upsurge in extreme weather events globally is also a cause for concern and will indirectly impact on the UK market as many insurers will look to smooth rate increases across their portfolio.

Although in the UK our infrastructure may not be as exposed to wildfires as elsewhere in Europe and on other continents, hot and dry weather last year still caused 745 wildfires in this country an uplift of 200% on the previous year.

Though wildfires can sometimes occur naturally, ignited by heat from the sun or a lightning strike, most are caused by human carelessness. Therefore if your lodge or masonic hall is planning to hold events that may involve the lighting of outdoor fires or barbeques (particularly the disposable kind) make sure if not on private property that there are no restrictions in place at the planned location. Also irrespective of whether on public or private land ensure there is adequate clear space to reduce the risk of fire spreading and if using a disposable barbeque never place it directly on grass or a wooden surface; always have a bucket of water or sand nearby and ensure that the BBQ has cooled completely before moving it. Most importantly ensure that the activity is risk assessed and that you have properly recorded details of that risk assessment.

Flooding is perhaps still the greatest natural disaster risk that many property owners in the UK face with at least 300,000 commercial properties at risk (source: RICS)

We recognise that it is impossible to fully protect property against damage caused by severe storm but there are a number of steps that you can take that may help to reduce damage including

1. Secure all loose outdoor objects from high winds.
2. Trim surrounding trees particularly dead and weakened branches.
3. Check your roof and repair any missing slates or tiles as roof leaks are responsible for an estimated 15% of commercial water damage and are the leading cause of ceiling water damage.
4. Ensure that your guttering is clear.

Storms can cause several things to go wrong at any one time and that is why it’s important to have a tried-and-tested plan ready and waiting should the worst happen. Consequently, ensure that you have in place business continuity planning outlining procedures and instructions in the event of serious disruption. Another water related issue concerns ‘escape of water’ claims which according to the Association of British Insurers (ABI), are costing UK insurers nearly £1 billion a year.

Another water related issue concerns ‘escape of water’ claims which according to the Association of British Insurers (ABI), are costing UK insurers nearly £1 billion a year

Your mutual has certainly seen a sharp spike in the number of reported claims during the last two years with individual losses running into six figures

Therefore, help minimise the risk of an escape of water claim by regular maintenance of plumbing and heating systems to check for any signs of failure including pressure testing and conducting regular inspections on cold water tanks and pipework

Water heaters tend to have a high failure rate and typically cause 11% of water damage claims. Ideally these should be replaced after ten years if not sooner. As a preventative measure put a drip pan underneath for small leaks and install an automatic shut off valve near the heater.

Finally, extreme weather, construction activity, soil erosion, and the age or material of the water main pipe can result in water main breaks particularly if over 60 years old or made of iron. Although these incidents only account for 3% of water damage claims when they do occur it is generally expensive.

If in doubt contact us and we will be happy to talk through your proposed loss control measures.

Jim Knight

Mutual Manager

E: jknight@towerinsurancebrokers.co.uk

M: 07542 735203

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14th August 2023