Be up front about fire risk

In a recent incident in the Netherlands, a fire led to the destruction of a property of 10 connected industrial units. The fire began in a paper recycling facility but strong winds caused it to spread rapidly to other parts of the property housing less risky tenants such as a wholesale trader of electric components and a car dealership. The only unit that wasn’t fully destroyed was the recycling facility, but it was a total loss for the property owner nevertheless, and an extensive rebuild was required.

To better assess the risk of such properties, underwriters are asking for more granular information from industrial multi-tenant property owners, such as up-to-date occupancy information and details around fire protection. Sharing good-quality information with insurers is likely to benefit property owners at renewal in regard to pricing and policy cover as well as in the unfortunate case of a loss.

Specifically, owners need to share information about tenant changes, what each unit is being used for and what fire protection measures are put in place, especially when it may pose an increased fire risk. Insurers are also likely to need information about the construction type and materials used as well as the condition of the property and maintenance strategy in place.

In submitting information to underwriters, property owners may need to apply a level of common sense. The Insurance Act 2015 is not very specific in this regard. It states that “before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.” Fair presentation is defined as either a disclosure of “every material circumstance which the insured knows or ought to know”, or a disclosure that gives the insurer “sufficient information to put a prudent insurer on notice that it needs to make further enquiries”.

Some relevant information may not be accessible to property owners, and it is worth flagging this to the underwriter. If information is omitted in communications with an insurer, or relevant changes are not passed on to them in a timely manner, there is a risk that the insurer may refuse to pay a claim. In addition to the financial impact this may have for the property owner, such an event can cause wider issues. Depending on the size of the loss, it might result in issues with investors. Facility agreements with banks that impose responsibilities on property owners should also be considered.

To avoid this, property owners need to make sure that they, and all parties involved with managing the property, pass on information to insurers in a consistent and timely manner. A continuous flow of information between property managers, owners and insurers aids professionalism and will increase trust and create a good relationship with insurers. This will benefit property owners when it comes to their broker negotiating insurance premium rates and terms and conditions with insurers.

Samuel Leader is vice-president at Lockton Global Real Estate and Construction