While the core type of cover provided under a standard commercial property policy has generally remained consistent over the years, most have been recently expanded to include wordings you might not ordinarily expect.
Wider cover helping customers recover after a loss is welcomed, but these extensions are often overlooked. There’s also the potential for confusion around how they’re applied, particularly where they can result in a recoverable amount over the perceived maximum limit of liability under the policy, for instance, the sum insured.
Policy additions and extensions
Standard ‘add-ons’ to core cover that loss adjusters, policyholders or their representatives expect to see in some form could include seasonal increases, 72-hour clauses, trace and access, public authorities regulations, Value Added Tax (VAT) and index linking. However, even the wording of some of these common long-standing extensions are changing and worth a careful read. For example, the wording related to index linking is evolving as some policies now extend the indexing of the sum insured to the end of the repair/replacement period as opposed to being from the start of the insurance period to the date of loss.
Another extension that loss adjusters are encountering more frequently relates to VAT. The implications of this clause are that, in some situations, non-recoverable VAT can be ignored when considering adequacy of cover. Also, the liability of an insurer may exceed a sum insured where the additional amount is solely in respect of VAT. Again, comprehensive and careful consideration of the wording is required given this extension affects value at risk calculations, reserving and the payment sum.
Some of the lessor known extensions include but are not limited to: branded goods, Japanese knotweed removal, removal of wasps and bees nests, undamaged tenants improvements, storm and/or flood resilience and protection costs, undamaged stock, removal of tenants contents, fly tipping, eviction of squatters, tree felling and lopping, involuntary betterment and inadvertent omission to insure.
Limitations and considerations
The extensions described above generally have set, often significant limits per claim or in the aggregate; these limits can be paid over and above a sum insured. Some of these more unusual and modern extensions can be standalone covers that don’t first need there to have been damage as insured under the core policy cover.
The current climate change crisis plays a role in the topical extension that we’re considering more often: storm and/or flood resilience and protection costs. This extension typically provides cover for related repairs that may be costlier and more extensive than traditional (like for like) reinstatement. The concept is to ‘build back better’ and leave the property in a more sustainable state than it was pre-loss. An example of an increased material cost might be using water resilient plaster. Some wordings go further and provide cover for partially undamaged portions of property. They can also include costs for additional protective property, for example, the installation of flood guards. The type and level of cover is dependent on the policy wording.
Words matter
Policy wordings and cover are no longer generic; they’re continually changing and expanding. It’s more important than ever to thoroughly read through and understand the cover and wordings. This added effort will help ensure that the customer benefits from the cover available and that their indemnity entitlement is in line with the product they purchased and as insurers intended.