For most businesses, when it comes to insuring against all the potential risks you face, fire insurance forms the foundation. Now I can almost hear you saying:
“Fire insurance…Why fire insurance? I’m more concerned about theft cover than fire!”
So let me explain…
Fire insurance – otherwise known as ‘property’ insurance – indemnifies you in the event of an insured event happening to your buildings, your machinery, and your stock in trade.
What is an insured event?
Many clients believe that insurance covers for all eventualities where a loss occurs.
Here’s an example…
Just the other day one of our clients wanted to claim because a staff member ‘stole’ a very expensive set of tools from the workplace.
It took some explaining for him to realise that employee theft is not an insured event…in fact, theft itself is not an insured event unless specific cover is taken out for it!
So what exactly are you covered for?
Under the fire section there are three main risks (or perils) covered:
- Lightning or thunderbolt
In addition to the basic perils a number of additional perils are added which include:
- Earthquake damage
- Storm, wind, water, hail, or snow (normally with a few exceptions)
- Aircraft and other aerial devices dropped from them
- Impact from animals, trees, aerials, satellite dishes, or vehicles.
What is not covered?
- Wear and tear
- Damage caused by leakage or discharge from sprinklers
- Subsidence and landslip
- Failing to take reasonable precautions for the maintenance and safety of the property
So what if I need cover for the items not covered?
Most insurers will look at adding two of these perils to your schedule.
These are known as ‘extensions’ to your schedule.
- Leakage extension
This indemnifies you against damage caused by the discharge or leakage of your fire sprinkler system. Usually a first loss amount is specified in your schedule and this will be the maximum amount that the insurer will be willing to pay if you claim under this section.
- Subsidence and landslip extension
This indemnifies you against damage caused by the sudden sinking or slipping of your building. Certain items are not covered under this extension which include boundary walls and drainage systems.
Is that all I can insure for under the fire section?
By all means no! You can also add malicious damage cover and riot or strike cover if your business is situated outside the RSA or Namibia.
- Malicious damage extension
This indemnifies you for damage directly resulting from the deliberate act of any person whose sole purpose is to cause damage. An example that springs to mind would be graffiti sprayed over your shop fronts.
- Riot and strike extension
Damage to your property caused by riot and strike outside RSA and Namibia can also be added onto your schedule.
But what if your property is in South Africa? Riot and strike inside South Africa is covered by SASRIA – a separate insurance company. You’ll normally find that a premium for this cover is included at the bottom of your schedule.
But hang on…what about all the other costs that might arise if I ever need to claim? What about the cost of removing all the rubble…or the fire fighting costs?
The following clauses are all usually included with your commercial insurance policy.
- Rent clause
The insurance company will pay the rent receivable or rent payable if the premises is untenantable and a claim under the fire section is allowed.
- All other contents clause
This includes the personal property of directors and employees of the company. Items such as bicycles and tools are covered here.
- Architects fees clause
The professional fees involved in rebuilding your factory are included here. This includes plans, estimates, quantity surveying, etc.
- Capital additions clause
This covers alterations and improvements to the property for an amount not exceeding 15% of the sum insured. This is useful when you fail to notify the insurer of any improvements you have made to your property.
- Cost of demolition clause
No one is going to demolish your building or machines for free so this clause is important.
- Fire extinguishing costs clause
You’d think your rates and taxes would pay for this but no…
- Municipal plans scrutiny fee clause
I never knew that they could charge you for viewing your own building plans at the municipality but it’s good to know you’re covered!
- Public authorities requirements clause
So the building laws have changed since your premises was built. Now, in order to conform, you need to make additional structural changes which are going to cost more than what you’re insured for. Thank heavens for this clause which will cover the additional expense.
- Railway clause
OK, so Spoornet has got you tied in with their ‘hazardous premises indemnity’ agreement relating to private sidings. The good news is that your insurance will not be prejudiced by the signing of this agreement.
- Tenants clause
So your tenant failed to comply with the terms of your insurance schedule. The good news is that you as the insured won’t suffer because of your tenant’s non compliance.
- Stock declaration conditions clause
Maybe your business has seasonal stock variations with stock levels yo-yoing from high to low? With this clause you would be required to declare in writing the market value of your stock at the end of each month or quarter. At the end of the period of insurance (usually the end of one year), the rate is recalculated for the year past and either the excess insurance paid is refunded or an additional amount is charged for the cover you enjoyed.
- Public supply connections clause
So you accidentally damaged your water, sewerage, gas, electricity or telephone lines connecting you to the mains? This clause takes care of it all!
- Escalator clause
The sum insured of your building itself and/or your machinery can be increased during the year by the percentage nominated by you. Once a year you nominate a revised sum insured as well as the percentage increase in cover required. This is useful where machinery is subject to increase because of exchange rates.
- Disposal of salvage clause
This clause means that the insurance company will not sell your damaged stock in trade without your consent if you can prove that by doing so; it will prejudice your interests. If you can prove this the insurance company will allow you first option to repurchase the damaged stock at market value.
Fire insurance is subject to ‘average‘ which can leave a distinctly sour taste in your mouth.
And there you have it…fire insurance described in a 1, 000 words (or slightly more)!
In the next post I’ll discuss buildings combined insurance so look out for it…
Until next time.
The InsuranceFundi team