A business insurance premium increase for a strata property is often passed on to the responsible lot owners and tenants, but this does not address the root cause of the issue. A Strata Company or Owners Corporation should assess the risks before approving a new tenant to prevent difficult insurance renewal situations and unforeseen costs.
Owners’ Committees, Strata Managers, and Property Managers all have roles in ensuring the process of approving new tenants meets the needs of the strata property and its policy program. This write-up outlines why certain tenancies cost more to insure and critical considerations to help limit surprises at renewal time.
The Law of Supply and Demand
Insurers use guidelines to decide how much risk their company is willing to take, and most are cautious in the current market. This can make finding an insurer who will provide cover challenging, and the cost can be high for the end-user. The following are some common tenancy issues in strata complexes that pose additional complexities for insurers, which can affect the pricing and availability of business insurance.
Church or Church services: Religious services can be targeted by other groups, and consequently, they are at greater risk of malicious damage, fire, or vandalism.
Dry Cleaners: The storage of chemicals and the application of heat in the dry cleaning process pose a greater fire risk.
Recycling and Scrap Dealers: These tenancies involve storing large quantities of flammable goods/items, meaning there is a more significant load of potentially explosive material.
Higher fire loads can also result in extensive damage and spread to neighbouring lots or properties, increasing the overall claims cost. As a result, this impacts the availability and pricing of business insurance.
Massage Parlours: Providing “additional” services (real or perceived)—these tenancies are at a higher risk for malicious damage/fire/vandalism due to links (or perceived links) with criminal associations.
Storage: The unknown risks associated with storing unidentified items in various quantities by a tenant is a complex risk to manage and insure.
Tattoo Parlours: These tenancies are often targeted for malicious damage, fire, or vandalism due to the alleged links with criminal associations such as criminal biker gangs.
Vacant Lots: These tend to attract more malicious damage than occupied properties. Water damage can also go unnoticed, magnifying the loss and leading to other damage.
Many tenants above pose a high risk of causing fire damage, reflected in the high number of fire damage claims. This, in turn, impacts the availability and pricing of their business insurance.
Managing Risks and Costs
The Strata Company/Owners' Corporation or Strata Management needs to keep accurate records of all tenants, including what kind of activities are conducted within the lot. This information will determine whether or not an insurer will provide coverage and at what cost.
Before renting to a prospective tenant, consider whether their business/activities align with the wishes of the broader strata complex and how this could impact the business insurance policy.
Due to the Strata Company, Owners' Corporation, or Strata Management’s ‘Duty of Disclosure’, failing to disclose accurate information about a tenant could prejudice any potential insurance claim. This could result in an insurer reducing or refusing to pay a share or cancelling the policy altogether.
Conclusion
Should you need help with business insurance in the Gold Coast, visit New Wave Insurance today! We’ll get you the right policy for your assets. Book your free 15-minute consultation right now!