Overview

Material Damage insurance covers the cost of repairing or replacing parts of your property that is damaged due to perils like fire, water damage, storms, vandalism, and more. It essentially acts as a financial safety net, ensuring that you can swiftly recover and rebuild your property, without bearing the full financial brunt of such losses.

There are two min differences in a Material Damage policy, this is known as replacement value and indemnity value. The primary difference between the two lies in how your insurer values and reimburses you for your damaged property. Replacement value provides coverage to replace damaged parts of your property with new parts, ignoring depreciation, while indemnity value considers depreciation and pays out the current market value of the damaged property.
The choice between these valuation methods should be based on your specific needs, risk tolerance, and willingness to pay higher premiums for more comprehensive coverage.

The choice between these valuation methods should be based on your specific needs, risk tolerance, and willingness to pay higher premiums for more comprehensive coverage

Replacement Value

Replacement value, also known as “replacement cost,” is a method of valuing property in an insurance policy that covers the cost of replacing or repairing damaged property with new items of similar quality and functionality. When a Material Damage insurance policy is based on replacement value, the insurer will reimburse you for the cost of replacing the damaged item without considering depreciation.

Key points about Replacement Value:

• New for Old: This approach ensures that you can replace your damaged property with new equivalents, so you’re not out-of-pocket for the difference between the old, depreciated item and the new one.
  
  
• Depreciation Ignored: Unlike the indemnity value method, replacement value does not factor in the age, wear and tear, or depreciation of the damaged property.
  
  
• Higher Premiums: Policies that provide replacement value coverage typically come with higher premiums because they offer more comprehensive coverage.
  
  
• Faster Recovery: In the event of a loss, replacement value policies often allow for a faster and more complete recovery because they don’t require you to cover the depreciation.

   

Indemnity Value

Indemnity value is another method of valuing property in an insurance policy. It considers the current market value of the damaged property, accounting for depreciation due to factors like age, wear and tear, and obsolescence. When you have an indemnity value-based policy, the insurer will reimburse you for the value of the property at the time of the loss.

Key points about Indemnity Value:

• Depreciation Considered: Indemnity value takes into account the age and condition of the damaged property, meaning you will receive a lower pay-out compared to what it would cost to replace the damaged property with a new one.
  
  
• Lower Premiums: Policies based on indemnity value generally have lower premiums because they provide coverage for the depreciated value of the property.
  
  
• Partial Coverage: If your property has lost significant value due to depreciation, an indemnity value policy may not fully cover the cost of replacement.
  
  
• May Require Out-of-Pocket Expenses: With indemnity value, you might need to supplement the insurance pay-out with your funds to cover the full replacement cost. You must also consider that fact that if you have any lending against your commercial property, the lender may require only to hold replacement value policies not indemnity value policies. You could be at risk for breach of your lending obligations if you do not choose the correct policy

   

Functional Replacement Value

FVR can be a settlement basis employed by insurers to determine specific coverage for commercial properties. It encapsulates the property’s value at an amount below its Replacement Value (RV), yet sufficient to fulfil the same function. In essence, FRV strives to provide coverage for a property that is not necessarily restored to its original state but is deemed “good enough” to perform its intended purpose.

Key points about Functional Replacement Value:

• Below Replacement Value: FRV settles at an amount lower than the property’s Replacement Value, acknowledging that a full restoration may not be necessary.
  
  
• Functional Equivalence: The focus is on ensuring the property can perform its intended function adequately, even if it does not return to its original condition.
  
  
• Cost-Efficient Coverage: FRV offers a more economical alternative to full replacement coverage, making it a practical choice for properties where functional adequacy is prioritised over complete restoration.
  
  
• Adaptability: FRV recognises that in certain scenarios, achieving a property’s full Replacement Value may not be practical or feasible, and therefore, a functional replacement is a more pragmatic approach.
  
  
• Risk Mitigation: Insurers use FRV to strike a balance between providing adequate coverage and managing costs, addressing the realistic needs of the insured property without unnecessary overvaluation.

   

Sub Limits

Sub-Limits in commercial property insurance are predetermined caps or limits set within an insurance policy to restrict the maximum amount that can be claimed for in certain claimable events. Sub-Limits serve as crucial parameters governing the financial exposure of the insurers. They play a crucial role in your overall policy. Understanding that your total sum insured value is not applicable in every claim scenario, helps insureds understand the actual risk the insurer is willing to take on whilst managing expectations.

Key points about Sub Limits:

• Expense Control: By setting Sub-Limits, insurers can control the potential financial impact of claims within a particular insured incident. For example, within a property insurance policy, you will find limitations on payouts for things like Gradual Damage claims, Machinery Breakdown claims (i.e. broken elevators) and potentially further imposed Sub-Limits on things like ram raids etc.
  
  
• Client Awareness: Sub-Limits are explicitly stated in the insurance policy documentation. This is generally found in either the policy schedule or coverage summary provided by your advisor. This helps the insured understand the maximum amount they can claim for, in certain circumstances. It’s crucial for the insured to be aware of these limits to avoid misunderstandings at the time of a claim. It is also important to read these in conjunction with your current policy wording.
  
  
• Risk Management: Insurance companies use sub-limits as a risk management tool. By specifying limits for specific types of coverage, insurers can better anticipate and manage their potential liabilities and losses.
  
  
• Premium Adjustments: The presence of Sub-Limits can influence the premium charged for the insurance policy. Policies with lower sub-limits may have lower premiums, reflecting the reduced risk exposure for the insurer. Advisers can request high Sub-Limits if required by the insured, but this will generally increase the insurer premiums.

It’s important to carefully review the policy documents to understand the Sub-Limits applicable to different policies. If a client has specific needs that exceed the Sub-Limits provided, they may need to explore options for additional coverage or higher Sub-Limits, which may result in adjusted premiums.

Sub-Limits play a crucial role in shaping the policy response come claim time. When comparing different insurance policies, it is always important to take into account these factors as generally speaking, lower premiums, tend to come with lower Sub-Limits.

Overview

A Business Interruption policy is vital for commercial property owners as it helps mitigate the financial impact of business interruptions caused by physical damage to the property. It covers various aspects, including loss of rent (calculated based on gross rental income and OPEX), claim preparation costs, and additional increased working costs. The indemnity period is a critical consideration, ensuring that coverage aligns with the time needed for business recovery.
The goal of a property owner is to ensure that your Business Interruption policy covers the potential loss of rental income during a material damage loss, whether this be minor or major. 
The indemnity period is a critical component of your Business Interruption policy and should be tailored to your unique circumstances. By carefully considering factors like property restoration time, council consents, assessors and adjusters, supplier lead times, and business-specific factors, you can ensure that your rental income is adequately covered in the event of a disruption.

We break this down in further detail below:

• Loss of Rents: Loss of rents is a significant concern for commercial property owners when their properties become unusable due to physical damage, such as fires, accidental property damages or natural disasters. A Business Interruption policy can cover this by compensating the property owner for the lost rental income.


  
  Claim preparation costs refer to the expenses incurred in documenting and substantiating a business interruption claim. This could include hiring experts, accountants, or loss adjusters to assess the extent of the loss and validate the claim.
  
  
• Calculation: The calculation of lost rents typically involves determining the gross rental income that would have been earned had the property not been damaged. This may include both base rent and any additional rent collected. The policy usually factors in the operating expenses (OPEX), excluding GST (Goods and Services Tax), that would have been incurred had the property remained operational. The policy should cover this net rent amount.
  
  
• Claim Preparation: Claim preparation costs refer to the expenses incurred in documenting and substantiating a business interruption claim. This could include hiring experts, accountants, or loss adjusters to assess the extent of the loss and validate the claim.

  Importance: Claim preparation costs are essential to ensuring that the property owner receives a fair settlement. Without professional assistance, accurately quantifying the losses and negotiating with the insurance company can be challenging.
  
  
• Additional Increased Costs of Working: During the interruption period, businesses may need to incur additional costs to maintain or expedite their operations. These are known as Additional Increased Costs of Working, and a Business Interruption policy can cover them.
  
  
• Coverage: These costs can include renting temporary office space, leasing equipment, hiring extra staff for tenant management or other requirements – or expediting repairs. The policy typically reimburses these extra expenses, ensuring the business can continue operating even during the disruption.

Overview

Office Bearers Liability insurance in the New Zealand insurance market is a specialised form of coverage designed to protect individuals who hold specific roles within an organisation, such as directors, officers, and other office bearers, from personal financial loss arising out of the performance of their duties.


Here’s a deeper understanding of Office Bearers Liability:

• Legal Responsibilities of Office Bearers:
Office bearers, including property managers, have legal duties and responsibilities to act in the best interests of the company. If they fail in these duties, they may be held personally liable for any resulting financial losses.

  
  Policies may include coverage for a range of wrongful acts, including but not limited to:


  – Breach of duty

  – Negligence

  – Mismanagement

  – Employment-related issues

  – Regulatory violations

  
  

Office Bearers Liability insurance often includes provisions for the indemnification of legal expenses incurred by the insured individuals. This can be crucial in protecting personal assets in the event of legal actions.


The need for Office Bearers Liability insurance is relevant across various corporate structures, including publicly traded companies, private companies, non-profit organisations, and even government entities. The legal exposures may vary, but the potential personal liability remains. The New Zealand insurance market offers various policies tailored to the specific needs and risks faced by office bearers. Insurance companies may differentiate their offerings based on coverage limits, policy exclusions, and the specific industries or sectors they serve.

It’s important for organisations and their office bearers to carefully review and understand the terms of Office Bearers Liability insurance to ensure that the coverage adequately addresses the unique risks associated with their roles and responsibilities.

Overview

Contract Works Cover is a pivotal risk management tool specifically tailored for commercial property owners when specific works are undertaken on their property. It functions as a protective layer for construction endeavours, offering comprehensive coverage to mitigate the myriad risks inherent in such projects.

Contract Works insurance, also known as Construction All Risks (CAR) insurance, is a policy designed to cover damage to buildings or structures under construction. Property owners typically purchase it to protect against risks such as fire, theft, vandalism, natural disasters, and other unforeseen events that may occur during the construction process.

If a property is under construction, development or renovation, a Contract Works policy would cover the value of the work in progress and materials on-site. This coverage is usually broader than a standard Material Damage insurance policy, which may only cover property maintenance for completed structures.

In the event of damage to the construction site, the policy may cover additional costs incurred to rectify the damage and any professional fees associated with the reconstruction or repairs.
Landlords can mitigate the financial risks associated with construction or renovation projects by taking out a Contract Works insurance policy. This policy provides a safety net for unforeseen events, allowing landlords to focus on the successful completion of their projects without being overly concerned about potential financial setbacks caused by unexpected incidents.

Overview

General liability insurance is a crucial component of insurance coverage for landlords of commercial properties. It provides protection against third-party claims for property damage, and personal injury that may occur on the insured property.

Protection Against Lawsuits: General liability insurance offers financial protection in the event that a tenant, visitor, or even a passerby sues the landlord for injuries sustained on the property. This can include slip-and-fall accidents, injuries caused by property defects, or other incidents resulting in bodily harm.

Coverage for Property Damage: If a tenant’s property is damaged due to the landlord’s negligence, general liability insurance can provide coverage. This includes scenarios where the landlord’s actions or negligence result in damage to a tenant’s belongings or the property itself.

Personal Injury Cover: General liability insurance also extends coverage to personal injury claims, such as libel, slander, or false advertising. If the landlord or their employees are accused of making false statements that harm someone’s reputation, this coverage may be able to help with legal expenses.

Legal Defense Costs: In the event of a covered claim, general liability insurance typically covers legal defense costs. This includes attorney fees, court costs, and settlements, helping to alleviate the potential financial burden associated with defending lawsuits.

Contractual Requirements: In the event of a covered claim, general liability insurance typically covers legal defense costs. This includes attorney fees, court costs, and settlements, helping to alleviate the potential financial burden associated with defending lawsuits.

Statutory Liability

Statutory liability insurance is another important type of coverage that landlords should consider, especially if they want protection against legal liability arising from unintentional breaches of various laws and regulations.

Legal Compliance Coverage: Statutory liability insurance is designed to cover unintentional breaches of New Zealand laws and regulations. This can include a wide range of statutes, such as health and safety regulations, environmental laws, consumer protection laws, and more. If a landlord inadvertently violates a statute, this coverage can help address legal consequences.

Fines and Penalties: If a landlord is found to be in violation of a statute, they may face fines and penalties imposed by regulatory authorities. Statutory liability insurance can cover these financial consequences, helping the landlord avoid significant out-of-pocket expenses, however, this does not include fines under the Health and Safety Work Act.

Legal Defense Costs: Statutory liability coverage typically includes protection for legal defense costs. This can be crucial in situations where the landlord needs to defend themselves against regulatory actions or legal claims related to statutory violations.

Protection Beyond General Liability: While general liability insurance primarily covers property damage, and personal injury claims, statutory liability insurance specifically addresses legal liabilities arising from breaches of statutes. This means it provides a broader scope of cover, especially in cases where there may not be physical harm or damage involved.

Risk Mitigation: By having statutory liability insurance, landlords can proactively manage the risk of unintentional legal violations. This coverage encourages a focus on compliance with relevant laws and regulations, reducing the likelihood of legal issues and associated costs.