The crisis in commercial heritage property insurance

The crisis in commercial heritage property insurance | Insurance Business Australia

The crisis in commercial heritage property insurance

In the current market it’s increasingly difficult to find property insurance for a heritage building. Capacity reduction, a limited number of insurers and difficult placement are some of the issues impacting both residential and commercial historic buildings.

Tasmania is likely at the cutting edge of this struggle. A high proportion of the state’s buildings are both historic and rural, which makes their insurance extremely hard to place and very costly.

“If you phoned me today and said, ‘I’ve just bought the Evandale Hotel. It’s a lovely old building, it’s heritage, it’s the local watering hotel and upstairs, which hasn’t been used in 100 years, I’m going to turn that into a little bit of boutique accommodation with two rooms.’ I would just about have a heart attack,” said John Farrell (pictured), director of Steadfast Taswide Insurance Brokers.

According to the National Trust, Tasmania has the highest concentration of heritage sites in the country. Farrell said finding commercial property insurance, especially for heritage hotels and pubs, is very hard.

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“We’re working on one at the moment,” he said. “It’s $5 million sum insured. It’s close to a river and early 1900s. I reckon we’ve got four insurers, maybe, that’ll look at it. And the price will be putrid.”

He said in this market they’re lucky to have any insurers interested at all and it looks likely they’ll have to layer the coverage.

“So, someone might only want to take on 50% of it so then we’ve got to try and place the other 50% with different insurers and when you’ve got a limited market that can become very difficult,” said Farrell.

Farrell said his primary job with any sort of commercial property insurance is placement, then comes the price.

“If you go back five years it was a hell of a lot easier than it is today. The capacity in the Australian insurance market has been reduced that much that five or six years ago and beyond you’d have 10 insurers, maybe more, that would actively compete for the business. Now you’ve probably got three, and it’s fair to say they don’t compete for the business. The price is the price,” he said.

He said the two major obstacles he faces when trying to place property insurance are whether the property is heritage or rural.

That’s a big challenge in Tasmania: half of the state is rural, which means there isn’t a fully staffed fire brigade nearby – which impacts the fire component of policies.

Lately, in metropolitan areas, Farrell said, another peril is causing issues.

“You’ve got this thing that insurers love using now, it’s called a flood map. And everyone goes, ‘You’re in a flood zone,’” he said.

Farrell said lots of old pubs, particularly in the north of the state, were built in areas where there are views over water.

“So, therefore, the flood map says you’re in a flood zone,” he said. “When was it flooded there? No-one can remember.”

Often in these cases, he said, the insurers either refuse to insure or only want to take on some of the risk.

“So, you’ve got to go and layer it or find alternative capacity, which is problematic as well,” he said.

Farrell said commercial and residential property insurance play along different lines. However, the insurance issues for heritage buildings don’t necessarily get more difficult if you’re talking about a commercial premises.

“Residential is just as difficult, by the way, to place,” he explained. “Some of the questions that insurers ask, like, is it heritage listed? If the answer is, ‘yes’, some insurers just won’t do it if it is a heritage listed building, particularly if it’s a residential one.”

He said this can be because of the different rules that apply for residential properties compared to commercial properties, concerning issues like sums insured and under insurance.

If you can get insurance coverage for a heritage pub or hotel, Farrell said the cost will be very high.

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“We’ve seen massive increases over the last 10 years,” he remarked. “So buyer beware.”

One final warning for the would-be heritage pub owner.

“Don’t put cooking in them, for goodness sake, whatever you do,” he said.

Farrell said the tightening of laws around drink driving had contributed to pubs and hotels offering more counter meals.

“So, guess what? With those chips you’ve got to have a deep fryer,” he said. “And that causes heart burn to a lot of insurers the minute you start having a deep fryer on site because a lot of them normally have timber floors, they’re normally timber construction. Finding insurance becomes very hard work.”

Just how expensive heritage property insurance has become, is difficult to judge.

Farrell estimates that for historic residential properties the insurance can cost about double compared to a standard residential property. For commercial heritage properties, he said it’s more difficult to estimate.

“It’s very hard to give you an accurate number because it just depends on a lot of things: construction, its’ location and what they’re doing,” he said. “Are they doing meals? Do they have accommodation? There are just so many different variables.”