Monday 11th December
Extra protection for unoccupied commercial buildings
Empty commercial properties can be costly for property owners who face reduced rental income, increased maintenance and security costs. Insurance premiums for vacant properties may also rise in response to the additional risks presented by vacant properties. Having a risk management process in place can help mitigate risks and therefore present more favourably to potential insurers.
Unoccupied properties
The number of unoccupied commercial properties has been increasing yearly since the start of the pandemic. The long-term effects on property including the widespread adoption of hybrid working, increased use of hot desking arrangements and remote working, has led many businesses to reduce office space.
Challenging economic conditions have also led a reduced high street presence for many retailers as consumers switch to online shopping. While the growth of online retail has increased demand for industrial properties such as warehouses, property owners are now increasingly dealing with the issues presented by unoccupied property management.
Winter Weather Property Damage
From flooding to frozen pipes, weather damage can be costly. It only takes a small amount of stagnant water to freeze and expand in the pipes to create huge water damage costs. Winter weather damage can range from minor issues to much bigger and more expensive problems, such as large-scale water leaks.
Without tenants, problems like water leaks in vacant properties can escalate for weeks before being noticed. Major bursts can result in flows of up to 60 litres of water per minute, and minor leaks can remain undiscovered for several months if the building is unoccupied. Zurich Insurance figures state that water claims are a significant issue for residential and commercial buildings, with a total of £987 million worth of claims made in 2022 – a 15% increase on the previous year. The insurer reports that water damage claims cost around £2.7 million daily, excluding additional costs from loss of rent, business disruption and potential liability costs for property owners. Zurich estimates an average water damage claim can cost up to £100,000 in vacant commercial properties.
Extra protection for empty properties
Introducing smart technology can help property owners monitor properties remotely. A raft of devices is now available to help identify potential problems before they become severe, such as water sensors. Smart tech enables property owners to monitor the condition of multiple properties in real time.
Some insurers may incentivise the use of smart technology by either offering smart systems directly or by discounting insurance for those using smart tech to reduce the risk of claims, particularly in vacant properties. Zurich UK launched a smart building system consisting of self-installed devices that monitor the real-time ‘health’ of buildings. The smart devices enable companies to increase operational efficiencies, reduce risk and optimise energy use to support carbon reduction. A single sensor collects as many as 26,000 datapoints every hour to detect risks and prevent losses before they occur. Monitoring building performance can also help companies meet sustainability goals, adapt to the new flexible working landscape and tackle soaring energy bills. The insurer has trialled it in its own offices with measurable success.
Are smart buildings a safer option for property owners?
As the number of new smart buildings grows, the nature of risks facing property owners will inevitably change. The global smart building market is projected to grow from $96.96 billion in 2023 to $408.21 billion by 2030, and as property ownership in this market increases, it will undoubtedly help reduce more traditional risks such as water damage. Smart buildings are equipped to provide property owners with control over a wide range of systems, including heating, ventilation, air conditioning, lighting, security and lift operating systems.
Do smart buildings need cyber protection?
As existing buildings are retrofitted with smart tech and new buildings incorporate artificial intelligence, property owners need to consider planning for new risks. Building control systems connected to the internet require protection from malicious cyber threats, which continue to grow and evolve. In 2021, a German engineering firm experienced a cyberattack that locked them out of their system, affecting the lighting, motion detectors, and window shutter controllers. Hackers had infiltrated the building automation system through an unsecure user-datagram protocol (UDP) port on the public internet.
Cyber risks and implementing a cyber risk strategy are issues for those investing in smart buildings. Reviewing the current architecture and insuring against the potential risks is essential.
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Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such or regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note, we have relied on information sourced from third parties, and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act without first seeking specific legal and/or specialist advice. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to the fullest extent permitted by law.
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