Wednesday, November 17, 2021

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Getting to Know Your (Medium-High Risk) Commercial Tenant

In the current hardening insurance market where demand outstrips supply, we are seeing premium increases of 10-15% on residential properties. These increases are trending even higher at 20% or more for commercial properties. With insurers restricting their underwriting appetite and or increasing their premiums to help recover large losses over recent years, property owners with “medium-high risk occupants” have limited options. In this article, we outline some of the highest-rated commercial occupants, key information insurers want to know, and crucially, how owners can reduce their risk exposures.


During COVID-19 we have seen an increase in vacancy rates within commercial lots and these pose a high risk to insurers, including:  

  • Increased likelihood of damage caused by vandalism
  • In the event of water or fire damage, no one is present to respond quickly and mitigate the loss
  • Possibility of squatters moving in, refusing to move out, and potentially causing damage

These risk factors mean insurers are less inclined to offer cover and if they do, they are more likely to apply higher premiums and impose additional excesses.

  • Install security protection –install back to base alarms, key-operated deadlocks on doors, key locks or bars on windows and consider employing security guards or a full-time caretaker
  • Mitigate property damage– drain or disconnect water tanks and pipes, disconnect electricity and gas
  • Visit the property every week and keep a log/photo of the visits
  • Advise your Strata/Property Manager as soon as the vacant lots become tenanted

  • How often is the property inspected - internally and externally?
  • What fire mitigation and security protection services are installed at the property? Are these maintained regularly?
  • Are you actively looking for new tenants? Is it professionally managed by an agent?
  • Are all services going into the premises maintained (e.g. power and water)?


Occupants with cooking facilities represent a higher fire risk for insurers. Insurers will usually question if deep fryers are being used, how often the flues are cleaned, and what fire protection measures are in place.


To help mitigate the extreme fire hazard if filters are not correctly maintained, insurers will sometimes specify how often they are to be professionally cleaned. Having this done professionally can take the responsibility off the Tenant should a claim arise.  

If a claim was to occur and it was found the filters were not maintained, the tenant would likely be found responsible, and face the possibility of the insurer attempting to recover claims costs from them. If a professional is contracted to clean the filters bi-annually (at a minimum), and a claim was to occur, insurers would attempt to recover funds from the contractor, who may be able to claim on their Public Liability insurance.

Note – the occupant’s liability would be unlikely to respond to a claim for property damage from failure to regularly and correctly clean the filters.

  • Is this restaurant/cafe licensed to sell alcohol?
  • Housekeeping of ducting/vents/filters - specification on how often this is done
  • Trading hours
  • Fire protection in place (e.g., hose reels, fire blankets, fire extinguishers)
  • Total litres of oil capacity within the deep fryer
  • Are there automatic cut-out switches and thermotactic controls for deep frying?
  • Is there any Expanded Polystyrene Sandwich Panels (EPS) – within the unit? Either within the wall linings, cool rooms, or refrigeration units.


Underwriters are generally reluctant to take on manufacturing risks. One of the reasons this type of occupant poses such a high risk is due to the hazardous materials being stored and used on-site (e.g., chemicals, timber, plastic, and paper). Other common queries are based around the machinery items in use by the occupants and the general housekeeping undertaken to minimise risks.


Owners can encourage manufacturing tenants to use protective dust coverings for machinery and to accurately list the items they manufacture on their website.

  • Description of items being manufactured – taken from tenants' website, if available*.
  • What housekeeping/risk management does the tenant have in place?
  • Are there any flammable products kept on-site? How are these stored and how high?
  • What Machinery items are being used?
  • Are protective dust coverings in place for machinery items?


There is considerable variability in the willingness of insurers to provide cover for storage risks. Insurers typically see this as a high-risk exposure because there is a chance that anything could be stored on the property (e.g., flammable materials and dangerous goods).

  • What is being stored?  (e.g., cars, household goods, trade tools, or building materials)
  • Are flammable liquids, hazardous materials, or dangerous goods kept on the site? If so, what are the quantities and how are they stored?
  • Photos of property including photos showing how items are stored
  • What is the maximum height storage?


Currently, there are very few insurance companies willing to take on the risks associated with these tenancies which are commonly known to be a highly flammable and injury risk for insurers. This is mostly because of the exposure to textiles/fabrics, lint from the dry cleaners, and chemicals that may be in use and stored on the premises, along with an increased risk of slips and falls on wet floors.

  • Tenants’ trading hours - is this a 24/7 operation?
  • Is a staff member always on-site?
  • How often is the lint cleaned from dry cleaners?
  • Any storage/use of dangerous chemicals/combustible liquids?
  • Maximum temperature of machines – is all the machinery fitted with automatic overheating safety protection?
  • What fire protection measures are in place on the premises? E.g., fire extinguishers, fire blankets.


Due to many historical prejudices, tattooist tenancies and businesses are considered a hard-to-place risk, meaning the occupation is outside underwriting guidelines for almost every underwriter in the Australian market. Tattooists also face a higher risk of malicious damage claims, making this a much more difficult risk to cover.

In most cases, a moral hazard declaration form will need to be completed for insurers to ensure the tenancy/business is not associated/affiliated with any criminal organisation.  

Insurers will also question whether the building has adequate protection in the event a claim was to occur (e.g., security cameras, security alarms, deadlocks on doors, window locks, etc. )


While the above is not an exhaustive list, knowing the answers to the 'typical’ underwriting queries outlined here will help your broker present a more attractive risk profile to the market when sourcing quotations/coverage on your behalf. Insurers appreciate when owners are cooperative in providing the required information, as this builds a stronger case when assessing and making final decisions. At Honan, we are always happy to review your risks and discuss your options.

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