A major commercial property insurance claim can become one of the most financially important events a business ever has to manage. The incident itself may last minutes; its effect on the business can continue for months.

A fire can damage the premises, destroy stock and disable specialist equipment. A flood can prevent employees from entering the building and stop orders being fulfilled. A significant escape of water can require extensive strip-out and reinstatement while a landlord loses rent or an occupier is forced into temporary premises.

The resulting insurance claim may therefore involve property damage, machinery, stock, loss of rent, professional fees, increased costs of working and a substantial business interruption loss.

The insurer landscape

Which major insurers handle UK commercial property claims?

The UK market contains large composite insurers, specialist commercial carriers, London-market insurers and Lloyd's syndicates. The exact market position of each business varies depending on whether the comparison concerns SME insurance, commercial property, mid-market business or large corporate risks.

For somebody dealing with a claim, however, the league table is not the important issue. What matters is the insurer named in the policy, the cover purchased and the way the particular claim is being assessed.

Major names encountered in UK commercial property insurance include the following.

Where disputes develop

Why do commercial property insurance claims go wrong?

A serious claim does not need to be rejected outright before a substantial dispute exists. The insurer may accept that the event is covered while disagreeing with the business about how the property should be reinstated, how much the loss is worth or how long the interruption should reasonably continue.

The insurer's repair figure may not be comparing like with like

Suppose the insurer's proposed reinstatement figure is £280,000 while the business has obtained a detailed professional assessment of £430,000.

It is tempting to treat the difference as a dispute over price. But that can be the wrong starting point.

The insurer's scope may omit mechanical and electrical work. It may assume that an element can be repaired where the policyholder's expert considers replacement necessary. Professional fees may be treated differently. Building regulations, demolition, debris removal or specialist equipment may not have been dealt with in the same way.

The useful comparison is therefore not simply:

Once the scope has been reconciled, the pricing dispute becomes considerably easier to understand.

Underinsurance can turn a valid claim into a major financial problem

Commercial property insurance frequently depends upon the business declaring appropriate values and arranging sufficient cover. If the insurer concludes that the relevant value should have been materially higher, the policy wording may permit a reduction to the claim.

The calculation can look mathematical and authoritative. But the valuation underneath the calculation is often where the real dispute lies.

Questions may include:

• Was reinstatement value being measured rather than the property's market value?
• Were demolition and debris-removal costs included correctly?
• Were architects', surveyors' and other professional fees allowed for?
• Were inflation and the likely reconstruction period dealt with appropriately?
• Was VAT relevant to the particular valuation?
• Did the policy contain a declared-value provision or special basis of settlement?
• Does the valuation genuinely relate to the property and risk insured?

Simple illustration

A valuation dispute can change the claim by six figures

Assume, purely for illustration, that an insurer concludes that a property should have been insured for £2 million while the relevant insured value was £1 million.

£2.0m Insurer's alleged correct insured value

£1.0m Relevant value actually insured

50% Potential proportional difference before policy analysis

If the policy permits an average reduction, that difference could have a substantial effect on an otherwise valid claim. But it does not follow that the insurer's £2 million valuation is correct. The methodology, evidence and policy wording still need to be examined.

Business interruption can become more valuable than the property damage

A commercial property loss can interrupt the ability to manufacture, sell, serve customers, occupy premises or collect rent. Business interruption insurance is designed to address specified financial consequences arising from insured interruption, subject to the wording and limits of the policy.

Calculating that loss can require an assessment of what the business would probably have achieved if the insured incident had never occurred.

Evidence may include:

• historic profit-and-loss accounts;
• management accounts;
• sales and order data;
• budgets and forecasts;
• seasonal trading patterns;
• existing market trends;
• savings in expenses during the interruption;
• temporary premises and outsourcing expenditure;
• other increased costs incurred to preserve trading; and
• the point at which the business could reasonably have recovered.

AXA's current commercial-property claims material, for example, asks businesses claiming loss of turnover or revenue to consider trading impacts, estimated financial loss, takings records, gross profit and additional costs incurred to reduce the interruption. The principle is useful regardless of insurer: the financial claim needs evidence, not simply an assertion that the business lost money.

A 24-month indemnity period does not automatically mean 24 months will be paid

The maximum indemnity period places an outer limit on the relevant business-interruption cover. A separate question can arise over how long the insured event actually affected the business.

An insurer might contend that the business should reasonably have recovered within nine months. The policyholder may have evidence that normal output could not be restored for fifteen months because of machinery lead times, rebuilding work or loss of customers.

In a substantial business, six months of disputed trading performance can be worth considerably more than the visible property damage.

What happens when the insurer's loss adjuster disagrees with your experts?

Commercial claims commonly involve loss adjusters, surveyors, structural engineers, forensic accountants and other specialists. Their role can be crucial, but the existence of a professional report does not make the underlying conclusion immune from challenge.

Rather than simply saying the expert is wrong, identify:

• the precise conclusion being challenged;
• the information the expert considered;
• important evidence that may not have been addressed;
• the assumptions used in reaching the conclusion;
• the relevant policy issue;
• the qualification and discipline required to answer the question; and
• the contrary evidence supporting the policyholder's position.

When the claim is going wrong

Build the claim around decisions, not frustration

Commercial claims generate enormous quantities of correspondence. The danger is that the business accumulates hundreds of emails but still cannot identify the issues that need to be resolved.

Do not allow one disputed item to freeze the entire claim

A technically complex issue can remain under investigation while other parts of the loss are accepted. Where that happens, consider whether the undisputed parts of the claim can progress independently.

Depending upon the wording and circumstances, that might involve an interim payment, an agreed repair element, payment of an undisputed invoice or continued funding of an accepted expense.

Separating the accepted loss from the genuinely disputed point can prevent one disagreement from paralysing the entire recovery.

Can a business complain to the Financial Ombudsman?

The Financial Ombudsman Service considers eligible business-insurance complaints from small businesses and certain other eligible organisations. Its current guidance identifies disputes involving declined claims, low settlement offers and delays among the types of business-insurance complaints it sees. :chatgpt-content-reference{index="0"}

FOS is free to eligible complainants, but not every commercial organisation falls within its jurisdiction. Larger businesses may therefore need to consider different routes to resolution.

Eligibility should be established before a business builds its entire strategy around the Ombudsman route.

Protect legal and contractual deadlines

Do not assume that an insurer complaint or Ombudsman process automatically protects a court or contractual limitation deadline. A significant commercial claim may require specialist legal advice while negotiations or complaints are continuing.

Frequently asked questions

Sources and further reading

• Aviva — Business Interruption guidance and calculator
• Allianz — Commercial Select policy documents
• AXA — Commercial Property Claims Requirements
• Intact Insurance — RSA and NIG are now Intact Insurance
• Chubb — Commercial Property Insurance
• AIG — UK Property Insurance
• Financial Ombudsman Service — Business Insurance Complaints

The insurers named in this article are examples of substantial participants in UK commercial insurance and are not presented as a definitive market-share ranking. Insurance products and policy wordings differ and change over time. Every commercial insurance claim must be assessed against its own policy wording, schedule, endorsements, facts and evidence. Insurance Dispute Service is independent of the insurers named and is not affiliated with or endorsed by them. This article provides general information and is not legal advice.