Shopping Centre and Retail Park Insurance

For a large asset the single most consequential number is the declared reinstatement cost, and it is the one most often out of date.

Reinstating a shopping centre means demolition, site clearance, professional fees, compliance with current building regulations, and construction at today's prices, which have moved substantially. A figure indexed from a valuation several years old may be materially below the real cost. Under-insurance triggers the average condition, which reduces every claim in proportion, including a partial one such as a roof or a single unit, not only a total loss. A centre insured at eighty per cent of its reinstatement cost is effectively carrying twenty per cent of every claim.

So a current reinstatement cost assessment by a qualified valuer is not an optional cost, and it needs revisiting rather than indexed indefinitely. Then the indemnity period on loss of rent: reinstating a centre involves consents, demolition, procurement and construction, which is measured in years rather than months, and a twelve or twenty four month period against a three year rebuild leaves the balance uninsured at exactly the point income has stopped. Those two numbers between them decide more than the wording does.

An owner's liability exposure is concentrated in the mall, the escalators and the car park, because that is where the public is and the tenants are not.

The recognised claims are a slip on a wet mall floor during bad weather or after cleaning, a fall on an escalator or a child's hand caught at a comb plate, a trip on a worn or lifted floor finish, an object falling from a balustrade or a light fitting, a fall in a car park stairwell, and an assault in a poorly supervised area. All of it happens on the owner's property, under the management company's control, and is defended on inspection and maintenance records rather than on argument.

So the regime is the defence. A documented inspection round through the day covering the mall, entrances, stairs and the car park, with records kept rather than signed; wet weather matting and cleaning procedures that do not create the hazard they are addressing; escalator inspection and maintenance by a competent contractor with records; lighting maintained in stairwells and car parks; and CCTV with retention long enough to be useful. A centre that can produce two weeks of inspection records defends a slip claim. One that describes a process does not.

The business interruption exposure in a managed retail asset is unusual, because the event frequently happens in a demise the owner does not control.

A fire in a single unit, a restaurant kitchen in particular, produces smoke that travels through a mall and a ceiling void and affects units far from the fire. The centre closes while it is made safe and cleaned. Every tenant stops trading, the owner's rent is interrupted where leases allow, and the service charge becomes difficult to recover while nothing is open. The owner's loss is therefore driven by somebody else's incident, which is why the fire separation between units and the condition of the tenants' own installations matter to the landlord as much as to them.

So the landlord's interest extends into the demises. Lease and licence conditions about kitchen extraction cleaning, suppression where fryers are used, and electrical testing, with evidence actually collected rather than required; compartmentation between units checked and maintained, particularly above ceilings where it is routinely breached by tenants' own fit outs; and a fit out approval process that looks at fire separation rather than only aesthetics. Those are management actions, and they are what stops one unit's failure becoming the centre's loss.

Vacancy is a commercial problem and an insurance one, and the second part is frequently handled late.

An empty unit has no occupier noticing a leak, a smell of burning or a broken door. The exposures are escape of water from a disconnected or frozen service, a fire with nobody present, squatting, vandalism, metal theft from a roof or a riser, and arson, which is materially more likely in an unoccupied retail unit. A centre with several vacant units has several of those at once, and insurers respond with conditions rather than with silence.

So notify vacancy promptly and meet the conditions. Typical requirements are inspection at a stated frequency with a record, water and sometimes electrical services isolated and drained, letterboxes sealed, combustible waste removed, and the unit secured. Those are warranties rather than suggestions, and an unnotified vacancy or a missed inspection is exactly what gets examined after a fire. On a long void, it is also worth checking whether the cover basis has changed, because unoccupied property is frequently written on restricted perils.

Two numbers matter more than the wording. We are an FCA regulated broker and will not tell you we are the best choice. These are the questions that decide it.