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News Release

Bangkok

Insure Your Property

Professional property management minimizes risks associated with property, but insurance is still needed.


Real estate is one of the asset types that are exposed to risks associated with many unexpected incidents. While professional property management is instrumental in identifying and then minimizing those risks, unexpected incidents could happen anytime since there are many factors that remain uncontrollable. Therefore, owners should insure their property assets to cover those risks, particularly for high-rise buildings which involve large investments.

When thinking about property insurance, most people would generally associate it with fire incidents alone. But the fact is perils on real estate can come in many forms. Aside from fires, typical incidents could cause physical damages to the property, including:
  • ​natural disasters such as floods and earthquakes;
  • malfunctioning of some systems such as water, drainage or electricity systems that can cause damage to the building or other systems on the property; and
  • accidents such as a car crashing on part of the building.
The examples above show a clear cause for each incident. However, there are certain cases whereby the cause of damage cannot be identified. For instance, the glass façade cracks for an unknown reason or an unidentified individual breaks it.

While many incidents that happen on the property may cause damage to the property itself as well as to the different systems in the property, others may cause damages or loss to a third parties’ assets or life. The following are some examples of these incidents:
  • ​In case of fire, the owner may not be the only one to suffer from the loss or damage to the property. The tenants who rent an office space or an apartment within the building could suffer also from the incident as well.
  • Failure of electricity system in an office building results to damages to the tenants’ IT system.
  • When a glass panel is broken, part of the glass or metal frame falls on someone, or on a car that passes by, or to the parks and other properties located nearby.
  • A building visitor falls upon stepping on water spilt on the floor or bumps into a glass door without a clear sign of caution and gets injured.
Loss and damage from the incidents above is the property owner’s liability. However, if the property is insured, part or all of the liability will be transferred to the insurance company, depending on the terms and conditions stated in the insurance policy.

Which insurance policy suits your property?
Different insurance policies may not cover the same risks or offer the same levels of liability. Moreover, different properties may be exposed to different risks. Ideally, a property should have all-risk insurance policy. However, in many cases, the property owner takes a more affordable insurance option to cover most risks and take on its own risks that are considered as least likely to happen and would not result in major damage to the property or to the third parties.

Therefore, before making a property insurance decision, it is advisable that property owners consult a professional insurance broker regarding the initial insurance plan for their property and then analyze the types of risks their property is exposed to.

There are also many factors that the owner should consider. These include risk coverage, liability level and insurance premiums. 

Insurance premiums depend on many factors. Such include risks covered, value of the assets insured, building size and specifications, building systems, building age as well as the area where the property is located. Quality of fire protection and safety system and how the property is managed also have an impact on insurance premiums.

Your property manager’s role
In all the processes involved in securing insurance for a property, the property manager is supposed to take the lead. An experienced property manager can be of great help to the property owner, from providing professional advice on levels of risks associated with the property, to making a claim for liability from the insurer when an insured damage or loss occurs. There are certain cases wherein the cause of damage could be unclear. This is where the property manager will play a key role to prove whether the damage should be covered by the insurance policy.

Property insurance does not reduce risks but provides the property owner with a level of comfort
One of the frequently asked questions is whether property insurance is needed and would it be a waste of money if there are no incidents that cause loss or damage related to the property over the insurance term. Experience shows that many risks associated with the property can be avoided if the property is professionally managed and maintained. However, the property would still need insurance, which by no means should be considered a waste of money.

A fire on a commercial building is a prime example. When the building is on fire, it is not only the owner who will receive compensation for the loss or damage to the property. The tenants whose assets are damaged or someone who gets injured or killed by the incident are also entitled to receive the compensation from the insurer. Moreover, the insurance will also compensate the loss of business opportunity for the building owner, if the insurance policy covers.

Therefore, the answer to the question about whether property insurance is a waste of money when there is no damage to the property throughout the insurance term, the answer would depend very much on whether the property owner is prepared to handle any loss and damage on the property when it happens.

Did you know?
There are certain risks that most insurance companies in Thailand decline to take. These include damages from natural disasters, riots and terrorism, as examples.
 
Author: Suphin Mechuchep, Managing Director, JLL