Insuring commercial property: What is missing?

Recently, the Graphic Communications Group Ltd (GCGL) in collaboration with the Ghana National Fire Service (GNFS) embarked on a simulation fire fighting and rescue exercise to test the readiness of management and staff of the GCGL to fight fire in the event of any outbreak.

The reactions were reported to be spontaneous and real until the supposed fire was brought under control and the essence of the exercise disclosed to the staff. I must commend this collaborative effort between the management of the GCGL and the GNFS.

Incidentally, l happened to be a ‘victim’ of the traffic congestion that resulted from this exercise and while being held up in the traffic, the question that came to mind was: Has Graphic insured this building against fire or public liability? How do they get back on their feet as a business entity in the event of loss of property, equipment among others to the fire?

This question informed my decision to write on commercial property insurance. 

Commercial Property Insurance is used to cover any type of commercial property. It protects commercial property from such perils as fire, theft, collapse, public liability, natural disaster and the like. This type of insurance covers a variety of businesses, including manufacturers, retailers, service-oriented businesses and not-for-profit organisations. 

It essentially provides the same kind of protection as property insurance for consumers. However, businesses can usually deduct the cost of commercial property insurance premiums as expenses. 

Even though commercial property insurance is more costly for businesses that use very expensive equipment, it is worth the investment since the premiums paid are a negligible percentage of the total value of properties ranging from 0.185% to 0.3%, depending on several risks factors. 

Therefore, assuming one has a commercial property worth GH¢100,000, the highest annual premium to pay would be about a cool GH¢300! In the event of fire razing this property, the property owner is compensated up to the tune of that GH¢100,000. Very simple! If one has been able to finance the putting up of a property worth GH¢100,000, what then is GH¢300, which is an average of GH¢25 per month just for business continuity? A commercial property worth GH¢100,000 might not mean so much to a business owner until he / she loses it through fire outbreak or its allied perils. It would be even worse when lives are involved, including the legal damages that may arise therefrom.

In Ghana, the Insurance Act 2006, Act 724 requires that all commercial buildings and those under construction are insured with an insurer against the hazards of collapse, fire, earthquake, storm and flood, and an insurance policy issued for it.

A certificate of insurance with security features will be issued as evidence of the insurance, and must be displayed or produced for inspection by the relevant authorities.

A certificate, red in colour, is issued for completed buildings, while a blue coloured one is issued for commercial buildings under construction. A commercial building, under the law, includes educational and medical premises, hospital facilities, shops and premises, or offices for the transaction of all forms of businesses.

The National Insurance Commission (NIC) has made frantic efforts in the past and is still doing so in collaboration with the Ghana National Fire Service (GNFS) to deepen education and also to enforce compliance with the compulsory fire insurance policy on commercial properties in the country.

The GNFS Task Force has been commended on many occasions for its assistance, which is presently checking on all commercial properties in the national capital to comply with the provisions of the insurance law on compulsory fire. The exercise was expected to be extended to the other regional capitals. But I think they need to go a step further.

The two institutions, NIC and GNFS, have also been embarking on this enforcement action to enable insurers to know the category of properties that are insurable under this cover and those that are not, and to encourage property owners to purchase the necessary fire insurance.

One of such inspections undertaken by the two institutions in 2013 revealed that about 500 commercial buildings in the Greater Accra Region alone are operating without the mandatory fire insurance cover, putting the occupants and visitors to the various buildings at risk of loss of compensation in the event of any of the perils covered by this policy occurring. Non-compliance could partly account for the major fire outbreaks in public buildings across the country, prompting national security concerns. 

Although Sections 183 and 184 of the Insurance Act make it compulsory, clearly, most property owners of commercial buildings have failed to do due diligence in insuring their properties in contravention of the law, and of course ‘endangering’ their own economic sustainability and the lives of third parties in the event of a fire outbreak.

If the statistics of the GNFS reported 265 fire outbreaks in the first two weeks of 2013, (which suggests that an average of 19 fires occurred per day and almost one every hour within the period) is anything to go by, then property owners need to advise themselves, while the NIC and GNFS must intensify their education and enforcement drive on the need for commercial property insurance.

The seriousness with which the motorist sees motor insurance because of the police officer should be the same way a commercial property owner sees commercial property insurance for fear of the fire officer. The bottom line is strict enforcement! GB

The author is an insurance practitioner with many years experience. 

Email: mzogbenu@yahoo.com 

Tel: +233 247-510443 / +233 262 552 162