Insurance is still the best defence

Professional property management minimises owners' risks, but no amount of preparation and vigilance can adequately safeguard against all the unexpected calamities that might occur

Any property is exposed to risks associated with unexpected incidents. While having professional property management in place is instrumental in identifying and minimising those risks, there are many factors that remain out of an individual's control. That's why property owners should insure their assets to cover the risks, particularly in the case of high-rise buildings that involve very large investments.

When dealing with property insurance, most people initially think only of fire, but the fact is the perils to property can come in many forms.

Aside from fires, incidents that might cause physical damage include:

natural disasters such as floods and earthquakes;

malfunction of systems such as water, drainage or electricity, which can cause damage to the building, grounds or other aspects of the property;

accidents such as a car crashing into the building.

In the examples above there is a clear cause for each incident. However, in some cases the cause of damage cannot be exactly identified. For instance, a glass facade cracks for an unknown reason, or an unidentified individual breaks it.

While many incidents that happen on a property may cause damage to it and its different systems, others may cause damages or losses to a third party, in assets or even lives. For example:

In case of fire, the owner may not be the only one to suffer from loss or damage to the property. Tenants who rent office space or apartments within the building could suffer as well.

The failure of an office building's electrical system may result in damage to the tenants' IT networks.

When a glass panel is broken, part of the glass or the metal frame could fall on someone, a passing or parked car, or on other nearby properties.

A visitor to your building could be injured after a fall due to water spilled on the floor, or bump into a glass door that lacks a clear caution sign.

The property owner is liable for loss and damages from incidents such as those described.

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 of the policy.

WHICH POLICY IS BEST?

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 an insurance policy that covers all risks.

However, in many cases the owner takes a more affordable insurance option to cover most risks, and takes his or her chances on those considered least likely or those that would do minimal damage to the property or to third parties.

In any case, before making a property insurance decision it is advisable that owners consult a professional insurance brokers to discuss their initial insurance plan and then analyse the types of risks their property is exposed to. Risk coverage, liability level and premium costs all need to be considered.

Insurance premiums depend on many factors.

They include risks covered, value of the assets insured, building size and specifications, building systems, building age and location. Quality of fire protection and safety systems and how the property is managed also have an impact on 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 manager can be of great help to the property owner, from providing professional advice on potential risk factors with the property, to making claims for liability from insurers when an insured damage or loss occurs.

In those cases when the cause of damage might be unclear, the property manager can play a key role in helping to show whether the damage should be covered by the insurance policy.

Bear in mind that there are certain risks that most insurance companies in Thailand decline to take.

These include damages from natural disasters, riots and terrorism. Property owners affected by the political violence of 2010 in Bangkok have certainly learned about what is and isn't covered.

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

A fire in a commercial building is a prime example. When the building is damaged by fire, it is not only the owner who receives compensation for the loss or damage to the property. The tenants whose assets are damaged, or beneficiaries of someone who is injured or killed by the incident are also entitled to receive compensation from the insurer. Moreover, the insurance company will also compensate for the loss of the building owner's business opportunities if that is written into the policy.

Therefore, the answer to the question of whether insurance is a waste of money very much on whether the owner is prepared to handle any property damages independently if they do happen.


Suphin Mechuchep is the managing director of Jones Lang LaSalle. For advice on sustainable real estate and green property management, readers can contact the property and asset management department on 02-624-6400. For more insights, visit

www.joneslanglasalle.co.th.

About the author

columnist
Writer: Suphin Mechuchep
Position: Business Reporter