When cover should be termed “buildings combined cover” or “fire and allied perils cover” (“fire policy”) is often confused and misunderstood. While ”buildings combined cover” does include all the perils and covers offered under the “fire cover”, it also provides some additional covers that are not otherwise included under the fire policy. It is necessary that we revisit and fully understand the covers provided by the policy classes so that cover appropriate to circumstances will be chosen.
The buildings combined policy, as the name implies, was designed to cover buildings such as flats and office blocks, churches, schools and the like; however, often these types of buildings have shops on the ground floors and so it was generally agreed that a building could nevertheless be underwritten on a buildings combined policy if not more than 25% of the floor area was used for other non-hazardous commercial processes. These and similar risks are considered to be non-hazardous and in the majority of cases the EML applicable to the risk is low ie: below 35%. The fire policy covers the insured in the event of fire, storm, earthquake or impact. The buildings combined policy, in addition to the main perils that are contained in the fire policy, went further by adding the following:
- Theft or any attempt thereat which must be accompanied by forcible and violent entry or exit;
- Accidental damage to sanitary ware;
- Accidental damage to public supply connections;
- Loss of rental (limited to 25% of the sum insured); and
- Property owners’ liability (general and tenants liability) generally limited to R1 Million.
Obviously, a broker can include some of the perils, e.g.: rent, covered by the buildings combined policy in a fire policy but each endorsement would bring with it an additional premium. However, there are covers such as theft which, although standard in buildings combined policies, are not available under a fire policy and separate policies have to be issued to provide these covers. The basic fire rate of a fire policy is determined by the nature of the occupancy (hazardous or non-hazardous) and would normally be higher than the “all in” rate charged under buildings combined policies especially considering the endorsements for the “extra” covers if needed. These additional covers (as set out above) are included in the premium for a buildings combined policy and so this policy becomes very attractive to the insured and the broker.
In the current “credit crunch” market where rates are hardening and the big insurers are complaining of the increase in total fire losses, it is noticeable how insurers are pushing back against giving the benefit of the doubt to the broker in their classification regarding what risk can be underwritten by a buildings combined policy as opposed to a fire policy. In those cases where insurers resist granting buildings combined cover and offer fire cover, there has been pressure for the rate to be forced down to the combined rate but this should be resisted. The buildings combined policy has a specific role to play in today’s market and it should not be used as a vehicle to write any manufacturing or the more high hazardous type risks.