Annual costs for insuring an office building

The risk of fire is on top of the list of damages covered by insurance policies in case of large buildings, and the origin and quality of owners are the main factors driving them to take precaution.

“Generally, developers and constructors of office buildings are overseas real estate giants well informed on the culture of insurance. As for Marsh insurance broking activities, we recorded an increase in office building insurance segment in the early months of 2009”, Cristian Fugaciu (photo), general manager of Marsh Romania insurance and reinsurance broking company.

Protection sometimes comes at high prices, calculated according a number of factors, the most important being the value of reconstructing the building.

“Quotas for property insurance that include business interruption were last year in the range of 0.07% and 0.09% of the insured amount. In 2009, the costs on this insurance dropped significantly, now standing in the range of 0.045% - 0.065% of the insured amount”, said the head of the brokers at Marsh.

The above quotas, Fugaciu continued, are available for new office buildings, constructed based on the current standards.

Another policy for office building owners is the civil liability (from third parties and from tenants). Quotas for this type of policy vary depending on the limit of the liability amount. For a 1million euro limit, the premium may vary between 2,000 and 3,000 euros while for a 3 mln euro limit, the premium may reach 5,000 and 6,000 euro, said the head of Marsh.

“Certain office buildings in Romania are secured against terrorism attacks and the subsequent business interruption. The premiums for this type of policy have dropped significantly from last year. Thus, in 2008 for a 15-mln euro cap, the insurance premium would reach 20,000 euros. In 2009, for the same amount, the premium reaches 15,000 euros or even less”, Fugaciu said.

What office building owners usually insure

From the current practice, specialists interviewed by Wall-Street said the insurance policies cover a wide range of risks that an office building may be subject to: property, business interruption, terrorism, civil liability.

“Even if the recession affected severely the construction market in general, for the moment, there is enough office buildings delivered or expected to be delivered soon. The clients’ culture of insurance, but especially the fact that insurance policies proved to be highly reliable in the event of an unexpected unfortunate event, make our expectations be positive”, said Fugaciu.

Once the economic recession took hold, there was a change in clients’ attitude toward the reduction of costs incurred by insurance. This reduction is usually carried through risk ‘insourcing’. “Therefore, companies decide the share of the risks they can take over, and hence raise the value of franchises and elimination of certain type of insurance policies. We believe that the development of this segment is linked to the number of office buildings, but we have confidence that developers grasp the benefit of insurances and the fact that there had been many damages in the past that did nothing but convince them”.