Enforcing commercial property insurance - a collective responsibility
‘The crab feels the difference in waters only when it finds itself in hot soup’– An African Proverb
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The disasters of 2015 undoubtedly brought to the fore of the thoughts of many people insurance awareness. Many have become more cautious of how to manage their risks. Some policymakers have had to carry out a re-evaluation of the country’s safety readiness in respect of the possibility of subsequent occurrences.
The collaboration between trade body, the Ghana Insurers Association (GIA) and regulator, the National Insurance Commission (NIC) in the past few years has led to one of a mutually beneficial relation between the two on one hand and the public on the other. Policies have since been designed to aid the improvement in the safety standards of particularly public buildings.
Fire readiness
Some two years ago, 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 fire 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.
Incidentally I happened to be a ‘victim’ of the traffic congestion on the Graphic Road that resulted from this exercise. While held up in the congestion, the thoughts that hit my mind were whether Graphic had insured this building against fire and other perils. Similarly, I wondered how they were going to get back on their feet as a business entity in the event of loss of property, equipment among others to the fire?’
What is commercial property insurance?
Commercial Property Insurance is used to cover any type of 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 entities.
Even though Commercial property insurance is cost for businesses that use properties with equipment worth thousands or millions of Ghana cedis, it is worth its sort since the premiums paid are a negligible percentage of the total value of properties ranging from 0.185 per cent to 0.3 per cent depending on several risks factors.
By illustration, assuming one has a commercial property worth GH¢200,000 the highest annual premium to pay would be about a cool GH¢600! In the event of fire or flood bringing this property down, the property owner is compensated up to the tune of that GH¢200,000. Very simple and highly affordable! Putting up of a property worth GH¢200,000, is certainly more capital intensive to protect it a paltry GH¢300 which is an average of GH¢50 per month just for business continuity?
A commercial property worth GH¢200,000 might not mean so much to a business owner until s/he 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 insurance company 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 is required to be displayed or produced for inspection by the relevant authorities, in this case the NIC-GNFS task force.
A certificate, red in colour, is issued for completed commercial buildings, whilst a blue colour is issued for those 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 NIC has made frantic efforts in the past and is still doing so in collaboration with the 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 this insurance law. The exercise which was expected to be extended to the other regional capitals can only be effective if enforcement is firmed up in the Greater Accra Region, which I think is still in its pilot mode.
The two Institutions i.e. the NIC and the GNFS have also been embarking on this enforcement exercise 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 which is expected to boost the fire insurance portfolio of insurers with Insurers hoping for a strict enforcement.
One of such inspections undertaken by the two institutions in 2013 has 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 buildings at risk of loss of compensation in the event of any of the perils covered by this policy occurring.
Handicapped with the non-availability of recent data, I am inclined to believe that though the statistics may show a reduction in the defaulting entities, over the period, some more might have been added as commercial buildings keep springing up by the day.
The way forward
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 mishap.
If the staggering statistics of the GNFS is anything to go by, then property owners need to advise themselves while the NIC-GNFS task force strengthen their education on the need for commercial property insurance and the enforcement drive for the public to take precautionary measures and together there would be little panic knowing that:
1. precautionary measures have been taken to prevent fires and allied perils to property and occupants and;
2. there would be compensation to bring back businesses in the event of fire and / or its allied perils
The legislation proposed to make fire insurance a condition upon receipt from the GNFS is one that would largely ensure that compulsory commercial property insurance is enforced. However, the manpower required to hold owners of such properties accountable must be in place.
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; that’s all.
‘Until next week, this is Insurance from the eyes of my mind’.