Do you know the risks linked to your business premises?

By Ryno de Kock, Head of Distribution at PSG Insure

When choosing business premises, factors such as rental costs, space, accessibility and proximity to customers or suppliers tend to dominate the decision. What may receive less attention is how the physical location itself could change the risk exposure of the business and, ultimately, how an insurer views the risk profile of the property.

Once a business owner decides on a location, they can do various things to secure the premises, such as installing security systems, improving fire protection or strengthening their risk management processes. However, they can’t easily mitigate the risks associated with where the property is situated.

Location risk also goes much further than being close to a river or operating in a high-crime area. Insurers consider the characteristics of the site itself, the surrounding neighbourhood and the broader region to understand the likelihood of a loss, how severe it could become, and how long it could disrupt the business.

Risks may be closer than you think

Some risks are obvious when you view a property, but others can be much easier to miss.

Flooding is a good example. A business does not need to be situated near a river to experience flood damage. In urban areas, heavy rainfall can overwhelm blocked or inadequate stormwater systems, leaving properties that sit below road level, or have basements or sunken loading bays, particularly vulnerable.

What happens next door matters too. In a business park or row of shops, a fire in a neighbouring unit can quickly pose a threat to your premises. Similarly, power interruptions, voltage surges, water outages and low hydrant pressure can affect both the likelihood of a loss and how effectively an incident can be contained.

Sometimes even without suffering physical damage the business itself may feel the impact. It may be unable to operate because an access road is closed, a key supplier has been affected by flooding, or another important part of its supply chain has been disrupted in some way.

Your address tells insurers more than you may realise

Insurers increasingly have access to detailed information to help them understand the risks associated with individual properties. One example is geocoding, which converts an address into precise geographical coordinates and enables insurers to assess the specific location rather than relying only on the broader suburb.

That level of detail matters. Two businesses located only a few hundred metres apart may face very different risks. One property could be positioned near a canal, for example, while the other sits on higher ground. Once a property has been accurately mapped, insurers can assess factors such as flood, hail, wind, lightning, wildfire, subsidence and crime exposure, as well as its distance from the nearest fire station and hydrant.

All of this can affect the cost of insurance, whether cover is available, and the terms an insurer is prepared to offer. Depending on the exposure, a business could face a higher premium or excess, limits or exclusions for particular risks, or specific requirements relating to security, fire protection or how stock is stored.

Consider the risks before you sign

If you are in the process of purchasing premises for your business, relocating or expanding, do not leave the insurance conversation until after the lease or sale agreement has been signed. Treat it as part of the due diligence process before you commit to a property.

It’s also essential to look at the property’s flood and hazard exposure, past use and potential contamination risks, as well as the history of flooding, storm damage, fires or unrest in the area. A physical inspection should consider where water would flow during heavy rain, the condition of drains and the roof, surrounding businesses, access routes and proximity to fire services.

This is also the right time to involve an insurance adviser. An adviser can help assess the prospective location, arrange appropriate risk surveys and obtain indicative insurance terms before the business commits. This can uncover potential exclusions, special excesses or risk improvement requirements while there is still an opportunity to factor them into the decision.

A difficult location does not mean a business is uninsurable

While a business owner can’t change the address of the business without relocating, there are practical steps that can help to reduce risk. Simple measures such as keeping stock and equipment off the floor, maintaining gutters and drains, servicing fire protection equipment and keeping electrical installations in good condition can make a meaningful difference. Businesses can also improve resilience through surge protection, elevated critical equipment, improved security and a business continuity plan.

It’s also important to keep records of these improvements and share them with your insurer or adviser. Insurers can distinguish between a well-managed business in a difficult location and a poorly managed risk in a seemingly favourable area. Evidence of genuine improvements can help an adviser present the risk accurately and negotiate appropriate terms and conditions.

Before committing to a property, make sure you ask important questions, such as: What could go wrong at this location? Realistically speaking, how long could the business be unable to operate? And if something does happen, would your cover be sufficient?

These questions are much easier to address before buying, relocating or expanding than after a loss has occurred. Bringing an adviser into the conversation early can help identify the exposures while there is still time to manage them.