MIXED-USE PROPERTY CASE STUDY
Cafe, Martial Arts Studio and a Four-Bedroom House, Melbourne's Outer East
A 2011 building split half commercial, half residential. The owners' existing policy had never covered the home. Six insurers declined. Placed within five days of the enquiry.
THE SITUATION
The owners of a mixed-use building in Melbourne's outer east came to us a few days before their renewal date. They had been insured for fourteen years and had just discovered that the residential part of the building had never been covered. They weren't happy, and they wanted the whole building insured properly before the existing policy expired.
The building was built in 2011, brick veneer at ground level and rendered above, with a Colorbond roof. At street level there were three shops: a cafe trading across two of them and a martial arts studio in the third. Behind and above was a tenanted four-bedroom house. The split was roughly half commercial, half residential, and the building sum insured was $1 million.
The cafe deep fried. That single fact was going to be a big factor in which insurers would look at the building.
OUR APPROACH
We collected the detail hospitality underwriters ask for before approaching anyone: whether the cafe was licensed (it wasn't), the litres of oil on site, whether there was wok cooking (there wasn't), what the extraction arrangement was (a site exhaust at the rear of the premises) and whether there were any EPS cool rooms or panels (there weren't). We documented the construction, the fire protection, the security and a clean fourteen-year claims history.
Our approach focused on:
- Cooking detail up front: the oil volume and the absence of wok cooking and EPS went into the submission on page one, because that's where a hospitality decline usually starts
- Residential share stated plainly: a fifty-fifty split is inside the appetite of the markets we use for hospitality below residential, and we said so rather than leaving the underwriter to guess
- Deadline first: the renewal date was days away, so we approached the markets most likely to respond in time
Two markets quoted. One came back at around $12,000. The other came back at around $4,600 with a query about the fryers.
THE CHALLENGES
Six insurers declined to provide a quote. Half of the building being residential, and a deep-frying cafe under the same roof as a family home, is a combination most mainstream property insurers won't write regardless of how it is presented.
The underwriter on the competitive quote wanted the oil detail nailed down. The initial figure of twenty litres was a general estimate. We went back to the owners, who confirmed with the cafe that the fryers were portable units holding between seven and nine litres, well under fifteen litres in total.
That detail moved the risk from unclear to accepted. It's the kind of question a one-page application form never asks and a decline letter never explains.
THE OUTCOME
We placed building cover at approximately $4,600 a year with a $1,000 excess, on wording that covers the whole building, commercial and residential.
That's less than half the only other quote of around $12,000, and cover started on the day the previous policy expired. The whole building is now insured, including the residence that had been left out for fourteen years.
From enquiry to bound cover took five days. The owners went from discovering a fourteen-year gap in their mixed-use property insurance to having the building properly covered before the old policy ran out, after six insurers had said no. If you have a cafe or restaurant downstairs, the questions that decided this placement are the ones we'll ask you first.
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The cooking questions decide these placements. Have the oil, extraction and EPS answers ready and we can usually tell you on the first call which markets will look at the building.