Smart Buildings: Do Modern BMS Systems Increase or Reduce Insurance Risk?

What is a Building Management System (BMS)?

A Building Management System (BMS) is the “brain” that monitors and controls key building services such as heating, ventilation and air conditioning (HVAC), lighting, power, access control, fire and life safety interfaces, lifts, water systems, and sometimes even energy storage and EV charging.

Modern BMS platforms are increasingly “smart” because they:

• Pull data from many sensors and IoT devices

• Automate responses (e.g., adjust ventilation based on occupancy)

• Provide remote access for facilities teams and contractors

• Integrate with cloud dashboards and analytics

• Use alerts, trend analysis, and sometimes AI to predict faults

From an insurance viewpoint, that combination can be a major risk reducer (earlier detection, fewer losses) or a risk amplifier (more connectivity, more points of failure). The truth is usually: it can do both, depending on how it’s designed, secured, and maintained.

Why insurers care about BMS in “smart buildings”

Commercial property insurers are focused on frequency and severity of claims. A smart building with a well-run BMS can reduce common causes of loss, including:

• Escape of water (leaks, burst pipes)

• Fire and smoke damage (early detection, controlled shutdowns)

• Equipment breakdown (predictive maintenance)

• Business interruption (faster response and restoration)

• Liability exposures (better compliance and audit trails)

But insurers also worry about:

• Cyber events leading to physical damage

• Remote access vulnerabilities

• Single points of failure (one system outage affecting multiple services)

• Poor change control (updates that break critical controls)

• Reliance on third parties (integrators, MSPs, cloud vendors)

If you’re a property owner, landlord, managing agent, or facilities manager, the goal is to show that your BMS is a risk control, not a risk concentration.

How BMS can reduce insurance risk (the upside)

1) Early detection and faster response

Smart sensors and continuous monitoring can spot issues before they become losses.

Examples:

• Water leak sensors in plant rooms, risers, and under raised floors

• Temperature monitoring to prevent frozen pipes

• Differential pressure monitoring for HVAC filters and ducting

• Alerts for abnormal power draw that may indicate overheating or failing components

For insurers, early detection often means smaller claims and less business interruption.

2) Predictive maintenance and fewer breakdowns

A modern BMS can trend performance and flag deterioration.

• Chillers and boilers can be monitored for efficiency drift

• Pumps and fans can be monitored for vibration or abnormal load

• Duty/standby equipment can be rotated automatically

This can reduce equipment breakdown claims and can support better risk presentation at renewal because you can evidence maintenance discipline.

3) Better fire safety management (when correctly integrated)

A BMS is not a replacement for a compliant fire alarm system, but it can support fire safety by:

• Managing smoke control systems

• Controlling fire dampers (where applicable)

• Triggering safe shutdown sequences for HVAC

• Supporting emergency lighting testing and reporting (in some setups)

Insurers like to see that life safety systems are properly segregated, tested, and not dependent on insecure remote access.

4) Energy management that indirectly reduces risk

Energy efficiency isn’t just a cost issue. It can reduce risk by:

• Avoiding overheating and electrical stress

• Reducing load peaks that can contribute to failures

• Highlighting abnormal consumption that may indicate faults

Some organisations also use BMS data to support ESG reporting. While ESG itself isn’t “insurance”, better governance and documentation can help your overall risk profile.

5) Improved compliance, audit trails, and contractor control

A well-managed BMS environment can produce:

• Logs of alarms and responses

• Records of setpoint changes

• Proof of testing schedules and outcomes

That evidence can be valuable after an incident and can support claims defensibility.

How BMS can increase insurance risk (the downside)

1) Cyber risk becomes a property risk

The biggest modern shift is that cyber events can now cause physical outcomes.

Potential scenarios:

• A threat actor gains access and disables alarms or monitoring

• Ransomware locks out facilities teams from the BMS dashboard

• Setpoints are maliciously changed, causing overheating, freezing, or humidity damage

• Access control or lift systems are disrupted, creating safety and liability issues

This is why insurers increasingly ask about cyber controls even for “traditional” property risks.

2) Remote access expands the attack surface

Remote access is convenient for facilities teams and contractors, but it can introduce:

• Weak passwords or shared credentials

• Unpatched VPN appliances

• Exposed remote desktop services

• Poorly secured vendor portals

If remote access is required, it should be tightly controlled, monitored, and segmented.

3) System complexity creates hidden failure modes

Smart buildings often involve multiple layers:

• Field devices (sensors, actuators)

• Controllers

• Supervisory servers

• Cloud dashboards

• Integrations with other systems

More complexity can mean:

• More points of failure

• Harder troubleshooting

• Higher reliance on specialist contractors

From an insurance angle, complexity can increase downtime and therefore business interruption severity.

4) Single points of failure and “risk concentration”

If the BMS becomes the central controller for many services, an outage can cascade.

Examples:

• HVAC failure leading to business interruption (especially for labs, healthcare, data rooms)

• Loss of environmental control causing stock spoilage

• Disruption to access control causing security and theft exposures

Insurers will want to understand resilience: redundancy, fail-safe modes, and manual override capability.

5) Poor change management and patching

BMS environments sometimes lag behind IT best practice because:

• Systems are “always on” and downtime is difficult

• Vendors restrict patching or require certified integrators

• Legacy protocols and devices remain in service for years

Uncontrolled updates can also create issues if they break integrations or disable alarms.

The risk is not only cyber; it’s also operational.

Key risk areas insurers look at in smart buildings

If you’re presenting a smart building risk to insurers, expect questions around:

• Cyber security: segmentation, MFA, patching, monitoring

• Resilience: backups, redundancy, manual overrides

• Maintenance: planned preventative maintenance (PPM), contractor competence

• Water damage controls: leak detection, automatic shut-off, inspections

• Fire safety: testing, separation of life safety systems, compliance

• Third-party risk: vendor access controls, contracts, SLAs

• Business continuity: how quickly you can restore building operations

The better you can evidence these, the more likely your BMS will be seen as a positive.

Practical risk controls that reduce both property and cyber exposure

1) Segment the BMS network

Keep BMS/OT (operational technology) separate from corporate IT networks.

• Use firewalls between zones

• Restrict inbound and outbound traffic to what is necessary

• Avoid direct internet exposure for controllers

Segmentation reduces the chance that a phishing email on a corporate laptop becomes a building outage.

2) Use strong access control and MFA

• Unique user accounts (no shared logins)

• Multi-factor authentication for remote access and admin functions

• Role-based access (contractors should not have full admin rights)

This is often one of the simplest improvements with a big risk impact.

3) Control vendor access

Third parties are common in BMS environments.

Best practice includes:

• Time-bound access (only when needed)

• Logging of all remote sessions

• Contractual requirements for security standards

• Clear responsibility for patching and incident response

4) Patch management and vulnerability handling

You don’t need perfection, but you do need a process.

• Maintain an asset inventory (what devices exist, where, and what versions)

• Prioritise critical vulnerabilities

• Schedule maintenance windows

• Test updates in a staging environment where possible

5) Backups and recovery planning

If your BMS server is encrypted or fails, how do you restore?

• Regular backups of configurations and databases

• Offline or immutable backups n- Tested restoration procedures

Insurers increasingly want to see not just backups, but proof they can be restored.

6) Fail-safe design and manual override

A resilient smart building should be able to operate safely if the “smart” layer fails.

• Manual override for critical plant

• Local control loops that keep safe temperatures

• Default safe states for valves and dampers n- Documented emergency procedures

7) Water damage prevention: sensors + shut-off

Escape of water is one of the most common and costly commercial property claims.

Consider:

• Leak detection in high-risk areas

• Automatic shut-off valves

• Alarm escalation procedures (who responds, within what timeframe)

• Regular inspection of flexible hoses and connections

A BMS can be a strong tool here, but only if alarms are acted on quickly.

Does a modern BMS affect your insurance premium?

Sometimes, yes. But it’s rarely automatic.

A BMS can help you negotiate better terms if you can demonstrate:

• Reduced loss history or near-miss prevention

• Documented maintenance and monitoring

• Strong cyber controls and segmentation

• Resilience and business continuity planning

On the other hand, if the BMS is poorly managed, insurers may:

• Apply cyber-related exclusions or endorsements

• Increase deductibles for escape of water or equipment breakdown

• Request additional risk information (delaying renewal)

The key is to present your smart building as well-governed.

Which insurance policies are most impacted by BMS risk?

Depending on your operations and building type, BMS can influence:

• Commercial property insurance: fire, flood, escape of water, storm, malicious damage

• Business interruption insurance: downtime from building services failure

• Engineering / equipment breakdown: boilers, chillers, plant, electrical systems

• Cyber insurance: network security, ransomware, incident response

• Public and employers’ liability: safety incidents linked to building systems

• Professional indemnity (for contractors/integrators): design, installation, and maintenance errors

If you own multiple sites, insurers may also consider aggregation risk (one vulnerability replicated across many buildings).

Smart building claims scenarios (what can go wrong)

Here are realistic examples that show both sides of the risk.

1. **Leak detected early (good outcome):** A sensor identifies water under a plant room pipe. The BMS triggers an alert and shuts a valve. Damage is limited to a small area.

2. **Remote access compromised (bad outcome):** Credentials are reused across contractors. An attacker accesses the BMS, disables alarms, and changes heating setpoints. Pipes freeze overnight, leading to major escape of water.

3. **Update causes outage (bad outcome):** A software update breaks integration between BMS and ventilation controls. The building cannot maintain air quality, forcing temporary closure.

4. **Predictive maintenance prevents breakdown (good outcome):** Trend data shows a chiller drawing increasing power. Maintenance is scheduled before failure, avoiding downtime.

These scenarios show why insurers don’t just ask “Do you have a BMS?” They ask “How is it managed?”

How to present a smart building risk to insurers (simple checklist)

If you want your BMS to be viewed as a positive, prepare a short “BMS risk pack” for renewal:

• Overview of the BMS architecture and what it controls

• Network diagram showing segmentation and remote access method

• Access control policy (MFA, unique accounts, contractor access)

• Patch and update process (including who is responsible)

• Backup and restore evidence (dates, frequency, test results)

• Maintenance schedule and contractor competence

• Water leak detection and shut-off arrangements

• Incident response and business continuity plan

This can speed up underwriting and reduce awkward last-minute questions.

Conclusion: does BMS increase or reduce insurance risk?

A modern BMS can reduce insurance risk by improving monitoring, maintenance, and response times, especially for escape of water, equipment breakdown, and business interruption.

However, it can also increase risk if it introduces cyber vulnerabilities, creates single points of failure, or is poorly governed.

The deciding factor is not the technology itself, but the controls around it: segmentation, access management, patching, backups, resilience, and a clear operational process.

If you’re investing in smart building technology, treat cyber and operational resilience as part of the project from day one. It’s one of the best ways to protect your building, your tenants, and your insurance position.

FAQs

Do insurers consider BMS a “risk improvement”?

Often, yes—if it’s supported by evidence of monitoring, maintenance, and strong security. A BMS without governance may be viewed as an added exposure.

Can a cyber attack cause a property claim?

Potentially. If a cyber incident leads to physical damage (for example, freezing, overheating, or disabling monitoring), it can create property and business interruption losses.

Should BMS be included in cyber insurance?

In many cases, yes. If your BMS is network-connected or remotely accessible, it should be considered within your cyber risk assessment and policy discussions.

What’s the biggest smart building insurance risk?

For many commercial buildings, it’s a combination of escape of water and cyber-enabled disruption. Leak detection and secure remote access are high-impact controls.

Do I need equipment breakdown cover if I have a BMS?

A BMS helps reduce breakdown frequency, but it doesn’t eliminate mechanical or electrical failure. Engineering/equipment breakdown cover can still be important, especially for critical plant.

What should I tell my broker at renewal?

Share how your BMS is secured, maintained, backed up, and how you respond to alarms. The more you can evidence, the easier it is to position the risk positively.