What Facilities Managers Must Know About Building Insurance

Introduction

If you’re a facilities manager, you sit at the intersection of people, property, compliance, and business continuity. When something goes wrong—fire, flood, escape of water, storm damage, vandalism, a burst pipe at 2am—everyone looks to you for answers. Building insurance is one of the key safety nets that helps the organisation recover quickly, but it only works properly when the policy matches the building, the occupancy, and the real risks on site.

This guide breaks down what facilities managers must know about building insurance in practical terms: what it typically covers, where the gaps are, what information insurers need, and how to avoid common mistakes that can delay or reduce a claim.

1) What “building insurance” actually means (and what it doesn’t)

Building insurance (often called “property damage” or “material damage” cover within a commercial combined policy) is designed to pay for repairing or rebuilding the physical structure after insured events.

Typically included in “the building”

Insurers usually treat the building as more than just bricks and mortar. It often includes:

• The main structure: walls, floors, roofs, foundations

• Permanent fixtures and fittings: built-in cupboards, fitted kitchens, sanitary ware

• Services: fixed electrical wiring, fixed heating systems, lifts, air conditioning plant (if permanently installed)

• Outbuildings: garages, storage units, plant rooms (if declared)

• External property: fences, gates, signage, car parks, paths (often sub-limited)

Typically not included (unless added)

Facilities managers get caught out when they assume “building insurance” covers everything on site. Common exclusions/grey areas include:

• Contents (furniture, stock, portable equipment) – usually a separate section

• Business interruption (loss of rent, loss of revenue, extra costs) – separate section

• Wear and tear / gradual deterioration – not an insured event

• Defective workmanship/design – often excluded (though resulting damage may be covered)

• Unoccupied buildings – cover may be restricted unless agreed

Practical takeaway: your job is to ensure the policy definitions match what your organisation considers “the building” and “the assets,” and that nothing critical is sitting in a gap.

2) The core perils: what building insurance normally covers

Most commercial building insurance is written on either a “specified perils” basis or “all risks” (often called “accidental damage” or “all risks of physical loss or damage” with exclusions).

Common insured perils

• Fire and smoke damage

• Lightning

• Explosion

• Storm (wind, rain, hail)

• Flood (often defined separately; may require specific underwriting)

• Escape of water (burst pipes, leaking tanks)

• Impact (vehicles, falling trees)

• Theft (usually following forcible/violent entry)

• Malicious damage / vandalism

• Subsidence, heave, landslip (often optional or restricted)

Accidental damage / “all risks”

All-risks wordings can be broader, but they are not “everything is covered.” They typically cover sudden, unforeseen physical loss or damage, subject to exclusions. This can be valuable for facilities managers because many real-world incidents don’t fit neatly into a named peril.

Practical takeaway: if your sites are complex (multiple tenants, mixed use, high footfall, frequent contractor activity), accidental damage can be worth serious consideration.

3) The big numbers: sums insured and why underinsurance is a facilities risk

Underinsurance is one of the most expensive mistakes in building insurance. If the sum insured is too low, insurers can apply “average,” reducing the claim payment proportionally.

Reinstatement cost vs market value

Facilities managers should focus on reinstatement cost (the cost to rebuild/repair to the same standard), not the market value of the property.

Reinstatement cost may include:

• Demolition and site clearance

• Professional fees (architects, surveyors, engineers)

• Compliance upgrades required by building regulations

• Inflation in labour and materials

Index linking

Many policies are index-linked to help keep sums insured aligned with inflation. Index linking is helpful, but it’s not a substitute for periodic professional valuations.

Practical steps

• Commission a reinstatement cost assessment (RCA) on a sensible cycle (often every 3–5 years, or after major works)

• Track major changes: extensions, refurbishments, plant upgrades, roof replacements

• Make sure professional fees and debris removal are included (or added as separate allowances)

Practical takeaway: treat the sum insured as a compliance-critical figure, not an admin detail.

4) Common exclusions and “gotchas” facilities managers should watch

Even well-written policies have exclusions and conditions. The goal isn’t to eliminate them—it’s to understand them and operate within them.

Wear and tear / maintenance issues

Insurance isn’t a maintenance contract. Gradual deterioration, corrosion, rot, and poor upkeep are usually excluded. However, resulting damage from a sudden event may still be covered.

Escape of water conditions

Escape of water claims are among the most common and most disputed. Policies may include:

• Higher excesses

• Requirements for regular inspection of plumbing

• Exclusions for damage from slowly leaking pipes

Facilities best practice:

• Document inspections

• Keep records of repairs

• Install leak detection where feasible

Unoccupied or “non-operational” buildings

If a building is unoccupied beyond a set period (often 30 days), cover may reduce or conditions may apply (draining down water systems, regular inspections, securing letterboxes, etc.).

Facilities best practice:

• Maintain an occupancy log

• Notify the broker/insurer early if a site will be vacant

Hot works and contractor controls

Many serious losses come from hot works (welding, cutting, torch-on roofing). Insurers often expect:

• Hot works permits

• Fire watch procedures

• Contractor competence checks

• Clear housekeeping and combustible controls

Facilities best practice:

• Keep permit-to-work records

• Ensure contractors have their own insurance and RAMS

Subsidence and ground movement

Subsidence cover can be restricted, expensive, or subject to high excesses. Claims can be slow and evidence-heavy.

Facilities best practice:

• Monitor cracks and movement

• Keep drainage maintained (blocked drains can contribute)

Practical takeaway: your operational controls (permits, inspections, logs) can be the difference between a smooth claim and a dispute.

5) The role of risk management: how facilities actions affect premiums and claims

Insurers price risk based on likelihood and severity. Facilities managers have direct influence over both.

Fire risk management

• Up-to-date fire risk assessments

• Alarm and detection maintenance records

• Sprinklers (where installed) maintained and tested

• Fire doors, compartmentation, and housekeeping

Water damage management

• Trace and access plans for isolation valves

• Out-of-hours response plan

• Leak detection and automatic shut-off (where viable)

Security

• Intruder alarms, CCTV, access control

• Keyholder procedures

• Perimeter lighting and physical security

Preventative maintenance

A planned maintenance regime reduces the chance of “gradual” issues becoming major incidents. It also supports the narrative that the building is well managed—useful during underwriting and claims.

Practical takeaway: good facilities governance is a form of insurance optimisation.

6) Buildings with tenants, shared spaces, and complex responsibilities

Facilities managers often manage buildings where responsibility is split between landlord, managing agent, and tenants.

Key questions to clarify:

• Who insures the building (landlord or tenant)?

• Is the tenant responsible for internal fit-out? (and is it defined as fixtures or contents?)

• Are there service charge provisions for insurance?

• Are there subrogation waivers or contractual requirements?

Practical documentation to keep

• Lease clauses relating to insurance and reinstatement

• Schedule of dilapidations and responsibilities

• Evidence of tenant alterations and approvals

Practical takeaway: claims can fail when responsibility is unclear. Facilities managers can reduce friction by keeping the paperwork organised and current.

7) Claims: what to do when an incident happens

When a loss occurs, speed and documentation matter.

Immediate steps

1. Make safe: protect people first, then prevent further damage (e.g., isolate water, board up windows)

2. Notify: inform internal stakeholders and the insurer/broker promptly

3. Document: photos, videos, incident logs, contractor reports

4. Preserve evidence: don’t dispose of damaged items until agreed (where practical)

Mitigation and “reasonable precautions”

Policies typically require insureds to take reasonable steps to minimise loss. Facilities managers should:

• Use approved contractors where required

• Keep invoices and timesheets

• Record decisions and timelines

Common claim delays

• Unclear cause of damage

• Missing maintenance records

• Disputes over what is “building” vs “contents”

• Underinsurance and valuation issues

Practical takeaway: a claims-ready facilities team keeps templates, contacts, and evidence processes ready before anything happens.

8) Special considerations: older buildings, listed buildings, and non-standard construction

Not all buildings are equal from an insurance perspective.

Older and listed buildings

• Reinstatement costs can be significantly higher

• Specialist materials and trades may be required

• Planning constraints can extend reinstatement timelines

Facilities best practice:

• Ensure valuations reflect specialist rebuild requirements

• Consider longer indemnity periods for business interruption (if applicable)

Non-standard construction

Buildings with flat roofs, timber frames, cladding systems, or unusual materials may face:

• Higher premiums

• More stringent risk requirements

• Specific exclusions or higher excesses

Facilities best practice:

• Maintain clear records of construction type and upgrades

• Provide insurers with evidence of risk improvements

Practical takeaway: the more “non-standard” the building, the more important accurate disclosure becomes.

9) Policy structure: standalone building insurance vs commercial combined

Many organisations buy building cover as part of a commercial combined policy, which can include:

• Buildings

• Contents

• Stock

• Business interruption

• Employers’ liability and public liability

• Money, goods in transit

• Legal expenses

For facilities managers, combined policies can simplify administration, but they also mean one set of conditions can affect multiple sections.

Practical takeaway: read the policy schedule and key conditions as a whole, not just the “buildings” section.

10) What information insurers need (and why facilities teams are key)

Underwriters rely on accurate, current information. Facilities managers are often the best source.

Common underwriting questions:

• Construction type, age, roof type and condition

• Fire protections: alarms, sprinklers, compartmentation

• Occupancy and use: manufacturing, office, retail, storage

• Previous claims history and remedial actions

• Security measures and out-of-hours procedures

• Flood and subsidence exposure

• Maintenance regimes and compliance checks

Practical takeaway: proactive, well-organised site information can improve terms and reduce back-and-forth at renewal.

11) Reducing disputes: disclosure, changes, and record-keeping

Insurance works on “fair presentation of risk.” If material facts are missing or inaccurate, claims can be reduced or policies avoided.

Facilities managers should ensure changes are communicated, such as:

• Change of occupancy (e.g., office to storage)

• New tenants or sub-tenants

• Building works, refurbishments, roof works

• New plant or high-value equipment

• Changes to fire protection systems (including impairments)

Facilities best practice:

• Maintain a change log

• Keep certificates, inspection reports, and maintenance records

• Share key updates with the broker well before renewal

Practical takeaway: treat insurance disclosure like a living process, not a once-a-year form.

12) A facilities manager’s building insurance checklist

Use this as a quick reference.

• Confirm what the policy defines as “buildings” and “contents”

• Check the sum insured is a reinstatement figure (not market value)

• Ensure professional fees and debris removal are included

• Review excesses (especially escape of water, subsidence)

• Confirm cover for unoccupied periods and required precautions

• Validate contractor controls (hot works permits, RAMS, insurance)

• Keep maintenance records accessible for claims

• Maintain an incident response plan and key contacts list

• Log material changes to the building and occupancy

• Review valuations regularly and after major works

Conclusion

Building insurance is not just a finance line item—it’s a resilience tool. Facilities managers influence whether that tool works when it matters most. By understanding what’s covered, keeping sums insured accurate, managing risk on site, and maintaining strong records, you reduce the chance of disputes and help your organisation recover faster after an incident.

If you manage multiple sites or complex buildings, it’s worth reviewing your insurance structure and risk controls annually—before renewal pressure hits. A short, proactive review can prevent long, expensive problems later.

FAQs: Building insurance for facilities managers

Does building insurance cover maintenance issues?

Usually not. Wear and tear and gradual deterioration are typically excluded. Insurance is designed for sudden, unforeseen events (like fire, storm damage, or a burst pipe).

What’s the difference between buildings and contents?

Buildings are the permanent structure and fixed installations; contents are movable items like furniture, computers, and portable equipment. The exact split depends on policy definitions.

What is “average” in building insurance?

Average is an underinsurance clause. If your building is insured for less than its true reinstatement cost, the insurer may reduce the claim payment proportionally.

Do we need to tell the insurer about refurbishments?

Yes. Material changes—especially building works, roof works, changes to occupancy, or changes to fire protection—should be disclosed promptly.

What happens if a building is unoccupied?

Many policies restrict cover after a set unoccupied period (often 30 days). You may need to follow additional security and inspection requirements and notify the insurer.

Is accidental damage worth it?

Often, yes—especially for complex sites with high footfall or frequent contractor activity. It can cover incidents that don’t fit neatly into named perils.

How can facilities managers help reduce premiums?

Strong risk management helps: documented maintenance, fire protection testing, leak detection, security controls, and robust contractor management can all improve insurer confidence.

What evidence helps most during a claim?

Photos/videos, incident logs, maintenance records, contractor reports, and clear timelines. Evidence that you acted quickly to mitigate further damage is also important.