Buildings: Property All Risk (PAR) Cover

Property All Risks, unlike Fire insurance, includes cover for accidental damage.

Banks and finance companies in Hong Kong commonly insist on the borrower taking out a 'Fire' policy on their house or apartment for an amount equal to the mortgage.

For a successful claim on these 'Fire' or 'Fire and Allied Perils' or 'Fire and Additional Perils' policies, you must prove a causal connection between the damage and a 'defined' peril.

In contrast, with a Property All Risk or PAR. policy you only need to prove the damage or loss.

Normally banks insist on FIRE and ALLIED PERILS insurance for an amount equal to the loan you have taken.

We recently had an example of such case where storm leaves blocked a roof top drain causing a great weight of water to collect on the roof, which then began to seep into the apartment ceiling. The insurer argued the loss was caused by lack of maintenance, even though the roof had not leaked before or since and had been completely remade about 5 years prior.

HOW MUCH SHOULD I INSURE FOR?

The question is ‘For how much should you insurer’, bearing in mind that your focus needs to be the rebuilding cost, ingnoring the land value!

We can not really advise on this, but what we can suggest is that you start out with a higher than lower figure.

People rarely revisit this cover and 20 years later could find themselves significantly underinsured. This can be serious..

For example, if you insured your property now for HKD5,000,000 as a rebuilding cost and in 20 years time had a claim for HKD2,000,000 in water damage.

IF at that time, the rebuilding cost of your property was say HKD20,000,000, then the insurer would only pay you :

- HKD2,000,000*5,000,000/20,000,000 =HKD500,000

ie: you would only receive 25% or HKD500,000 for your claim as the insurer would argue you were effectively the insurer for 75% of the property’s value!

GUIDE TO REBUILDING COSTS

Figures on Hong Kong regarding rebuilding are hard to come by, but there is a report, such as below, that shows what the various bids come out at for each type of product.

More information on rebuilding costs can be found:

https://www.arcadis.com/en/asia/our-perspectives/research-and-publications/arcadis-construction-cost-handbook/

Contact Shafi Ahmadey for more information : shafi.ahmadey@navigator-insurance.com Tel +852 2530 2530

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