Most commercial property owners in New Zealand are underinsured — and they don’t find out until it’s too late. Here’s what the right commercial property insurance in NZ actually looks like, and why getting it wrong can cost you everything.
A few years back I was onboarding a new client — a good building, solid tenants, well located. Standard stuff. Part of my process is reviewing the existing insurance policy before we take anything over, and about ten minutes in I stopped and picked up the phone.
The sum insured on the building was based on a registered valuation from 2017.
Construction costs in New Zealand have gone up somewhere between 35 and 50 percent since then, depending on what you’re building and where. That policy — the one this owner had been faithfully renewing every year — would have left them hundreds of thousands of dollars short if the building had burned down the following week.
He had no idea. His broker had renewed it automatically every year without revisiting the replacement value. Technically, nobody had done anything wrong. But the owner was sitting on a time bomb.
This is more common than people realise.
Why Commercial Property Insurance in NZ Is More Complex Than You Think
Residential landlord insurance is relatively straightforward. Commercial property insurance in NZ is a different animal entirely.
You’re dealing with larger, more complex buildings. The tenants are businesses, not individuals. The lease structures differ. The compliance obligations are different. And the financial consequences of being caught short are in a different league.
There are also several types of cover that many commercial owners treat as optional — but shouldn’t.
The Core Covers Every Commercial Landlord Needs
Material Damage (Building Insurance)
This is the foundation. It covers physical loss or damage to the building itself — fire, storm, earthquake, burst pipes, and so on.
The critical number here is the sum insured, which should reflect the full replacement cost of the building — not its market value, not its purchase price, and definitely not what you paid for it in 2015. Replacement cost means what it would actually cost to demolish the existing structure and rebuild it to the same standard today, including professional fees and consent costs.
In New Zealand’s current construction environment, getting this number wrong is easy — and expensive.
Review your sum insured every year. If your insurer isn’t prompting you to do this, your broker should be.
Business Interruption (Loss of Rent)
If your building becomes unusable following an insured event — fire, flood, earthquake — this cover reimburses you for the rental income you lose while repairs are carried out.
What catches owners out here is the indemnity period. Most policies offer 12 or 24 months. But if you’ve got a complex building with a significant EQC or weather event affecting multiple properties, repairs in New Zealand can take considerably longer than that.
I’ve seen owners on a 12-month indemnity period still without a usable building at month 18. Their loss-of-rent cover had paid out and stopped months earlier — but the mortgage repayments kept falling due, with no rental income to meet them.
Get at least 24 months. For larger or more complex properties, consider 36.
Public Liability
This covers you if someone is injured on your property or if your building causes damage to a third party’s property. Required. Non-negotiable.
Statutory Liability
Covers fines and legal costs arising from unintentional breaches of legislation — including the Health and Safety at Work Act, the Building Act, and the Resource Management Act. Given the compliance obligations sitting on commercial building owners in New Zealand, this one matters.
What Most Owners Miss: Underinsurance and the Averaging Clause
Here’s the part that keeps me up at night.
Most commercial insurance policies in New Zealand include an averaging clause — also called a co-insurance clause. If you’re insured for less than the full replacement value of your building and you make a claim, the insurer will only pay out a proportionate share of that claim.
So if your building would cost $3 million to replace, but you’re insured for $2 million — and you have a partial loss claim of $300,000 — the insurer may only pay out $200,000. You bear the rest.
“The time to discover you’re underinsured is not when you’re standing in the car park watching your building on fire.”
This is why I make a point of reviewing insurance as part of every property onboarding. It’s not glamorous work. But it’s the kind of thing that protects our clients when things go wrong — and in 25 years of property management, things do go wrong.
Earthquake-Prone Buildings: A NZ-Specific Risk
New Zealand’s seismic environment creates specific insurance considerations that don’t apply in most other markets.
If your building has been identified as earthquake-prone under the Building Act 2004, you may find that:
- Some insurers won’t cover it at all
- Those that will cover it may charge significantly higher premiums
- Your policy may exclude or limit earthquake damage cover
If your building is anywhere near the earthquake-prone threshold (below 34% of the New Building Standard), get specialist advice on both your structural situation and your insurance position. These are linked.
EQC (the Earthquake Commission) provides some cover for residential property. For commercial buildings, EQC cover does not apply — it’s entirely on you and your private insurer.
Lease Obligations and Insurance Responsibilities
Under most New Zealand commercial leases — including the standard Auckland District Law Society (ADLS) form — the landlord is responsible for insuring the building, and the cost of that insurance is recoverable from the tenant as an operating expense (OPEX).
This is an important point: your insurance premium isn’t just a cost, it’s a pass-through. Under a net lease structure, it should be fully recoverable. Under a gross lease, you carry it — which is one of several reasons why lease structure matters so much at negotiation time.
A few things to check in your lease:
- Who is responsible for insurance? (Almost always the landlord, for the building)
- Is the tenant required to have their own public liability and contents cover? (They should be)
- Does the lease specify a minimum sum insured? (Some do)
- Are tenants’ fit-outs covered under the building policy or separately? (Usually separately — and often not at all)
At AssetPro, we review insurance obligations as part of every lease audit. It’s surprising how often there are gaps — particularly where landlords have upgraded fit-outs without adjusting the policy.
Working With the Right Broker
Commercial property insurance in NZ is specialist territory. Not every insurance broker understands the nuances — replacement cost methodology, averaging clauses, lease obligations, earthquake-prone building issues.
A few things to look for in a commercial property insurance broker:
- Experience specifically with commercial buildings — not general property or home and contents
- Regular reinstatement cost assessments — ideally from a registered quantity surveyor every 3 years
- Clear explanation of the averaging clause and how it applies to your policy
- Understanding of your lease structure and what’s recoverable
Don’t just renew automatically. Have the conversation every year.
A Quick Checklist for Commercial Landlords
Before your next renewal, make sure you can answer yes to all of these:
- Sum insured reflects current replacement cost — reviewed in the last 12–24 months
- Indemnity period for loss of rent is at least 24 months
- Public liability and statutory liability are included
- Earthquake-prone building status is known and disclosed to your insurer
- Tenant insurance obligations are documented in the lease
- OPEX recoverability of insurance premiums is confirmed in the lease
How AssetPro Approaches Insurance for Our Clients
Across our portfolio — over $550M in assets under management nationwide — we treat insurance review as a standing part of our property management process, not an annual tick-box.
When we onboard a property, we review the existing policy. When we’re approaching renewal, we prompt our clients to revisit the sum insured. When we’re aware of significant construction cost movements in the market, we flag it proactively.
We’re not insurance brokers. But we know enough to know when something doesn’t look right — and we know who to call when it doesn’t.
If you’d like a conversation about how we approach insurance and risk across our portfolio, feel free to reach out. I still answer my own phone.