Insuring Heritage Buildings

Insurers generally do not have a problem with Heritage listed buildings providing they are insured for their full replacement value, the property is well maintained, the plumbing and electrics are of a sufficiently modern standard and is not vacant.

However, most insurers will demand to see a valuation for the costs to rebuild such premises and this will include, removal of debris costs, Architects and consultants fees, inflation factors and other factors such as location of materials and labour, availability of skilled experts etc.

While rarely do such buildings suffer a total loss because of how well made many of them are, it is this valuation that is used as part of the calculation on how a minor claim is settled. Insurance policies all tend to contain an average clause. A clause may look like this one in a Business policy:


In the event of Damage to the Property Insured We will be liable for no greater proportion of the Damage than the Sum Insured bears to 80% of:

a). where the Basis of Settlement is Reinstatement or Replacement, the reinstatement or replacement cost

of the Property Insured;

b). where the Basis of Settlement is Indemnity, the value of the Property Insured, taking into account wear,

tear and depreciation; on the day of commencement of the Period of Insurance.

Underinsurance will not apply if the amount of the Damage is less than 5% of the Sum Insured.

The Average Clause works like this: (3) Where:

(a) the sum insured in respect of property that is the subject-matter of such a contract is less than 80% of the value of the property; and

(b) but for this subsection, an average provision included in the contract would have the effect of reducing the liability of the insurer in respect of loss of or damage to the property to an amount that is less than the amount ascertained in accordance with the formula




A is the number of dollars equal to the amount of the loss or damage.

S is the amount of the sum insured under the contract in respect of the property; and

P is 80% of the number of dollars equal to the value of the property. the average provision has the effect of reducing the liability of the insurer to the amount so ascertained.

There is another way which is a Stop loss sum insured and some insurers use this to avoid problems with underinsurance. This acts like a sub-limit on policies where the policy will pay up to the sum insured limit. We find this process more commonly in Householder policies. The trouble with this is there is no incentive to make sure you are insuring for the full value of your risk even though you will be fully covered for any minor loss up to the sum insured. In theory you would expect you would be paying more in premium to be covered fully for minor losses because insurers are not building up a sufficient premium pool otherwise to pay claims. Rarely do we see this available in Commercial property insurance but it is possible.

If your property is destroyed and its heritage value is lost, the Queensland Heritage Act 1992 does not require you to replicate the original building. However, if it is partly destroyed then any rebuilding work needs to be done in a way that is sympathetic to its heritage values. With any claim, the insurer would expect the payout to fund repairs using like-for-like replacement.

Therefore, the claims can be very messy and difficult if it turns out the Average clause will apply. It is really this reason they will not generally insure the property. They do not like the disputes and the resultant brand damage this can bring. Further, we have seen property owners become bankrupt if unable to fund the additional costs to repair a building.

We are able to find terms for your Heritage listed Building but we will need:

  • An updated Valuation of the property’s replacement cost
  • Copy of Heritage listing or Certification of this (for full disclosure to insurers) as these vary from Council to council.
  • We need to complete a proposal form to provide full information to insurers on the risk.

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