Property All Risks or a classic fire policy?
Commercial property insurance in the Turkish insurance market is offered in two basic structures. Which is more appropriate depends on the size of the facility, the nature of the business and its risk tolerance.
Property All Risks (PAR)
- Fire, lightning, explosion included
- Earthquake, flood, storm — manageable under one policy
- Water damage, breakage, spillage
- Theft (in some wordings)
- External impact, vehicle collision
- No need to search for a named perils list
- Exclusions are clearly stated; less risk of coverage disputes
- Industry standard for large and complex facilities
Classic Fire Policy
- Fire, lightning, explosion — standard
- Earthquake, flood, storm — additional cover required
- Water damage — additional cover or exclusion
- Separate additional endorsement required for each new risk
- Events not on the list are excluded
- Premium may be lower than PAR
- Coverage disputes more frequent at claims time
- Common for SMEs and small properties
Core and additional cover headings
Core (primary) covers
Fire
Direct physical damage and smoke damage caused by sudden and uncontrolled fire. Spontaneous combustion is excluded; fire arising from fermentation or internal heat is also generally excluded.
Lightning
Physical damage caused by a direct lightning strike. Electronic damage from lightning-induced power surges is generally assessed separately; the policy wording should be checked.
Explosion
Damage from sudden and violent expansion resulting from pressure. Boiler/pressure vessel explosion, gas line explosion. Chemical explosion or flammable material storage is assessed separately.
Smoke Damage
Physical damage caused by smoke — whether arising from fire or independently. Smoke damage to stock and machinery can be a significant element of the claim settlement.
Fire-fighting Damage
Damage caused by firefighting intervention — water, foam, chemicals. Assessed under the same policy as the primary fire damage; must be separately declared.
Damage from Neighbouring Property
Damage suffered as a result of fire or explosion spreading from a neighbouring building. Third-party liability cover for fire spreading from your own premises to neighbours should also be considered.
Additional covers
Earthquake
With additional premium and sublimit. Building age, construction type and earthquake zone directly affect the premium. DASK is compulsory for residential buildings — commercial properties and contents require separate cover.
Flood / Inundation
External flooding; inundation. Sewage backflow can be assessed separately. Particularly important for stock and machinery on ground floors.
Storm / Hail
Roof, facade and open-area damage from severe wind, hail or snow weight. Hail damage is especially significant for panel-clad and roof-heavy structures.
Internal Water Damage
Burst pipework, air conditioning or heating system water escape. Not to be confused with external flooding; generally separate cover or internal water damage conditions under PAR apply.
Vehicle Impact
Damage caused by vehicles colliding with the building or facility. Impact by your own vehicles may be assessed separately; impact from external vehicles is standard additional cover.
Theft
Material loss from theft by forcible entry. Cash/valuables inside a safe are separate; theft of stock and fixtures is defined by limits and conditions.
Scenario comparison: PAR vs classic fire
| Loss Scenario | PAR | Classic Fire (basic) | Note |
|---|---|---|---|
| Fire — uncontrolled blaze | Yes | Yes | Core cover in both structures |
| Direct lightning strike damage | Yes | Yes | Core cover |
| Boiler / pressure explosion | Yes | Yes | Explosion cover |
| Earthquake damage | Add-on | Add-on | With sublimit in both structures |
| Flood / storm surge | Add-on or PAR internal | Add-on | Subject to wording |
| Storm / roof damage | PAR internal | Add-on | PAR advantage |
| Burst pipe / internal water | PAR internal | Generally excluded | Critical PAR advantage |
| Vehicle impact (external) | PAR internal | Add-on | — |
| Theft (forcible entry) | Add-on or PAR internal | Separate policy | Wording-dependent |
| Electronic failure (lightning surge) | Subject to wording | Generally excluded | EEI policy assessed separately |
Insured assets: what and how much?
If the insured sum in a property policy is not correctly established, underinsurance is inevitable. The true value must be calculated separately for each asset category.
Building
Construction cost including foundations and fixed fittings. The reinstatement cost — not the market sale value — must be the basis. Age-related depreciation creates a large gap when valuation is not carried out correctly.
Machinery & Equipment
Production machinery, energy systems, heating/cooling. Reinstatement Value including spare parts costs and installation for both domestic and imported equipment; note the value gap created by exchange rate movements.
Fixtures & Fittings
Office equipment, computer systems, shelving/cabinets, air conditioning. A standard fire policy may be insufficient for electronic equipment; an EEI (Electronic Equipment Insurance) assessment is recommended.
Stock & Goods
Raw materials, semi-finished goods, finished products. Stock values may fluctuate periodically; insuring on a maximum stock value basis or a floating sum structure should be considered. Additional conditions apply for cold-chain stock.
Tenant Improvements
Fixtures and improvements made by a tenant. Improvements that are the tenant's responsibility under the lease may not be included in the landlord's policy; they should be assessed separately.
Cash & Valuables
Cash in safe, cheques, promissory notes and valuable documents. A cash sublimit or separate vault insurance is generally arranged under a standard fire policy. Safe type and security system conditions determine the terms.
Why does a fire policy pay less than expected at claims time?
When the expected settlement does not arrive after a loss, the underlying reasons are usually foreseeable. The vast majority of these reasons can be prevented when structuring the policy.
6 Pitfalls That Reduce Your Claim Settlement
Underinsurance
Setting the insured sum below the true value. The average clause applies; the settlement is cut proportionally. If a building worth TRY 60 million is insured for TRY 36 million, the settlement is reduced by 40%.
Indemnity Value Instead of Reinstatement Value
If the policy is written on an indemnity (depreciated value) basis rather than reinstatement (new value) basis, a loss on a 10-year-old building results in a payment far below the actual rebuild cost.
Deductible
The deductible — the insured's own share on every claim — is deducted from the settlement. It may be a fixed amount or a percentage; for additional covers such as earthquake and flood, the deductible is typically set higher than the main cover.
Sublimit Application
For earthquake, flood, storm, debris removal and professional fees, much lower sublimits apply rather than the main policy limit. A 10–20% sublimit in a major earthquake loss covers only a small fraction of the actual loss.
No Floating Stock Value
Stock insured at a fixed amount may not cover the high stock value at the time of loss. The underinsurance risk reaches critical levels during seasonal or periodic peak stock periods.
Pre-loss Disclosure Failure
Changes in the facility (new section, additional building, new production line), expansion of business activities or a change of tenant — if not notified to the insurer, coverage disputes arise at claims time.
How does the Average Clause / Underinsurance Reduction work?
Average Clause — Concrete Example
True value TRY 10,000,000 — Insured sum TRY 6,000,000 — Loss TRY 3,000,000
3,000,000 × (6,000,000 ÷ 10,000,000) = TRY 1,800,000
The insured receives only 60% of the actual loss — and despite not having underpaid the premium, must fund TRY 1,200,000 out of pocket as an underinsurance penalty.
Reinstatement Value and Indemnity Value
Whether the policy is written on a Reinstatement Value or Indemnity Value basis dramatically affects the settlement amount in a major loss.
Indemnity Value
- True market value at the time of loss is the basis
- Accumulated depreciation is deducted
- Wear allowance can be large for a 10-year-old building
- Value loss for machinery and equipment can be significant
- Does not fully cover the cost of rebuilding
- Premium may be lower
Reinstatement Value
- Cost to rebuild or replace with the same kind and quality
- No depreciation applied
- Full replacement cost paid even for older buildings
- Current exchange rate used for imported equipment
- Provides genuine recovery capacity
- Higher premium — but the gap at claims time is very large
Currency impact in Turkey: If the insured sum for imported machinery and equipment is set in Turkish Lira and a significant exchange rate movement occurs between policy inception and the date of loss, even a reinstatement-basis policy may fall short. Updating the insured sum at each annual renewal is critical.
Business Interruption (BI) Cover
Fire or major property damage halts a business's revenue beyond the physical assets themselves. While fire damage repairs can take months, rent, payroll and loan obligations continue.
Insured Property Damage
BI requires an insured property damage event first. Commercial losses arising independently of such damage are outside BI scope.
Waiting Period
No BI is paid for the first X days/hours of interruption. A shorter waiting period comes with a higher premium; the standard is 24–72 hours or a specified number of days.
Indemnity Period
The estimated time for the business to return to normal. Setting an insufficient indemnity period for equipment with long lead times is the most common BI structuring error.
Items covered under BI
Gross Profit / Revenue Loss
Loss of income from a halt or reduction in sales. Defined in the policy as gross profit or turnover basis.
Continuing Fixed Costs
Rent, payroll, financing interest, insurance and other costs that continue despite the halt in operations.
Extra Costs
Additional expenditure to mitigate the loss — temporary rented space, emergency subcontractors, additional transport.
Rent Loss
As a landlord of a rented property, rent income lost because the tenant is forced to vacate due to the damage. Covered within BI or by a separate rent loss endorsement.
Indemnity period pitfall: The lead time for imported equipment can be 12–24 months. If the BI indemnity period is set at 6 months and it takes 14 months to resume operations, the revenue loss in the final 8 months is outside the settlement. For large and critical equipment, the indemnity period must exceed that lead time; in pre-financing and project finance structures, the lender may make this a condition.
First loss, deductible, sublimit and coinsurance
First Loss Insurance
The insured declares not the full total value of assets but the maximum loss they could sustain from a single event as the insured sum. Makes sense for businesses with stock or assets spread across many locations. If the estimate is wrong, the first loss limit can be exceeded and the remainder is not covered.
Deductible Structure
The first amount borne by the insured on every claim. May be a fixed sum (e.g. TRY 50,000) or a percentage of the insured sum. For additional covers — especially earthquake and flood — the deductible is much higher than the main cover. A higher deductible reduces the premium; self-funding capacity must be in place at claims time.
Sublimit Application
Lower upper limits applied to additional covers (earthquake, flood, debris removal, professional fees) independently of the total policy limit. If the building's policy limit is TRY 50 million but the earthquake sublimit is TRY 10 million, the gap remains outside the settlement in a major earthquake loss.
Coinsurance
For large risks, multiple insurers combine their capacities to share the risk. Each company receives premiums and pays claims in proportion to their agreed share. Standard practice for large property values that exceed the capacity of a single insurer. The insured generally sees a single policy; multiple insurers participate behind the scenes.
Insured's Own Retained Share
In some structures the insured retains a defined proportion of the risk — this is "remaining as co-insurer." It differs from an underinsurance penalty; it is a consciously accepted risk-sharing arrangement. Can provide a premium advantage for large businesses with strong risk management.
Floating Stock Insurance
For businesses where stock values fluctuate significantly, the maximum stock value is declared and premiums are calculated against the actual value at month-end. Reduces underinsurance risk for businesses with seasonal production patterns.
Additional cost items: frequently overlooked
After a major fire or loss, additional cost items arise in the recovery and reconstruction process on top of the primary loss. If these are not written into the policy in advance, they will not be included in the settlement.
Debris Removal
Clearing demolished or damaged structures and their contents. For large buildings and especially for loss events involving hazardous materials, this cost can be a significant item. Should be declared as a sublimit or a separate line item.
Professional Fees
Architects, engineers, loss adjusters and project managers required during reconstruction. This item may be excluded from standard policies; it must be specifically stated.
Fire-fighting Costs
Specialist fire-fighting services, foam and chemical costs, damage to neighbouring property in the course of suppression efforts. Post-loss invoices cannot be predicted in advance; having a sufficient limit is critical.
Rent Loss from Neighbouring Tenant
Loss of rent income because damage to your own building forces your tenant to vacate. In addition, if you cannot use your own leased premises, temporary accommodation costs may be assessed under BI.
Environmental Clean-up
Post-loss soil or water contamination (fire-fighting water runoff, chemical leakage). May fall outside a standard fire policy; should be assessed alongside an environmental liability policy.
Third-party Liability
Third-party claims arising from fire or damage spreading from your facility to neighbours. A fire policy covers your own material damage; a separate general liability (TPL) policy is required for liability claims.
What does the underwriter need for risk assessment?
To obtain the right quotation, negotiate coverage terms and leave no room for surprises at claims time, the underwriter needs the following information:
Building & Physical Structure
Fire Safety Systems
Operations & Stock
Risk & Valuation
Premium impact of risk improvement: Installing a sprinkler system, revising electrical installations and maintaining regular maintenance records all have a positive impact on the underwriter's assessment. Measures that reduce PML both expand coverage options and provide an advantage in premium negotiations.