At a Glance
What Is Commercial Property Insurance?
Commercial property insurance covers physical assets — buildings, machinery, stock, and contents — against loss or damage from fire, natural catastrophe, theft, and accidental damage. In Türkiye, the base cover is typically written on a FLEXA basis (Fire, Lightning, Explosion, Aircraft), which addresses the four fundamental perils. For broader protection, cover is extended to Property All Risks (PAR), which covers all causes of physical loss or damage subject to named exclusions.
Türkiye's seismic risk profile is a defining feature of property insurance in this market. The country sits on one of the world's most active fault systems, and the Marmara, Aegean, and East Anatolian regions carry substantial earthquake hazard. An important distinction — and one that is frequently misunderstood — is that DASK (Doğal Afet Sigortaları Kurumu, the state-run mandatory earthquake insurer) covers residential dwellings only. Commercial buildings, factories, warehouses, hotels, and mixed-use commercial properties are not covered by DASK and must arrange earthquake cover separately in the commercial insurance market.
For medium and large commercial risks, Neolife assesses the full physical asset base, the appropriate cover structure (FLEXA or PAR), the reinstatement value of insured assets, Business Interruption requirements, and earthquake exposure. For risks that exceed domestic insurer capacity — large industrial sites, petrochemical facilities, high-value retail portfolios — Neolife accesses Lloyd's of London and international co-insurance markets to provide adequate capacity and expertise. The correct structure is not a standard product; it is specific to the asset, the risk, and the insured's financial exposure.
Coverage Structures
Property insurance in Türkiye is written across several structures, ranging from the basic FLEXA minimum to comprehensive PAR programmes with Business Interruption and co-insurance. Understanding which structure is appropriate requires an analysis of the asset, its replacement value, its operational importance, and the financial consequences of loss.
FLEXA — Fire, Lightning, Explosion, Aircraft
FLEXA is the minimum standard for commercial property in Türkiye, covering the four named perils: fire, lightning, explosion, and impact from aircraft or items falling from aircraft. It is a basic but frequently underestimated foundation: FLEXA does not cover natural catastrophe (storm, flood, earthquake), theft, malicious damage, or accidental damage. For most commercial risks, FLEXA alone is insufficient, but it forms the base to which extensions are added.
Property All Risks (PAR)
PAR is the market standard for industrial and commercial property risks. PAR provides broad all-risks cover subject to named exclusions, and typically includes: FLEXA, natural catastrophe (storm, flood, earthquake — where included), theft and burglary, accidental physical damage, malicious damage, and — on a limited basis — machinery breakdown. PAR provides substantially broader protection than FLEXA and is the appropriate base for any significant commercial asset. The scope of individual PAR policies varies; specific extensions and exclusions must be reviewed carefully against the insured's actual risk profile.
Business Interruption (BI)
Business Interruption cover — also referred to as Loss of Profit or kâr kaybı sigortası — compensates for revenue loss and increased costs of working following an insured physical damage event. BI is written as an extension to the property policy, and it only responds when the underlying property damage claim is covered. Key parameters are: the indemnity period (the maximum duration for BI payments, typically 12, 24, or 36 months), the turnover or gross profit basis, and any maximum indemnity period provisions.
BI can be one of the most financially significant elements of a property programme. For a manufacturer, retailer, or hotel, the revenue loss during a period of rebuilding or restoration can exceed the physical repair cost. The indemnity period must be set to reflect the realistic time from damage event to full income restoration — including not just the rebuilding period but the time to recommission equipment, retrain staff, and rebuild client relationships.
Stock & Contents
Commercial property policies cover buildings and fixed plant as their primary subject. Stock (raw materials, work in progress, finished goods) and contents (trade fixtures, fittings, business equipment) require separate or specific coverage within the policy schedule. Stock values fluctuate across the year — a retailer's stock at Christmas peak is far higher than at year-start. Declaration-linked or adjustable stock policies allow the insured limit to track actual inventory levels through periodic declarations, reducing the risk of under-insurance during high-stock periods.
Machinery Breakdown within PAR
Some PAR policies include limited machinery breakdown cover as an extension. This is typically a sublimit within the PAR policy, covering sudden and accidental mechanical or electrical failure with restrictions. For machinery-intensive risks — manufacturing plants, energy facilities, industrial processing operations — a standalone Machinery Breakdown policy (see Engineering Insurance) provides more comprehensive and specifically structured protection, including MLOP (Machinery Loss of Profit) for business interruption arising from breakdown.
EML and PML — Estimated and Probable Maximum Loss
For large or complex property risks, underwriters assess the risk using two key metrics before offering terms. These metrics determine how much capacity an underwriter is willing to deploy on a risk and how the risk is managed within their reinsurance arrangements.
EML — Estimated Maximum Loss
The EML is the underwriter's assessment of the worst conceivable loss from a single event, assuming that fire protection systems (sprinklers, suppression systems, fire doors) either fail or are not present. The EML represents the catastrophic scenario and informs the maximum capacity that any one insurer will deploy on the risk. For large industrial sites, EML can approach the total insured value.
PML — Probable Maximum Loss
The PML is the underwriter's estimate of the loss from a single event assuming that fire protection systems work as designed. PML is lower than EML and represents the realistic working assumption for loss severity. Both EML and PML inform the insurer's accumulation management and reinsurance purchasing. For large industrial sites, an EML survey by an accredited loss adjuster or fire risk surveyor is often required as a condition of underwriting.
EML and PML figures are also relevant to the insured in setting the sum insured. If the EML is close to the total insured value, the insured is effectively self-insuring the gap between the PML and EML. Understanding these figures helps clients make informed decisions about the appropriate level of coverage, the investment in fire protection, and the trade-off between premium and retained risk. Neolife assists clients in commissioning or reviewing EML/PML assessments where required by underwriters or lenders.
Reinstatement Value, Market Value, and Under-Insurance
The basis on which a property is insured determines how a claim is settled. Two valuation bases are used in Turkish commercial property insurance:
Reinstatement value (yeniden inşa değeri) is the cost to rebuild the property to its current specification — labour and materials at the time of loss, excluding the value of land. This is the recommended basis for commercial property insurance, because it ensures that a total loss can be fully replaced.
Market value is the price at which the property would sell between a willing buyer and seller. For older buildings, market value can be substantially lower than reinstatement value. Insuring on market value means the insured would be unable to rebuild a destroyed property to its original specification with the insurance proceeds alone.
Under-Insurance and the Average Clause (Oranlama)
Under-insurance (eksik sigorta) occurs when the sum insured is less than the actual reinstatement value of the insured property. Turkish commercial properties are frequently insured on book value, market value, or outdated reinstatement estimates — particularly as construction costs have risen sharply in recent years. The consequence is material.
Under Turkish insurance law and standard policy conditions, if the sum insured is below the actual reinstatement value, the insurer applies the average clause (oranlama maddesi) to all claims:
For example: a property with a reinstatement value of ₺10 million, insured for only ₺6 million (60% of value), suffers ₺3 million of damage. The average clause reduces the claim to ₺3m × (6/10) = ₺1.8 million — leaving ₺1.2 million uninsured. The insured effectively self-insures in proportion to the degree of under-insurance, on every claim — not only total losses.
Neolife conducts reinstatement value reviews as part of the policy placement process, and advises clients when insured values appear inconsistent with current build costs. For large or complex properties, an independent reinstatement cost assessment by a chartered surveyor provides a reliable basis for the sum insured.
Earthquake Cover for Commercial Properties
DASK Does Not Cover Commercial Buildings
DASK (Doğal Afet Sigortaları Kurumu) provides mandatory earthquake insurance for residential dwellings in Türkiye. It does not cover commercial buildings, factories, warehouses, hotels, shopping centres, office buildings, or any other non-residential commercial property. Commercial property owners must arrange earthquake cover separately in the commercial insurance market.
Earthquake risk assessment for commercial properties relies on seismic hazard mapping and site-specific PML studies. Turkish earthquake hazard is categorised into seismic zones (historically Zone I through Zone IV, with Zone I carrying the highest hazard), and zone classification significantly influences both pricing and the availability of capacity. The Marmara, Aegean, and East Anatolian regions carry the highest seismic hazard, and properties in these areas may require specialist international capacity — particularly for large industrial assets or portfolios.
Key parameters in earthquake cover for commercial property include: construction type and age (reinforced concrete frame vs masonry; post-1999 earthquake code compliance), proximity to known fault lines, soil type (soft soils amplify ground motion), and the insured's portfolio concentration. Lenders financing commercial property in Türkiye typically require earthquake cover as a condition of the credit agreement, and will specify minimum coverage levels and insurer quality standards.
Neolife assesses earthquake exposure for commercial property clients, advises on the appropriate coverage structure, and places earthquake cover in the domestic market and — where domestic capacity is insufficient — in the international and London market. For large or concentrated exposures, reinsurance-backed capacity from specialist international markets is often required to achieve the sums insured necessary to fully protect the asset.
Co-Insurance for Large Risks
For property risks that exceed the capacity of any single domestic insurer — typically large industrial sites, high-value commercial portfolios, or assets in high-hazard locations — co-insurance (koasürans) is the mechanism by which multiple insurers share the risk on the same terms. One insurer acts as the lead, setting terms, conditions, and rates; other insurers follow on the lead's terms, each subscribing to a percentage of the risk. The insured holds a single policy but is covered by multiple insurers proportionally.
Co-insurance may combine domestic and international (including Lloyd's) insurers. For very large or complex risks, the international market may provide the majority of capacity, with a domestic insurer holding a fronting or co-leading position. Neolife structures co-insurance arrangements for large property risks, managing the placement across multiple markets and ensuring consistent terms and conditions across all participating insurers. A co-insurance arrangement coordinated by an independent broker provides the insured with access to capacity that individual domestic insurers cannot provide alone, while maintaining a single, coherent policy structure.
Frequently Asked Questions
Does DASK cover commercial buildings? ▾
No. DASK (Doğal Afet Sigortaları Kurumu) is mandatory only for residential dwellings. Commercial buildings must arrange earthquake cover through the commercial insurance market. This is one of the most common coverage gaps in Turkish commercial property insurance — building owners sometimes assume that DASK coverage extends to their commercial premises. It does not. A factory, warehouse, office building, hotel, or retail property that is uninsured for earthquake in Türkiye carries a material and uninsured exposure. Neolife reviews earthquake cover as a standard part of every commercial property placement.
What is the average clause (oranlama) and how can I avoid it? ▾
Under-insurance occurs when the sum insured is less than the actual reinstatement value. In that case, the average clause reduces the claim payment proportionally. The only way to avoid it is to insure at full reinstatement value. Neolife advises clients on reinstatement valuation. The average clause applies to every claim — not just total losses. A partial loss on an under-insured property will be reduced in proportion to the degree of under-insurance, even if the loss itself is modest. With Turkish construction costs having risen significantly in recent years, many properties insured some years ago are now materially under-insured. An annual review of insured values against current build costs is an important part of policy maintenance.
How long should the BI indemnity period be? ▾
The indemnity period should cover the time from the damaging event to full restoration of income — including rebuilding, equipment replacement, and regaining clients. For manufacturing facilities or specialised commercial properties, 24–36 months is typical. A common error is selecting a 12-month indemnity period because it is the cheapest option, without considering how long rebuilding would actually take. For a specialist manufacturing facility, a 12-month period may expire before the building is finished, let alone before production has resumed at full capacity. Neolife works through the realistic timeline with clients — from insurance notification, through design and tendering, construction, equipment installation, commissioning, and revenue ramp-up — to determine the appropriate indemnity period.
Can co-insurance be placed for very large risks? ▾
Yes. For risks exceeding single-insurer capacity limits, co-insurance (koasürans) shares the risk among multiple domestic and international insurers. The lead insurer sets the terms; followers subscribe on the same conditions. This structure allows the placement of sums insured that would be beyond the appetite of any individual domestic insurer, while providing the insured with a single, coherent policy. For very large Turkish industrial or property risks, Lloyd's syndicates and international reinsurance-backed capacity are often involved alongside domestic co-insurers. Neolife structures and coordinates co-insurance placements for large property risks, managing the relationships with multiple markets and ensuring consistency of terms across the programme.
Is stock insured at selling price or cost price? ▾
Stock is typically insured at cost price (purchase cost or cost of production). Insuring at selling price includes profit margin, which is more properly covered under the BI policy. Some policies allow selling price basis by endorsement. The distinction matters because if stock is insured at selling price and the BI policy also covers loss of profit, there may be an overlap that results in double recovery — which is not permitted under the principle of indemnity. Neolife reviews the interaction between stock cover and BI cover as part of programme design, to ensure that the two elements are complementary and that there are no gaps or unintended overlaps.