6 August 2025
Logistics and Distribution Risks – insurance cover for property owners
As the global economy becomes increasingly reliant on robust supply chains, property owners are investing more in the logistics sector, as it provides assets that are more resilient to economic downturns. As it stands, the logistics sector is valued at USD8 trillion globally, representing a huge contributor to the global economy. Following the COVID-19 pandemic, there was unprecedented demand for logistics assets, a trend that has continued in recent years.
The recommendation is that a lease be drafted to state that the landlord or property owner should be responsible for obtaining the insurance for the asset. This ensures that you have full control of the insurance that is being placed and will benefit from the cover in the event of a claim. Where tenants are responsible for insuring, it is imperative that you have your insurance broker review the policies that have been taken out to ensure that they provide adequate coverage and extend to include the landlord. In addition to this, it is important to speak with your tenants to ensure that they are insuring the items they are responsible for, i.e. stock, tenants’ contents, employers’ liability, etc.
Undertaking thorough risk assessments and ensuring you have robust insurance in place to cover your asset in the event of a loss is key to protecting your asset.
Essential insurance coverages to protect your asset
Property damage insurance
The largest exposure you will have as a landlord will be coverage for physical assets, including buildings, landlord’s contents and equipment/plant. Cover should be placed on an all-risks basis to protect against losses emanating from the widest number of perils/circumstances.
Fire risk is the leading issue for insurers, particularly if tenant activities are deemed high risk. Logistics assets are used for a number of activities, from distribution sites to manufacturing and food storage. Each of these activities may increase the insurance risk at a site. For example, if a tenant is storing flammable materials such as gas cannisters or clothing, the fire risk will increase. Full risk information should be provided to mitigate any loading to the premium rate or increased policy deductibles.
Natural catastrophes pose a significant risk for landlords in the EU and the rest of the world. When discussing cover for assets in a high-risk area, your insurance broker should be highlighting where cover may be limited due to these risks (for example, flood risk in the Netherlands is typically limited with a higher deductible). Any catastrophe defences in place should be declared to insurers, as this demonstrates a good level of risk management and may assist with improved cover.
Outside of the typical property damage cover, your broker should be including several extensions that are available in the London market, there are namely:
- Contract Works – this cover allows for capex works instructed by the landlord to be automatically covered under the property policy (up to an agreed policy limit) and gives joint names cover to the contractor in relation to the existing structure (a requirement under JCT option C)
- Failure of Other Insurances – where a third party is arranging the insurance for the property, this extension allows for cover up to an agreed limit, which provides cover for the landlord
- Environmental Clause – cover is extended to include additional costs to reinstate the property using more environmentally conscious materials and improve energy efficiencies up to an agreed limit
Business interruption insurance
In addition to the above property damage coverage, your loss of rental and service charge income should be protected in the event of a loss. Should damage occur and the tenant is able to withhold rent due to loss of use. The cover should mirror the property damage and provide cover against all risks.
An indemnity period must be set for these covers, which should reflect the amount of time it would take to reinstate the property in the event of a total loss.
Prevention of access (non-damage) cover should be included to an agreed limit. The cover granted under these extensions allows for loss of rent due to the property being inaccessible due to a loss within an agreed vicinity of the property. Separately, the non-damage clause provides cover where a government and/or a Public Authority and/or any other statutory authority gives advice not to enter or use a property due to an emergency arising and/or threat thereof which is likely to endanger life and/or Property. Both these covers have an agreed policy limit, vicinity in which a loss is triggered and a separate indemnity period. It's vital that risk assessments are undertaken and day-to-day operations are managed at a high standard to ensure that your liability as a landlord is protected.
Property Owners Liability (POL) insurance
POL coverage protects against third-party claims related to bodily injury or property damage. Cover is offered on a limited basis and should provide cover for any one claim. The cost of the cover is typically minimal; therefore, the maximum limit should be procured, the minimum we would recommend is GBP15,000,000 (additional cover can be purchased on a primary or excess basis).
Whilst logistics properties won’t have a lot of public footfall, the nature of the assets is such that there are a number of third parties on site at once, undertaking various activities.
It's vital that risk assessments are undertaken and day-to-day operations are managed at a high standard to ensure that your liability as a landlord is protected.
Terrorism insurance
As political and economic uncertainty continues across the globe, it is becoming more important to have robust terrorism insurance in place.
Terrorist groups and individuals have increasingly adopted low-cost, high-impact attacks which focus on inducing fear and causing disruption. Logistics sites could be targeted particularly if a well-known tenant is in occupation, as this could affect supply chain operations.
In certain territories, there are pools that are typically government-backed and provide coverage for your assets. Outside of these practices, terrorism cover should be procured to the full sum insured of the asset via Lloyds of London or other insurers.
Emerging risks and operational enhancements
Reinstatement Cost Assessments (RCAs)
The 18-24 months post COVID-19 saw inflation spike across the UK, Europe and the rest of the world, therefore it is crucial to ensure that you are undertaking reinstatement cost assessments (RCA’s) at regular intervals (every 3-4 years) to ensure that the sum insured is adequate to meet a loss and there is no penalty for underinsurance.
Photovoltaic (PV) Panels, electric vehicle charging and Lithium Ion batteries
PV Panels
Responsible property owners are under more pressure to contribute net-zero emissions. The most prevalent way of doing this is installing Photovoltaic Panels, particularly at distribution centres, as they can draw large amounts of power. For properties that are purpose-built and have had the PV panels incorporated into the design of the property typically have fewer issues. Where the risk can be increased is where the panels are being retrofitted to an existing asset. Items to consider when installing PV panels are as follows:
• Increased fire load.
• Combustible roof structure.
• Fire-fighting challenges.
• Weight loading/wind uplift.
• Accumulation of debris under/between PV panels.
• Damage to the roof structure during installation.
• Storm damage/snow loading.
• Micro-cracking
• Water Ingress – poor fixings, fire-fighting water.
• Stone/Hail strikes.
• Ignition sources – hot work smoking.
• Wildlife.
Electric Vehicle (EV) Charging and Lithium Ion Batteries
As companies and individuals are becoming more environmentally conscious, the need to install EV charging points is growing. Currently, most of EVs on the road (including cars, ebikes and electric scooters) use lithium ion batteries as they have a high energy density, fast charging and long life cycles.
The issue with these batteries is that they can suffer from Thermal Runaway. This is caused when the amount of heat being generated grows exponentially and is greater than the amount of heat dissipated. The effect is irreversible, and fires resulting from this are typically very difficult to extinguish.
Even if you do not have EV chargers on site, as lithium ion batteries are being used more frequently, we are seeing a trend toward tenants storing the batteries for distribution. Given the above issues, storage of the batteries must be declared to insurers along with how the items are stored, how many are stored onsite and how the additional fire risk is going to be managed.
As with all activities on site or alterations to a property, a full risk assessment should be undertaken to identify any risk improvements and maintenance needs.
Environmental Impairment Liability
The risk of landowners having to pay for the clean-up of their land, even where they were not the original polluters, has increased as a result of environmental legislation introduced in the UK and across Europe. Environmental due diligence has therefore become a routine exercise during property transactions. However, the Phase I and/or Phase 2 assessments conducted by consultants are rarely conclusive, often due to tight timescales, and some residual environmental risk is frequently transacted along with the real estate.
The traditional approach has been to ‘take a view’ on this residual liability, negotiate a price reduction based on a best-guess estimate of the liability, or to rely on the professional indemnity insurance cover of the consultant. Neither approach provides much in the way of protection against potential environmental claims in the future, and the blighting impact of pollution on the asset’s future marketability. Environmental insurance is an effective tool to cover such risks
With many logistics sites having fuel tanks on site or storing chemicals for distribution, the above liability risk should be considered and discussed with your broker.
Conclusion – protecting your logistics investment
As the world is more interconnected, the importance of ensuring continuity in supply chain operations is paramount, and this can be a major concern when looking to attract new tenants to an asset.
To ensure that your investment is protected and your asset is attractive to tenants, it is essential that the above insurances are in place and the widest level of cover is obtained. There should be a focus on high-quality information on your asset, which can be provided to your insurance broker so that a tailored insurance solution can be obtained that suits your business at the most competitive terms. This includes detailed information on the materials used in the course of construction, fire precautions, security measures and tenant activity (including what items are being stored and for how long).
To find out how we can support your investment strategy by transferring risk, please get in touch.
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