Last updated: August 2026.
When a major fire completely destroys a severely underinsured company building, we risk receiving insufficient compensation to rebuild it.
If the flames then spread to neighboring businesses, we risk having to compensate third parties using company assets, and the risk of bankruptcy—if we are not adequately insured—is just around the corner.
In this article, we address the key questions asked by company administrators and plant managers to identify potential serious gaps in insurance policies, in order to protect company assets and the health and safety of workers.
Are there any statistics on fires in businesses over the past 5 years?
Although there is not yet a single, comprehensive registry in Europe that collects and catalogs all fires in non-residential buildings, key data from several European Union projects and major industry associations indicate that 2,000,000 fires break out in Europe each year, of which between 25% and 30% affect businesses, warehouses, industrial facilities, stores, and schools.
We would like to emphasize the significant difference between forest fires that spread to a business and fires that break out inside factories due to a lack of preventive measures.
Is it true that serious fire-related accidents in the workplace are on the decline?
This is certainly excellent news: although the economic damage caused by fires to European businesses is enormous (billions of euros each year), the fatality rate in offices and warehouses is drastically lower than that in homes for three main reasons, as follows:
-active detection systems: Modern offices and warehouses are required by law to be equipped with smoke detectors, sprinklers, and fire doors that slow the spread of flames.
-Occupancy schedules and drills: While it is true that most deaths occur in private homes at night, while victims are asleep, due to inhalation of toxic fumes, fires in businesses often occur during the day when staff are awake and alert, or at night when the premises are empty but under surveillance.
-Clear and clearly marked escape routes: European regulations require emergency floor plans and evacuation routes that are permanently lit and free of obstacles.
What should business owners do to reduce or limit fire damage?
This is a very complex issue, since an insurance policy alone is not enough to prevent a fire from breaking out inside our building.
Below is a list of actions to be taken as soon as possible, including:
1. Technical inspection of the business
2. Inspection of the fire suppression system
4. Assessment of potential underinsurance of the building, warehouses, inventory, and critical machinery
5. Review of third-party liability coverage limits.
Why is the technical inspection so important for reducing the risk of fire?
The technical inspection at the company is absolutely crucial because it provides management with a detailed and up-to-date overview of the company’s risks and protects them from potential claims regarding their actions should previously unknown or underestimated risks be discovered.
Only a technical inspection can help business owners take all appropriate measures to prevent and reduce risks within the production facility and avoid damage and accidents.
Opening our company’s doors to experienced insurance consultants helps us achieve these results:
– The company has an up-to-date document that lists the actual business risks in black and white, which only these insurance consultants can identify with precision
-Once the insurance company receives this document, if there have been no major claims in the last 3–5 years, it may decide to lower the premium.
In conclusion, insurance companies always reward responsible companies that prioritize prevention because, thanks to the technical inspection, they have readily available information that is always up-to-date—unlike the more sparse and limited data provided by a simple questionnaire.
Why is underinsurance such an insidious risk for businesses?
A crucial check to perform concerns the replacement cost of our business property, which must be updated at least once a year.
All too often, we naively confuse the market value with the replacement cost, running the risk that when a fire breaks out and we ask our insurance company to pay for the damages, it will be too late, and we’ll be left crying over spilled milk!
In a nutshell, the market value of a property is the likely market price at which a property can be sold or purchased at a given time, determined by the actual balance of supply and demand in a specific area.
It includes market-related variables such as geographic location, supply-and-demand trends, and the prestige of the area.
The replacement cost of a commercial building is the expense required to rebuild a building identical to the existing one, using materials whose costs are constantly rising!
This value does not coincide with the commercial sale price, which instead depends, as we’ve just seen, on geographic location and demand.
Understanding the difference between market value and replacement cost is absolutely essential for insurance purposes.
It is precisely when a fire breaks out that insurance adjusters, after conducting their initial on-site inspections, verify whether the updated replacement cost is explicitly stated in the policy.
In the event of a total fire at a business, if there is severe underinsurance, the adjusters tasked with correctly quantifying the compensation will apply the proportional rule provided for by the Civil Code, compensating for only part of the damage and leaving the business uninsured for the difference.
To put it simply, if our business buildings are worth €2,000,000 but are insured for €1,000,000 (50%), the maximum compensation—even a child can understand this—will be halved, even in the event of total destruction.
There are two negative consequences for the company:
-insufficient liquidity: we do not receive the funds needed to rebuild the facility, replace the machinery, or restart production.
–risk of bankruptcy: the lack of financial coverage and the prolonged shutdown of operations due to a devastating fire could force us to close permanently.
What risks do we face if our factory burns down and we don’t have sufficient third-party liability coverage limits?
If the flames spread from our property to neighboring buildings, and we aren’t adequately insured, we risk having to pay out of pocket for the demolition, cleanup, and complete reconstruction of our neighbors’ properties.
Added to these costs may be the physical and health-related injuries sustained by workers at neighboring businesses: think not only of severe burns but also of serious illnesses caused by smoke inhalation.
It’s therefore best to double-check that our coverage limits total at least 1,000,000 euros, just to be on the safe side.
But be careful: Third-Party Liability insurance covers only damage to property and persons unrelated to our business.
If, due to a fire, our tenants—to whom we have leased spaces we own—suffer damage, they can be compensated only if we, as landlords, are insured against liability toward tenants.
It is absolutely necessary to verify carefully whether we have this insurance to avoid unpleasant surprises.
My tenant causes a fire: how can I protect my business against the risk of losing the entire factory and the rental income?
Fires caused by tenants (such as malfunctions in kitchenettes, microwaves, and heating systems…) are among the most common.
We recommend contacting the tenant immediately to verify whether they are insured for damage to the property you own.
To be clear, the landlord’s liability is one thing, and the tenant’s liability is another.
These two types of insurance are often confused, and in the event of a claim, this can lead to dangerous misunderstandings with insurance adjusters.
Therefore, we recommend carefully reviewing the tenant’s business insurance policies to ensure they have adequate coverage limits to protect our buildings.