Sheltering in place has never been more costly or challenging for property owners and managers.

The habitational property insurance market was hit hard with catastrophic claims over the last few years, the result of hurricanes, wildfires, severe storms and water damage. Multi-family buildings also saw significant wind and hail claims as well as an uptick in normal fire and water damage.

A hardening property insurance market has officially moved in. That means increased scrutiny in underwriting, significant premium increases, and carriers less willing to write policies for properties with any significant risk.

While states including Texas, Oklahoma, Colorado, Louisiana and Florida have been hit hard, the reality is that property coverage has a global reach and therefore, portfolios across North American will share in the fallout with blanket increases of at least 25 to 50 percent throughout 2020.

It’s not just legacy facilities with older systems that are experiencing increased costs and reduced coverage options. Even new luxury high-rises are being turned down by carriers because of an uptick in water damage claims due to faulty new construction. Water damage has become so common that underwriters are now asking for separate water deductibles, often significantly higher than that of other perils.

Fortunately, there are a number of risk management and insurance considerations to follow that can help your real estate portfolio look its best in the eyes of the underwriters.

Risk Management Considerations for a Hard Property Insurance Market

Residential properties can reduce their risk and appear as a Class A top-of-the-pile risk that a carrier will want to take on by engaging in a number of risk management best practices. Engage these risk management best practices:

  1. Complete a risk assessment. A thorough risk assessment of your property will highlight any elements of inadequately controlled risk you’ll need to consider ahead of an underwriter’s assessment.
  2. Put a proactive maintenance plan in place. Carriers are averse to engaging with properties that use their coverage as a maintenance plan. Be proactive in scheduling regular preventative maintenance instead of waiting for your policy to respond to broken building systems.
  3. Have a water damage mitigation plan. Water damage is the number one loss leader for commercial and habitational properties. Create a plan to prevent and mitigate water losses. Include both fire protection and domestic water systems in your preventative maintenance plan, identify and map shut-off valves, hire qualified plumbing contractors and consider leak detection devices in strategic areas.
  4. Update building systems. Know the life expectancy of your systems and plan accordingly. Keep accurate replacement and maintenance records and know research retrofit options ahead of equipment failure. Properties with legacy systems like aluminum wiring or Federal Pacific Stab-Lok circuit breakers will want to consider immediate remediation.
  5. Have an accurate appraisal. Market-accurate property appraisals can help right-size your facility’s coverage limits, and therefore, eliminate unnecessary costs. Underwriters have a pretty good sense of actual replacement cost values for habitational properties. When they see a schedule of properties that are undervalued from the insured and their agent/broker, they will likely just take a pass and “decline to quote.”

Insurance Considerations for a Hard Property Insurance Market

Be armed and ready with an understanding of the current property insurance market and what your incumbent carrier is willing to do. It may have changed from the last renewal. Have a 3-to-5-year loss history report prepared ahead of your renewal period. Again, without a report from your previous carriers, underwriters will just decline. Other insurance considerations include:

  1. Get out to market early. It’s not enough for a habitational property owner to be thinking about coverage three months before renewal. Work with your broker to create a renewal strategy 3-6 months ahead of your renewal date.
  2. Tell your story. By building a story around your facility’s renewal submission, including risk management documents safety ratings and overall building operations, your broker is able give the underwriter more confidence in assuming your risk.
  3. Know the facts. Understanding your losses and being able to track and learn from them will also help your facility be seen as a good risk. Consider paying out of pocket for small nuisance losses when possible to reduce the need to make a claim. Generally speaking, this will keep coverage costs down.
  4. Consider raising your deductible. Engaging higher deductibles is another way to reduce insurance costs, though that may also end up costing more, depending on your future losses and effectiveness of the loss prevention programs highlighted above.

Contact your HUB Real Estate expert for more information on the current property insurance market and best practices for risk management.