Rising Real Estate Insurance Rates in 2021: How You Can Take Control and Manage Costs

Do some or many insurance carriers allow deductions for water, leak and flood detection equipment?

Somewhat. They may not reimburse you for your expenses. But, by showing that you have these precautionary tools and detection equipment in place, you should receive a lower premium, as the insurance company is less likely to have to pay out a claim.

At what point does it start to make sense to start layering property coverage limits?

Usually, for larger portfolios (over $500m in replacement cost) or one with catastrophic risk, this will make sense. Insurance companies have reinsurance behind the scenes and those costs begin to go up for them. However, if you raise your deductible, you’re likely to receive a lower monthly cost. You also may be able to choose multiple carriers to save on your premium costs overall.

If my insurance appraisal shows building reconstruction costs will increase, does that mean my insurance will go up as well?

In most cases, there is a direct correlation from the cost per square foot to rebuild a facility and the cost of your insurance. So, usually, if your reconstruction estimate cost goes up, it’s likely your insurance costs will go up as well. However, don’t let this deter you from having an appraisal done because if there is a loss event, and you’re underinsured, you can be on the hook for significant costs – and possibly cause you to be unable to rebuild at all.

Is it common for a lender to allow the borrower a loss limit?

The lenders don’t like to see this because it puts their collateral at risk. Keep in mind that lenders want their collateral fully insured and want your property insured for the full amount of the loan – but you can’t do that because it includes both the property value as well as the land value. They’ll try to push higher insurance coverage – it’s up to you and your insurance broker to push back on that, so be mindful of that. A loss limit may be beneficial if you have multiple buildings in several locations and only one loss limit plan for all of these properties together, given that these properties likely won’t be involved in the same loss event.

Can you keep rates down on a multifamily rental property by requiring tenants to have renter’s insurance and not filing claims unless something serious happens?

Habitational properties have more claims than any other in real estate. Passing insurance responsibility to tenants as much as possible is ideal. Insurance underwriters want to know that the building owner/ management is diligent and that they are collecting certificates of insurance from the tenants. Reasonable limits should be in the lease as well, which minimizes the landlord’s risk. Rental applications and contractual agreements should be as detailed and specific as possible.

Does the presence of pets in residential properties add to the risk profile? Can I expect a lower rate in premium with the absence of pets?

No – there actually is no rating system for pets within a residential property. However, if you allow risky/dangerous pets, it will enhance your liability and raise your overall premium rates.

For a residential strata building, who would be an appropriate 3^rd party to conduct a residential risk management assessment?

The first person you want to reach out to would be your broker/ agent to see if they have resources you can utilize for a 3^rd party assessment. HUB has a robust group in our risk services division and we can either provide specific resources or assist you directly in this process. Another potential opportunity would be reaching out directly to your broker, as they may have their own private company they would recommend to assist you in this process.

What are the benefits for per unit deductibles?

“Per unit” is a part of a clause, and units are defined differently in different insurance policies. By having unit of insurance, you can have a lower deductible. Contact your HUB broker for more information.

Should I review, evaluate and update building facilities to demonstrate preparedness in a fire and security type incident?

In short, absolutely. All building systems have life expectancies and for older buildings in particular, any upgrades to any building systems should be communicated to your broker, agent or insurance carrier – this reflects positively on the building and property owner as having a good risk management system in place, which overall, can lower insurance premiums.

Does a natural disaster impact insurance rates?

Yes. Some buildings have rebuild policies based in local/ regional natural disasters and climate. However, there may be exclusions from multiple, overlapping incidences depending on your location and property type. Speak with your HUB broker to learn exactly how natural disasters can impact your policy.

How do we demonstrate to an underwriter that we have robust risk management on a large scale portfolio?

The first thing they’ll do is look at past history on claims. Robust risk management yields very few claims. The fewer claims they find, the more they’ll reward you for that – the better shape you’ll be in and will see rate increases mainly based on market changes. If you do have claims, you’ll likely see your premiums go up. Things will be changing in 2021 – tenants are moving out, they’re subleasing, you’ll be seeing different kinds of leases. You’ll want a full risk management portfolio put together for an overall assessment. Don’t leave any gaps – computer systems will fill them and raise your rates.