The summer of 2017 brought a plethora of catastrophic insurance events including: hurricane heavy-hitters Harvey, Ivan, and Maria, two earthquakes in Mexico and scorching wildfires in California causing over $100 billion in insured losses.1 The rising costs of property and casualty (P&C) rates are no secret and our projection is that these increases will continue through at least the first part of 2018. This along with the unique exposures faced by multi-family owners and managers poses a challenge for their insurance renewal. Despite these increasing costs, losses and the inherent risks that may come with writing coverage on Multi-Family Real Estate business, a well-informed property owner partnering with an experienced broker with industry knowledge, can work together to obtain a comprehensive program at the best possible price and coverage terms.
Why Can Multi-Family Real Estate Insurance Policies Be More Difficult to Obtain Than Other Types of Insurance?
In the past, property owners and managers had to be negligent for claims to be paid under the General Liability policy. This has evolved and in today’s business climate more claims are being paid under General Liability policies. In addition to the typical claims such as slip and fall, assaults and attacks more claims are being filed under General Liability for “freak” and obscure accidents, often times resulting in costly payouts. Examples include claims for injuries caused to a tenet when the entrance gate closed on them unexpectedly or bath water being too hot causing burns to an elderly resident. Due to the increased number of occupants living in multifamily properties these claims are steadily increasing. These ‘freak” accidents are difficult to predict, not only with regards to frequency but also the severity of the claim. Often these claims result in multimillion-dollar verdicts, therefore making it more challenging for underwriters to forecast the risk and premium needed.
Underwriting coverage on a multifamily risk is typically a tedious process with many variables involved that must be identified, evaluated and thoroughly researched prior to developing terms, conditions and premiums. Underwriters look at historical patterns of claims frequency and severity when they are quoting coverage. Multifamily programs do not not lend themselves to the “black and white” historical loss patterns and trends that many other industries do. The uniqueness of the risk and the many “gray-area” factors such as crime rates, economic climate and other environmental issues that must be taken into consideration are example of obstacles to underwriting these risks. The amount of time that it takes to comprehensively explore each property and provide a detailed quote is much higher than more traditional policies in other industries.
How These Obstacles Can Be Overcome
The saying, “an ounce of prevention is worth a pound of cure…” is certainly true when developing a multi-family real estate program. A professional insurance broker can be a property owner’s best advisor and advocate in helping overcome these obstacles. By pointing out ways to improve the risk profile and portray the risk in a positive light to underwriters will go a long way to keep premiums as low as possible while providing the broadest coverage available. There are many steps that property owners can implement to help make their properties more attractive to underwriters, thus showing underwriters that they are taking an active role in reducing the likelihood of incidents occurring and minimizing losses when they do occur. Some of these proactive measures may include:
- Keep the property well maintained and service any issues in a prompt manner.
- Hire a security team or service and install a security system on the property.
- Provide well-lit parking and common areas.
- Lock hot water heaters to a maximum of 110-120 degrees Fahrenheit.
- Arm units with individual alarm systems.
- Keep walkways and parking lots free of debris and winter elements.
- Install safety grab bars wherever possible, especially with elderly accommodations.
- Fence in and install locks on pools or any other areas that could present themselves as hazards to young children or other non-swimmers.
Carriers know that property owners cannot eliminate every possibility of loss that can lead to a claim, but property owners can make carriers feel more comfortable with their risk by showing that they are proactively working to reduce and minimize exposures to loss. Ironwood Insurance Services prides ourselves on working side by side with our clients helping set them up for a process that allows our guidance and expertise to lead them down smooth pathways of multi-family real estate insurance policy underwriting."Insurance rate hikes likely at January renewals," Business Insurance, , accessed November 27, 2017, http://www.businessinsurance.com/article/20171024/NEWS06/912316757/Insurance-rate-hikes-likely-at-January-renewals?utm_campaign=BI20171024BreakingNewsAlert.