Navigating the Hard Property and Casualty Insurance Market: Strategies for Apartment Owners

Insurance costs for multifamily property owners rose significantly in 2020, compounding an already challenging multifamily market. Apartment owners saw insurance rates rise as much as 30%; assets that were viewed as challenged by the insurance marketplace made up the highest end of the spectrum. An increase of $50 a unit for insurance cost is meaningful and impacts owners’ bottom lines. Disclosure 1 1 McGriff Property, Casualty, and Employee Benefits Market Update, October 2020, https://www.mcgriff.com/resources/white-papers/property-casualty-employee-benefits-october2020.html

As rates are showing no immediate signs of slowing down in 2021, take a look at the strategies below to combat the hard insurance market.

Insurance carriers are transferring part of the risk back to insureds in the form of deductibles. Bet on yourself—consider a property insurance aggregate deductible structure whereby owners self-insure losses up to a specified amount. Once that amount is reached, implement a maintenance deductible of $25,000 to $100,000 for each subsequent loss. On the casualty side, insureds are used to purchasing first-dollar coverage ($0 deductible), which is becoming less available. More carriers are requiring $25,000 to $50,000 retention rather than a $5,000 deductible. Taking on a higher retention can provide you with access to more carriers and generate carrier competition. Lenders are becoming increasingly familiar with these retention strategies, and your insurance broker should be able to seek and achieve a waiver/approval if needed.

Right-size your limits by utilizing catastrophe modelling tools (RMS, AIR) to set appropriate limits, and make sure you’re not buying more limit than you need. Using this information to gain acceptance with lenders is common.

Terms have tightened during this hard market cycle. Exclusions for communicable disease, assault and battery, and abuse and molestation are all common in the current market. Despite that, there is still opportunity to dig deeper and evaluate trading back “nice to have” terms that were achieved through years of softening market conditions for premium relief.

Put yourself in the best position with carriers. Carriers like to see control over your assets, demonstrated upkeep and safety (maintenance plans, life safety plans, ingress/egress, inspection schedules, etc.), effective communication protocols with tenants, and asset improvement plans (CapEx). All of the aforementioned information should be included in insurance submissions.

If you’ve had losses, what have you done to prevent losses in the future? Demonstrate measures that have been put in place to prevent future losses, which goes a long way with insurance carriers. 

Present your risk in a new way by placing loss leader properties outside of the portfolio or have multiple policies comprised by region, allowing you to access specialty insurance carriers. Insuring certain assets with various specialty regional carriers can yield pricing relief and enhanced coverage. 

Consider purchasing catastrophe coverage differently by purchasing parametric insurance products in conjunction with traditional insurance products. Parametric products can cover you for hurricanes and earthquakes from the first dollar (no deductible) up to a specified amount with loss triggers as wind speed and earthquake magnitude. Owners can purchase these products in lieu of traditional insurance, or as a way to complement your insurance program by purchasing additional catastrophe limits above the parametric insurance amount. 

The days of budgeting an annual 2%–3% insurance increase seem long gone, but these strategies will help to reduce costs now and ensure long-term pricing stability. 

To learn more, please contact a member of the McGriff Real Estate and Hospitality team: 

Read Davis
Regional President, National Real Estate & Hospitality Leader 
(404) 497-7533
RDav@McGriff.com

Paul Cicerchia 
Executive Vice President, Northeast Real Estate & Hospitality Leader 
(203) 832-3248 
Paul.Cicerchia@McGriff.com