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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.

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.

1. Retentions

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.

2. Limits

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.

3. Terms

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.

4. Information

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.

5. Loss Prevention

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. 

6. Program Construction/Deconstruction

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. 

7. Parametric Products

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. 

Learn more

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

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

© 2021 McGriff Insurance Services, Inc. All rights reserved. McGriff Insurance Services, Inc. is a subsidiary of Truist Insurance Holdings, Inc. The information, analyses, opinions and/or recommendations contained herein relating to the impact or the potential impact of coronavirus/COVID-19 on insurance coverage or any insurance policy is not a legal opinion, warranty or guarantee, and should not be relied upon as such. This communication is intended for informational use only. Given the on-going and constantly changing situation with respect to the coronavirus/COVID-19 pandemic, this communication does not necessarily reflect the latest information regarding recently-enacted, pending or proposed legislation or guidance that could override, alter or otherwise affect existing insurance coverage.

This communication is intended for informational use only. As insurance agents or brokers, we do not have the authority to render legal advice or to make coverage decisions, and you should submit all claims to your insurance carrier for evaluation. At your discretion, please consult with an attorney at your own expense for specific advice in this regard.

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