Recent events have been unkind to the real estate industry’s insurance rates — but that doesn’t mean owners and operators should give up hope of getting affordable coverage. Because of losses, insurance carriers have pulled back the amount of insurance they’ll offer and have significantly raised rates. It’s the very definition of a “hard market.” The capacity issue is especially acute in catastrophe-prone areas, where real estate owners and operators need creative solutions to find insurance.
Several factors are causing the persistent hard market in real estate coverage, from catastrophe-related claims to inflation, supply chain challenges and outdated property valuations causing rebuilding costs to rise beyond what insurers priced policies to cover.
On the property insurance side, water damage and catastrophic weather events have been costly for insurers while on the liability side, increasing claims for slips and falls have led to expensive lawsuits. Lower interest rates push premiums higher.
Despite the hard market, businesses still can control and manage losses. Strategies include:
- Preventative maintenance. This improves building safety and can reduce the likelihood of claims. Test fire pumps monthly, fix broken handrails immediately and replace old electrical panels.
- Water damage mitigation plans. Losses from water damage are the most common cause of insurance claims in real estate. It’s essential to have water damage prevention and mitigation plans.
- Emergency planning. Every property in a portfolio should have an “all hazards” emergency plan that applies to possible crisis scenarios including fire, earthquake, flood, windstorm, workplace violence, terrorism and other location-specific risks. Identify ways to mobilize building occupants in the event of an emergency and emphasize communicating the emergency plan to building occupants.
- Enhanced safety and security. Property managers and owners should develop a comprehensive safety and audit program to ensure the physical safety of building occupants. The plan should include employee training on identifying hazards or risks before they cause losses. It should also ensure building security with cameras and access control or with a third-party security team where needed. Common areas like parking lots or high-traffic spaces should be kept clear.
- Vet all contractors. All vendors should provide a certificate of insurance before performing work. Review the vendor’s insurance policy to ensure there are no exclusions to prohibit them from assuming risk. The property owner should also request to be added as an additional insured to their policy.
Now more than ever, it is imperative to work with your insurance advisor to review your coverages and to understand what your P&C policies cover, what they don’t and the best ways to mitigate the individual and unique risks of your properties.
Senior Vice President
Hub International Northeast