Recent challenges have put a strain on insurance rates within the real estate sector. However, there’s still hope for owners and operators seeking affordable coverage. The root of the problem lies in capacity, referring to the total insurance underwriters are willing to provide in the real estate realm. Due to recent losses, insurance carriers have scaled back their offerings and significantly hiked up rates, marking the onset of what’s termed a “hard market”.
This capacity crunch is particularly pronounced in areas prone to catastrophes, where creative solu- tions are essential for securing insurance. In such markets, businesses must present themselves in the most favorable light to enable brokers to negotiate the best terms with insurers. Collaborating closely with insurance advisors, demonstrating a favorable loss history, implementing preventative measures and showcasing proactive risk management practices can make a compelling case for insurers to consider.
Several factors contribute to the ongoing challenges in obtaining real estate coverage. Catastrophe-related claims, inflation, supply chain disruptions and outdated property valuations are driving up rebuilding costs beyond what insurers initially anticipated. Water damage and severe weather events are proving costly for property insurance, while liability claims, particularly slips and falls, are leading to expensive lawsuits. Additionally, the economic ramifications of the global pandemic, including lower interest rates, are further pressuring premiums upward as insurers seek to maintain profitability without relying on investment returns. So, what can businesses do?
Despite the hard market, businesses can still control and manage losses. Owners and operators who control their risks in house will be in a better position to find coverage at an acceptable rate. Proven strategies include:
• Preventative maintenance. Regular preventative maintenance improves building safety and can reduce the likelihood of claims. Test fire pumps monthly, fix broken handrails immediately and replace old electrical panels.
• Implementing 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, which include instaling shut-off valves, understanding how to isolate water leaks, ensuring functional sewer lines and sump pumps and scheduled inspection and maintenance of the plumbing system itself.
• 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. You should also 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, access control or with a third-party security team where needed. Common areas like parking lots or high-traffic spaces should be kept clear of objects that could cause slip and fall claims
• Vet all contractors.. All vendors should provide a certificate of insurance before performing work. Review the vendor’s insurance policy with your broker to ensure there are no exclusions to prohibit them from assuming risk when working on your property. The property owner should also request to be added as an additional insured to their policy.
These are just some of the ways you can get ahead of rising premium costs and navigate the current state of the insurance market. Now more than ever, it is imperative to work with your insurance advisor to review your coverages and to un- derstand what your P&C policies cover, what they don’t and the best ways to mitigate the individual and unique risks of your properties.
Frank DeLucia
Senior Vice President
Hub International Northeast
frank.delucia@hubinternational.com
(212)338-2395
