Real estate organizations previously part of a Risk Purchasing Group (RPG, insurance customers who get together to purchase their liability insurance coverage from an insurance company) may be looking for a new umbrella policy at this year’s renewal. Disruption in the market after a major RPG carrier pulled out has left numerous habitational and commercial businesses without future umbrella coverage.
Real estate organizations with “vanilla” risks will be able to move to another RPG, while organizations with greater risk, i.e. those located in urban areas or with loss activity, may no longer be eligible for an RPG. The umbrella market is exclusively driven by major, catastrophic exposures and shock losses — those that go above and beyond a general liability policy’s $1 million per occurrence, or $2 million aggregate limits. Out of the ordinary losses, including fatalities, slips, trips and falls, accusations of negligence and assault typically fall under umbrella coverage.
While these claims are low in frequency, they’re high in losses and, therefore, carriers will be cautious to quote insurance if a portfolio has suffered a significant umbrella loss in the recent past.
Three features drive real estate umbrella losses: facility amenities, security and life/safety systems. Consider the following ways to reduce liability and make your facility a better risk for real estate umbrella carriers.
Manage amenities. As the real estate market shifts away from traditional retail and moves toward entertainment amenities, features like playgrounds, pools, tennis courts and indoor rinks will be a major focus of a portfolio risk assessment. These amenities attract attention, both positive and negative. Having professional, third-party management of these elements and routine preventative maintenance will help ensure health and safety standards are maintained.
Comply with life/safety codes and standards. When quoting coverage, umbrella insurance carriers will want to know that occupants can get out of a facility quickly during a fire. Compliance with NFPA 101 means making sure exit doors aren’t locked from the inside. Some GL carriers won’t cover a partially sprinklered building; therefore, fire claims in such facilities could fall to the umbrella policy.
Buildings in older cities may still have fire escapes grandfathered into the city code. If not maintained properly, fire escapes won’t work when needed.
Make sure your facility has an emergency plan. If the building staff doesn’t know how to manage during a crisis, it could lead to an unnecessary loss of life and potential negligence accusations. In the event of a serious incident, the GL policy limits could become exhausted, leaving the remaining costs to be paid out by the umbrella policy.
Assess and upkeep security measures. Do a security assessment, speak to local law enforcement and understand crime in your immediate neighborhood. Know that it’s the property owner/manager’s responsibility to be aware of the risks, institute controls, security equipment and maintain them. For example, if a gate is broken or left open, or a known hazard on the property isn’t fixed in a reasonable amount of time, the carrier will deem this “negligence” on the part of the property owner/manager, which often carries a costly verdict.
Seek guidance from experienced insurance advisors to understand how to maintain good standing with umbrella carriers and mitigate potential risks effectively. By addressing these key factors, real estate organizations can reduce their exposure to umbrella losses and improve their insurability in the market.
Frank DeLucia
Senior Vice President
Hub International Northeast
frank.delucia@hubinternational.com
(212)338-2395
