In recent years, rising insurance claims from natural disasters have pushed rates up and reduced availability, making insurance coverage more complex — and often less complete — for real estate owners and operators. The result? Many find themselves facing critical gaps in their insurance programs, sometimes without even realizing it.
As insurers tighten underwriting standards and capacity shrinks, businesses often need to work with multiple carriers to piece together sufficient coverage. But juggling layered policies, each with its own language and exclusions, increases the risk of missing protection where it matters most.
Even with a seasoned broker, it’s easy to overlook gaps that could lead to costly surprises down the road. While some market pressures may ease in the future, others, especially those tied to climate-related catastrophes, are likely here to stay. Property owners must remain vigilant, reviewing their programs regularly to ensure coverage evolves with their risk exposure.
Here are five common insurance pitfalls real estate professionals should watch out for:
- Layered Coverage from Multiple Insurers
Where a single insurer once handled an entire property program, it’s now common to build coverage in layers with several carriers. But policy differences, especially in exclusions or definitions, can create unintentional gaps. For instance, one carrier may exclude flood damage while another includes it, but only above a specific layer. The stacking of limits and varying terms across layers can cause confusion during claims and lead to disputes over responsibility. To reduce the risk, policies should be carefully reviewed side-by-side with an experienced broker who understands the intricacies of layered structures and can negotiate consistent terms where possible. - Vacant vs. Unoccupied Properties
Most insurance policies reduce or void coverage for properties left vacant for a set period—typically 30 to 60 days. The distinction between “vacant” and “unoccupied” is critical: a building with occasional visits from realtors or security staff might still qualify as “unoccupied” and retain coverage. It’s also essential to understand any obligations under the policy, such as winterizing the property, maintaining utilities or continuing inspections. Some policies also include protective safeguard endorsements requiring maintained security features like alarms or sprinklers, especially in unoccupied buildings. Failure to comply with these conditions can invalidate coverage just when it’s needed most. - Roof Coverage Limitations
In catastrophe-prone states, insurers increasingly limit roof coverage to actual cash value (ACV) for roofs older than 15 years. That means in the event of damage, owners may receive a depreciated payout rather than full replacement cost. For large properties, this difference could mean hundreds of thousands in uncovered losses. It’s essential to know how your policy treats roof age and whether replacement coverage applies across the entire building. Consider a roof condition inspection and documentation to support negotiations with your insurer. Additionally, some carriers offer limited “buy-backs” or endorsements for roof replacement coverage. Explore these options proactively. - High Percentage-Based Deductibles
Many catastrophic property insurance policies now calculate deductibles as a percentage of the property’s total value. For example, a 10% deductible on a $20 million property means a $2 million out-of-pocket cost — significantly more than traditional flat-dollar deductibles. These deductibles can apply not just to windstorms or earthquakes but sometimes to fire or water damage in certain regions. Owners should understand their deductible structure and assess whether the financial risk is manageable. In some cases, deductible buy-down policies can be purchased to reduce out-of-pocket exposure. It’s important to model worst-case scenarios to ensure your reserves or risk retention strategy align with your current coverage. - Executive Liability Coverage Gaps in LLCs
Limited liability companies (LLCs) are a popular structure for real estate ownership, especially among families or business partners. However, they carry risks that may not be covered under standard property policies such as disputes between owners, allegations of mismanagement or employment-related claims. Policies like Directors & Officers (D&O) or Employment Practices Liability Insurance (EPLI) can help, but coverage may not apply to incidents that occurred before the policy start date. To secure retroactive protection, owners should disclose any potential claims during underwriting and work closely with their broker to tailor the coverage to their ownership structure. Failing to do so can leave decision-makers personally exposed in lawsuits, defeating the very purpose of an LLC.
Bottom Line:
The current insurance landscape demands a closer look at how your real estate assets are protected. Identifying and addressing these gaps now can prevent serious financial headaches later. Work closely with your broker, review all policy language and stay proactive to keep your coverage airtight. Insurance isn’t just a compliance checkbox — it’s a strategic risk management tool that should evolve with your portfolio.
Frank DeLucia
Executive Vice President
Hub International Northeast
frank.delucia@hubinternational.com
(212)338-2395
