It has never been more important for real estate owners and operators to strategize with their insurance advisor well ahead of their next policy renewal. Largely due to the pandemic, double-digit rate increases are expected across the board. Those in high-risk areas where natural disasters are prevalent are potentially facing even higher increases. The key to reducing insurance costs this year will be managing risk across your portfolio.
The best thing to help mitigate the risk and potential losses is to rigorously plan to prevent them. The following best practices will also help position your business positively with insurance underwriters:
Create an Emergency Plan
Your emergency plan should take a holistic approach to take all hazards into account, including, but not limited to, fire, natural disasters, water damage, pandemic, workplace violence, terrorism, civil unrest, etc. Consider the potential for a compound disaster or a catastrophic scenario in which COVID-19 and a natural disaster or cyber breach converge. Make sure your plan covers your entire portfolio based on local risks, and train your staff to implement it accordingly.
Maintenance & Safety Measures
Preventative maintenance measures include testing fire pumps monthly, fixing broken handrails and changing out electrical panels. These keep your building up-to-date, reducing your likelihood of a claim and painting a positive picture for insurance companies. Water damage has emerged as a major loss leader, so know where your shut-off valves are located and how to isolate water leaks. Ensure water pumps, water tanks and other water systems are properly maintained.
Develop a comprehensive self-inspection and audit program. Train employees to identify hazards before they cause losses. Consider external security risks and potential perimeter breaches. Utilize cameras, access control and even hire a third-party security team if your property is in a high-crime area or has seen looting. Common losses like slips, trips and falls can affect anyone on your property. Focus on upkeep of parking and common areas and other high-traffic spaces.
Reducing the spread of COVID-19 and other viruses requires increased cleaning efforts, installation of effective barriers and new paths of egress to promote distancing and enhanced tenant communication to streamline efforts and promote infection control.
Contractual Risk Transfer
Working with third parties can potentially add a new level of liability exposure, especially when there’s a question of who is liable. To reduce liability, ensure every tenant procures their own business insurance and require the tenant to name you (the landlord) as an additional insured and secure a certificate of insurance (COI) to this effect. Require that all contractors provide a COI proving that they carry adequate liability coverage and workers’ compensation insurance.
COI tracking is a vital risk-management activity; however, it must be properly managed and supplemented with additional measures. Even if the COI is accurate, the underlying policies could have severely limiting exclusions. The policy that the COI certifies could be canceled tomorrow and, without the insured endorsement, the certificate holder does not have to be notified of policy cancellation.
Property managers can also avoid third-party risk exposures by including clauses relating to this liability in leases. A lease clause detailing specific responsibilities would transfer that named risk to the tenant. Another way to avoid being held responsible for a tenant’s negligence is to include an indemnification clause in the lease. Having a single lease agreement is recommended so that there is a consistent set of rules for tenants to adhere to, especially when it comes to insurance/indemnification/hold harmless clauses.
Implementing Inspection Suggestions
It is very important to implement any recommendations suggested by the insurance company during an inspection. Working with an insurance broker that has a specialized risk management and loss control division is extremely beneficial as they can help you accomplish these goals proactively, meeting the carrier’s guidelines and expectations.
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.
HUB International Northeast