The start of 2020 has been a continuation to commercial real estate insurance rates increases experienced in 2019. Insurer’s new guidelines have led underwriters to be much more selective for both new and renewal business.
Carriers are focused on quality business along with risk management controls.
In addition to a spike in premiums, insurers are asking for more information to underwrite and are becoming more restrictive on policy language and limits provided.
3rd Consecutive Year of Catastrophic Losses Impacting Commercial Real Estate Insurance Rates
The unprecedented catastrophic (CAT) losses from 2017-2019 have insurers re-evaluating their own exposure to risk based on location and the loss history.
Real estate located in areas exposed to flood, tornado, hail and wildfire are experiencing the most significant increases. On average, real estate considered to be “non-catastrophic” with a good loss history has experienced a 10% – 20% rate increases. CAT properties or Non-CAT properties with poor loss history could see over a 25% rate increase. For accounts with prior claims experience, finding adequate property limits has become more challenging.
Since carriers are already receiving higher premiums, the traditional property insurance marketplace is less inclined to underwrite business in areas prone to a higher loss potential. As a result, the Excess and Surplus (E&S) lines insurers are playing a more critical role in the placement of commercial real estate accounts.
In order to stay ahead of the changes, you must work with a qualified insurance broker who can assist with all your risk management needs.
Limited Capacity, Lack of Eagerness to Underwrite Contributing to Increasing Premiums
Shrinking capacity has also caused commercial real estate insurance rates to increase across the board. Over the past 12 months, we’ve experienced a decrease in the number of leader umbrella carriers. Furthermore, of the remaining insurers, they are looking to offer lower limits and prefer to be in excess of $10M.
In addition to traditional property concerns, real estate owners are under increased scrutiny to provide a safe premise for their tenants. NY real estate owners, specifically multifamily owners, are continuing to experience the most significant insurance capacity challenges for General Liability. A combination of large verdicts from compassionate juries along with an increase in claim reserves has resulted in driving out many insurance companies. Now, add on the recent uptick of litigation towards building owners for tenant discrimination and wrongful eviction.
Impact on Multifamily Umbrella Liability
Similar to the General Liability, securing Umbrella insurance coverage for apartment buildings has emerged as one of the toughest sectors of real estate. In fact, the Umbrella sector experienced the tightening early on. For many multifamily property owners, rate increases impacted the commercial excess liability market before the primary market.
In years prior, a variety of Risk Purchasing Groups (RPG) could offer a real estate owner high limits of liability coverage at inexpensive pricing compared to the traditional umbrella carriers. However, many of the RPG programs that were offering $100M+ umbrella limits have fallen apart. Of the remaining programs, the renewal pricing is coming in significantly higher than the expiring RPG pricing.
Increased Insurance Submissions Means Preparing Early
Submissions to insurance companies have increased by over 25% from a year ago. Do not wait until the weeks (or days) before the renewal to pay attention to your insurance. Insurance companies want to know that you’ve repaired any existing damage and prevented future losses of the same type to occur.
Check out these (5) steps which will help play a critical role to a successful renewal.
- Begin to prepare for the renewal process early (at least 120-150 days prior to policy expiration date)
- Evaluate 5-year loss history for General Liability, Property and Umbrella
- Provide details on risk management techniques if losses have occurred.
- Prepare to provide details of overall risk management philosophy. Exemplify willingness to promote safety, engage in risk control and risk mitigation.
- Evaluate your ability to absorb a higher retention to offset the rising premiums
In the months prior to your renewal, work with your broker and describe in detail what efforts have been made to improve building conditions. Just remember, the better you can present yourself as a quality account the better of you will be in the end.
Working with an insurance broker experienced in real estate risks will also provide you with an advantage!
Opinions expressed in this article are solely the author’s opinion. Not intended to provide the reader with legal or any other professional advice. Should you need advice or opinion, consult with a qualified professional to address your specific needs.