The commercial umbrella insurance market continues to create headaches for real estate owners.
Over the past 12-18 months, umbrella liability insurance premiums for real estate (especially multifamily properties) continues to rise.
An umbrella policy provides additional coverage on top of the primary liability policy. By purchasing an umbrella policy, an owner protects themselves from legal costs and expenses incurred in their defense of lawsuits and judgments.
Traditionally, the cost of an umbrella policy depended upon the asset class and claims history of a property. However, a dwindling insurance marketplace for commercial real estate umbrella policies cost owners money. In some cases, even without having liability losses.
The hardening of the insurance marketplace has allowed insurance companies to:
- Raise premiums
- Offer lower limits of liability
- Implement more restrictive policy language
When insurance capacity decreases, rates increase. In many situations, umbrella markets are walking away from what they view as below-market pricing. Furthermore, the new capacity is not coming in.
Today, it’s not uncommon to see limits cut while the premium remains at the expiring or higher. Carriers are becoming very strategic to limit exposure and to participate in excess layers and careful about the amount of capacity offered.
In the excess arena, claim severity is still an issue. Sympathetic juries drive outrageously large judgments. This plays a significant part in how insurance companies view specific claims of business, in this case, real estate.
Commercial umbrella premiums are rising due to:
- Slips and falls & injuries
- Inadequate underlying limits to cover catastrophic and unpredictable claims
- Increasing trial verdicts amounts(especially wrongful death lawsuits) – Greater frequency
Catastrophic Losses & Natural Disasters
In 2019, losses due to more than 400 natural disasters cost more than $230 billion. From the long-lasting wildfires, thunder and winter storms, earthquakes, and floods— the number of recorded losses from natural disasters continues to increase year after year.
Although insurance companies try to stay ahead of the next natural disaster, the unpredictability of mother nature has put a beating over the last few years.
Risk Purchasing Groups
For many years, real estate owners could choose from among a variety of Risk Purchasing Groups(RPG) umbrella programs. A purchasing group is when similar businesses(in this case, commercial/multifamily real estate) share common risk characteristics allowing the owners to band together to purchase high limits of liability insurance on a group policy.
The benefit of being a member of an RPG (compared to the traditional umbrella marketplace) include:
- Very high limits of excess liability
- Lower premiums
Many of the Risk Purchasing Group(RPG) programs that previously offered $100M to $300M limits have evaporated. In some cases, the remaining options are only willing to offer lower limits.
In this challenging casualty market, it’s essential to be prepared before the renewal date. Working with an experienced insurance broker will help you better understand what coverage is available to you.
If you have any questions, you can contact me here.
Opinions expressed in this article are solely the author’s opinion. They are not intended to provide the reader with legal or any other professional advice. Should you need information or opinion, consult with a qualified professional to address your specific needs.