2019 State of Insurance Market: NY Multi-Family Real Estate
Catastrophic losses mean changing market dynamics
Did you know most insurance companies are global? When Japan experiences earthquakes, floods and typhoons, the losses incurred by an insurance company, will actually have an impact on the cost of your insurance here in the US. In 2017 insurance companies paid out $135 billion globally for damage from natural disasters and storms*.
Since 2017, numerous natural disasters — hurricanes, superstorms, blizzards — have made their mark on the NY market. The impact is here to stay for the foreseeable future. The frequency and severity of these extreme events are rippling through the real estate insurance marketplace fueling increased rates and conservative underwriting.
In today’s environment, insurers are extremely selective about how they deploy capital. As insurance claims continue to increase in size and scope, so are insurance premiums. In fact, if we experience another catastrophic event soon we could be in major trouble!
Slim Pickings for Multi-Family Real Estate in NY
As we enter the 2nd half of 2019, it’s clear the insurance marketplace for NY multi-family real estate is experiencing its biggest capacity challenges in years. Few carriers remain interested in writing multi-family properties, especially in areas prone to larger claim reserves.
In addition to raising premiums to offset expenses, carriers are raising deductibles, amending terms and conditions, and tightening guidelines and non-renew business (where appropriate). Two major concerns for insurance companies today:
- Fallout from Risk Purchasing Group Umbrella Programs
- The rise of Labor Law & Action Over Claims
Elimination of Group Umbrella Programs
A Risk Purchasing Group(RPG) program allows a group of unassociated businesses with similar risk profile to join together to take advantage of a combined insurance purchase. For real estate owners, this is a critical component of their insurance portfolio because it allows owners to bypass the traditional marketplace and purchase high limits of excess liability at an inexpensive rate. Currently, many RPGs are no longer writing business in certain areas due to the rise in claims including a recent surge in wrongful eviction and discrimination claims.
Labor Law and Action Over Claims
New York has some of the country’s strictest labor laws. In other states an injured employee files a claim against the employer’s Workers Compensation policy. In New York an injured worker may file a claim under both the Workers Compensation policy and the Commercial General Liability policy. If a worker is injured on your property and your insurance policy contains injury exclusions, you might suddenly have a major exposure on your hands. After collecting workers compensation benefits from the employer, an employee in New York can sue a third party for contributing to the employee’s injury.
What does this mean for you? Beware of exclusionary language AND look to shift the risk away from yourself whenever possible. Create a contract with ALL involved parties that will indemnify you as the owner. Your contract should also outline coverage that contractors/subs MUST have in place in order for the work to be performed.
Bottom line: Plan, plan, plan.
Underwriting for insurance is coming under MUCH greater scrutiny. Your options are limited and the coverages are getting more complicated. There are fewer companies playing in the multi-family real estate insurance arena than ever before. That also means less capacity for the tough accounts that may be facing losses. It’s never been more important for owners to work with an insurance broker to focus on a comprehensive and robust risk management strategy.
You can’t predict the future, but you can protect it! Be proactive and speak with an experienced insurance specialist broker who’ll ask the right questions.
Want to explore the custom coverage options that are right for you? Let’s talk!
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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.
* Hiroko Tabuchi, “2017 Set a Record for Losses from Natural Disasters. It Could Get Worse,” New York Times, January 4, 2018