Multifamily Insurance – Taking Advantage of the Favorable Commercial Insurance Market

2006 was a record year for the insurance industry. $60 billion in profits were recorded, one of the industry’s highest grossing years in history. A primary contributing factor to these record returns was a 2006 hurricane season that was uneventful in comparison to the few years that preceded it. In contrast, insurance companies had been compelled to raise premiums for coastal and earthquake insurance after witnessing the damaging impact of numerous hurricanes and other natural disasters in 2004 and 2005. This shift resulted in the profit windfall of 2006.

Subsequently, the commercial insurance market has been flooded with capital looking to get a piece of future returns. This has created new carriers, new capacity, and alternatives that are itching to get in on the action.

For apartment owners, the result is that commercial insurance carriers will be stepping over themselves to win your business. Growth for these carriers is imperative, thanks to shareholder demand, despite the impossibility of them maintaining the record profit pace of 2006 or the inflated premiums for another year. To expand, these commercial insurance carriers will be forced to enter industries that may have previously been considered too risky. Writing new lines of coverage is their only way to grow. To win your business, they will have to increase coverage or lower premiums to undercut the competition.

The end result is that you, as an apartment owner seeking multifamily insurance, will win with more favorable insurance terms. The carriers have to deal with the influx of new capital, new carriers, and new capacity in the marketplace. Any first year Economics student can tell us that when demand stays constant but supply increases, prices are going to drop. In this case, with these particular conditions in the commercial insurance market, the prices will be falling quickly.

Unfortunately, buyers are usually the last ones to know where the market stands at any particular point in time. Most commercial insurance clients only review their policies once each year, but the market can change significantly in the interim. Additionally, many of the reports that are generated by the large brokerage firms and insurance carriers are inaccurate. This creates “sticky” pricing on the downward side of the market cycle.

Understanding the market, with a foundation of accurate information as a basis for that understanding, is an imperative first step towards getting a good deal on a policy. Many commercial insurance brokers and agents, however, do not have enough experience in the multifamily insurance business to accurately assess the market. Even some of the larger brokerage firms, who do have the requisite experience and knowledge, are just as bloated and slow to react as the market itself.

Typically, information about the commercial insurance market comes from select industry groups and the carriers themselves. What commonly occurs is that statements are issued and information is distributed that is six months behind what is actually attainable in the marketplace at that particular time. The result is that multifamily owners end up renewing their policies at lower rates thinking that they are getting favorable deals; however, the reality is that they are leaving money on the table.

The oversupply of capital in the marketplace favors multifamily owners, if they are armed with the knowledge to take advantage. What might your commercial insurance agent or broker not be telling you that he or she should be to avoid common errors?

1. Choose the right broker and meet your carriers. Working with a broker who is an expert in multifamily insurance, and who works with multiple properties, can ensure you are getting a favorable deal. If you are your broker’s only client, the chances that you are getting the best terms possible are slim. Working with an experienced multifamily broker who is backed by a solid team will allow you to efficiently manage claims, know the latest trends in pricing, understand the best timing for a renewal, and know which carriers offer the best deals. Plus, if your broker handles large dollar amounts worth of coverage, he or she can exercise more leverage on your behalf. Having a relationship with your carrier is important as well; if they know your expectations and know you, garnering favorable terms and the occasional favor will be much more likely.

2. Have a renewal strategy and renew early. If the market softens, you may want to cancel a current policy and grab one that gives you lower rates, depending on how much you have already paid in premiums. Lowering premiums mid-term could also release money being held in escrow, freeing up more cash for you. In addition, consider other timing factors such as planning to renew near quarter’s end when carriers are looking to make their numbers, or before hurricane hype sets in if you manage coastal properties. The last thing you want to do is not have a strategy and end up renewing too late. You may be held hostage by last-minute quotes, and not give yourself enough time to shop your business in the market for the best deal.

3. Know your replacement cost per square foot. You cannot simply reduce your insured valued or replacement costs with the expectation that it will result in lower premiums. Most multifamily insurance carriers will run your insurance schedule through their own model and then price you based on their replacement cost estimates. If you underestimate yours, you could wind up paying the same price for less coverage.

4. Do not over-insure. The odds of every property you own being decimated by a natural disaster are small. Why buy coverage to protect against that very event? In tough markets, you are costing yourself money by paying for limits you will almost certainly never meet. However, by effectively planning a probable maximum loss (PMSL), you can more accurately estimate how much coverage you should have. Then you can sleep a little easier knowing you are adequately covered and saving money at the same time.

Types of Commercial Insurance

Generally speaking, commercial insurance covers businesses, and the two main types are cover your property and liability. Property insurance, as the name suggests, provides coverage for any business property or inventory that is stolen, destroyed from a loss, or damaged; liability insurance covers any damages to someone else’s property, including bodily injuries.

Most businesses that purchase commercial coverage choose combination of property and liability to cover anything that may go wrong. Oftentimes, mistakes made on the job, or simple accidents, can simultaneously affect both the business’ property as well as a third party’s health. For that reason, it’s important to consult with a broker to find the best deal for you and your business.

Property Insurance

Property insurance covers losses and damages to personal property, like fire or flood damage to your office building. There are many different types of coverage, like a machinery policy to cover equipment breakdowns, a debris removal policy to cover the cost of cleaning up after a storm, and ordinance or law insurance to cover costs related to having to rebuild a building to code that may have been only partially destroyed by nature.

Crime insurance covers things like theft and robbery, and builder’s risk coverage takes care of any damage that might occur to buildings under construction. Bars and nightclubs often have a lot of glass and mirrors in the building, so they might have a type of glass policy that covers any glass breakage on the premises.

Liability Insurance

This type of commercial insurance covers injuries that you or your business might accidentally cause to happen to third parties. For instance, commercial vehicle insurance would cover any cars, trucks, or vans that you might use in your business. Errors and Omissions, or “E & O” insurance, covers any accidental mistakes that cause injury to others. An auto repair shop may have an auto repair policy to cover any mistakes that may happen in the garage that could cause damage to a customer’s vehicle.

There are several types of unique liability coverage. Bars and liquor stores should definitely purchase alcohol liability coverage if it’s not already required by the state. Administrative alcohol liability insurance involves breaking liquor laws – failing to check IDs, selling to a minor, or letting inebriated people keep drinking. Civil liabilities can involve lawsuits from the inebriated or those possibly victimized by the inebriated, and criminal liquor liabilities involve the unfortunate situations where someone receives alcohol from your bar and then injures or kills someone.

Two completely different types of commercial liability insurance include landscaping insurance and technology insurance. Landscaping and gardening companies should protect themselves against any injury from daily hazards in the landscaping business, like tools and equipment, pesticides, and more. Technology policies cover any of the potential liabilities that technology and IT professionals may face in a rapidly changing field.

Businesses Need To Be Insured

If you own a business, chances are you need to purchase some form of commercial insurance to protect yourself and your company. Contact a professional today to find out about the options available.

Why Commercial Insurance?

A business that has a Commercial Package Policy is often a small to mid sized business, or in a more risky line of work. A Commercial Package Policy has many parts of protection, including: Business Auto, Business Property and many more types of commercial insurance. All of the sections of coverage, are very broad and require some clarification. Commercial lines of business are complicated to understand, and to find an insurance company to cover the liability of the commercial policy. As a business, no matter the size, Commercial Insurance is a essential part of the companys safety; there is simply just too much liability to ignore coverage. If the commercial policy is written correctly, a business is protected from all categories of litigation and lawsuits. Companies, are being sued for employee misconduct, negligence, libel or slander, and one lawsuit can bankrupt a company.

Other portions of a Commercial Package Policy shield the company against perils and risks that might be encountered. Business property, autos, or goods are covered under Commercial Auto, Property, Location and Premises and Inland Marine. in the event of a fire, explosion, theft, and other perils. The best thing a business can do for protection is find a knowledgeable and honest Insurance agent. Having an insurance agent that you can depend on is the best way to make sure your business is covered as thoroughly as possible. It is the business owners responsibility to make certain they choose an agent that is going to get them the correct coverage at the right price.