Avoid the Insurance Whirlpool
Many multifamily businesses, which are often very flat, experience a cyclical effect. As the company grows, the management becomes busy and things begin to fall through the cracks. Multifamily insurance costs may start to climb for many reasons. These rising costs can have serious consequences. As the owner of the business, you are required to do more work. This includes shopping for insurance and taking up more time. The industry is known for bidding on its insurance higher than other industries. Your business grows, your time is less available, risk management becomes easier, costs rise, more shopping happens, and so on.
Take these tips on multifamily insurance into consideration to get out of this “insurance whirlpool”.
Make smart choices The world of commercial insurance agencies can be confusing. You will pay twice as much for a poor broker than you would for a good one. It doesn’t matter if you pay a commission or fees, it may surprise many people that a Mercedes is the same price as a Pinto. It can be a time- and cost-savings mistake to choose a full-service agent that you can trust and has industry references. A good broker will help you to prepare proofs of losses, negotiate with the insurance company adjusters, and manage the public adjusters. This will reduce your risk and help you get the highest final loss recovery.
After Hurricane Ivan decimated the Southeast in 2004, my company took on an apartment manager client. After being forced to learn an expensive and difficult lesson, this company came to us. It had accepted a loss recovery of $.60 per dollar without adequate claims advocacy.
Don’t forget who your broker is working for: You. Ask questions. This is an age of transparency. It amazes me how many companies pay both a commission AND a fee. In 2007, my firm found two unscrupulous brokers who were taking an “extra” hidden commission. They were both taking more than $175,000.
You can negotiate everything. My firm manages risk for numerous large real estate portfolios. Many companies have had to pay extra for lender insurance.
Two years ago, we discovered that a multi-family group had purchased $90 million of Florida commercial insurance. Deals such as this can be secretive and rushed. The organization failed to do the required contract review and due diligence. The foreign lender demanded that multifamily insurance be written to cover the entire loan amount in order to collateralize it. This insurance covered the land. It was a huge success that ended up becoming something less than what was originally planned.
Manage your time. Many multifamily companies manage between 500-10,000 apartment units and have one- or two-person commercial insurance agencies managing their insurance. These multifamily companies employ management executives who work a lot more efficiently than a full service commercial insurance agency and charge the same amount as their broker. Have some fun if this is you. Your agent should be contacted and asked to “Please start cleaning Holiday Isles’ pool and collecting rent checks.” Most likely, your agent would reply, “Excuse us?” “We’re an insurance agent.” You can then come back with “Exactly!” Remember why I’m trying to get a claims paid and allocating insurance premiums?
What should your broker do? You should be able to negotiate the best commercial insurance coverage at the most affordable price. It is okay to leave an agency. Upgrade if the agency you have is not performing the tasks it should.
Consolidate, Consolidate, Consolidate. One action that consistently produces decreased insurance costs and better productivity is the consolidation of multifamily insurance policies. It is possible to consolidate all your policies throughout the year in a variety of ways. You will be able to use more of your time for activities that actually earn you money.
Second, consolidating your policies will lower your total premium, while giving you greater leverage with commercial insurers. This will reduce your premium and save you some frictional costs that you might experience with multiple policies. This is particularly important when you manage multiple ownership entities. You may have believed that consolidation was impossible based on past misinformation. Consolidation can be a great option.
Saving your company money is what really matters. Call a professional if you are spending too much time and money on multifamily insurance. The Insurance Whirlpool can help you.
