The insurance industry had a record 2006 year. 60 billion dollars in profits were made, which was one of the highest grossing years in industry history. This record return was due in large part to the 2006 hurricane season which was more successful than those of the previous years. Insurance companies were forced to raise their premiums for earthquake and coastal coverage after seeing the damage caused by numerous natural disasters in 2005 and 2004. This resulted in 2006’s profit explosion.
The commercial insurance market has seen capital flood in an attempt to capture future returns. This has resulted in new carriers, new capacities, and other options that are eager to join the action.
Apartment owners are likely to find commercial insurance companies willing to take on your business in order for them to succeed. These carriers are able to grow because of shareholder demand. Commercial insurance carriers will need to enter new industries in order expand. Their only way to grow is by creating new coverage lines. They will need to offer more coverage or lower premiums in order to win your business.
As an apartment owner looking for multifamily insurance, you will get better terms. Carriers must deal with new capital, new carriers and increased market capacity. As any Economics student in their first year can tell, prices will fall if there is less demand than there is supply. With these conditions, prices will fall quickly in this instance.
Buyers are often the last to know the current market status at any given moment. Although most commercial clients only review their policies annually, the market can change rapidly in the interim. Many of the reports generated by large brokerage firms or insurance carriers are incorrect. This results in “sticky” pricing that is on the lower side of the market cycle.
It is crucial to first understand the market with accurate information. This will help you get a good deal on your policy. Unfortunately, not all commercial insurance brokers or agents have sufficient experience in multifamily business to make an accurate assessment of the market. Even the largest brokerage firms that have the required experience and knowledge are just as slow and bloated to react as is the market.
Information on the commercial insurance market is typically sourced from select industry groups and the carrier themselves. Commonly, statements are issued and information distributed six months after what is actually available in the market at that time. Multifamily owners will end up renewing policies at lower rates believing that they are receiving favorable deals. But, in reality, they are losing money.
Multifamily owners can benefit from the oversupply in capital on the market if they have the right knowledge. What might your broker or commercial agent be telling you about common errors and how to avoid them?
- Meet your carriers and choose the right broker. You can get a good deal by working with a broker that is knowledgeable in multifamily insurance. Your chances of getting the best terms are low if you are the only client of your broker. You will be able to manage claims efficiently, learn the latest pricing trends, decide the best time for renewals, and find the best deals by working with a multifamily broker. Your broker can also help you leverage more if they handle large amounts of coverage. It is vital to build a relationship with your carrier. If they are familiar with your expectations and you know them, it will be easier to get favorable terms and occasional favors.
- Make sure you have a strategy for renewing your policy and do it early. If the market is weakening, you might want to cancel your current policy and get one with lower rates. Rates will vary depending on how much you’ve paid in premiums. You could reduce your premiums in the middle of the term, which could release some money that is being held in escrow. This will allow you to have more cash. Consider other timing factors as well, such as if you want to renew before quarter’s end, when carriers are trying to make their numbers, and/or before hurricane hype hits if managing coastal properties. You don’t want to end up with a plan and not be able to renew on time. Last-minute offers can make you feel like a captive and prevent you from shopping around for the best deal.
- Find out the cost of replacement per square foot. Reduce your insured value and replacement costs but not expect lower premiums. Multifamily insurance carriers will run the insurance model on your insurance policy and price it based upon their replacement cost estimates. You could end up paying more for the same coverage if you underestimate your needs.
- Don’t overload your insurance. There are very few chances that your property will be destroyed by a natural catastrophe. You don’t need coverage to cover against this exact event. You are wasting your money by buying coverage in difficult markets. Limits you won’t likely meet will cost you money. You can estimate the amount of coverage you need by planning for a possible maximum loss (PMSL). You can rest easier knowing you have enough coverage and you’re also saving money.
