Based on the recent hurricane activities and other coastal disasters over the past couple years, it is no secret that an increase in 2018 insurance premium is coming. These disasters have also led to insurance carriers shelling out billions of dollars in losses across the country at a higher rate then normal.
Even if your assets were not directly affected by these losses, you are likely to be part of this premium increase. We have seen the carriers get creative with this increase by raising deductibles, premiums, or even taking out important coverages all together.
We are through the first quarter of 2018 and what we have been noticing is that several owners are still not insured through the correct competitive program for their type of assets. Our insurance services team often meets new clients who do not realize that they could be saving significantly on their premiums without sacrificing coverage. Here are four things you may not know about how to find quality, affordable coverage for your commercial real estate assets.
1. Use Master Policy Programs
Commercial owners can still find coverage, but it is often too expensive. Franklin Street is among the firms that have developed proprietary master policy layered programs that can save property owners thousands of dollars both regionally and nationally while still meeting all lender requirements. Our success in processing Hurricane Irma claims showed that our insurance coverages are solid, giving credence to the validity of these programs.
Exclusive programs can include coverage for Commercial Excess Flood that may be required by the lender, especially Fannie and Freddie loans. Recently, it has become increasingly difficult to obtain waivers for excess flood coverage, which can put an undue burden on commercial property investors and owners.
For example, Franklin Street recently was successful in negotiating a very difficult flood placement for an asset that one of our clients was seeking to acquire. The asset was classified in a Velocity Flood zone and insurance had become an unforeseen hurdle in their transaction. This office was built over small water retention ponds, which was part of a green cooling system, thus making it ineligible for National Flood Insurance Program flood coverage
The previous owner had a large national presence, so insurance costs had stayed lower due to their buying power. Once we worked this account up for pricing and the flood costs/issues arose, our client asked us to do whatever we could to make this deal work. The extremely expensive flood costs were threatening to keep the deal from closing. Fortunately, our team was successful in qualifying the property to receive government credits to lower the costs for the new owner and the transaction was completed.
2. Find Hidden Market Savings
About 35 percent of all U.S. commercial insurance policies are placed via the Lloyd’s of London insurance market in England. Property owners should seek out brokers that have direct access to Lloyd’s of London and the exclusive programs they can offer. Franklin Street has a facility set up in London that lets us access the underwriters directly to secure the best pricing available for clients while avoiding the hassles and expense of dealing with multiple middle men.
Outside of our proprietary master programs and the Lloyd’s program, there is no silver bullet out there in terms of reducing your costs in the marketplace. We believe the hidden savings can be achieved through a combination of working with a specialist, and a commitment from the owner to provide detailed information showing insurance companies they care about the quality and safety of their assets.
3. Keep Detailed Records
Despite the prospect of saving tens of thousands of dollars, some property owners balk at assigning a person to search through their records and put together the detailed information needed. They may hear a story of other owners who have saved money but they think that it is unlikely to happen for them in the same way.
Detailed record keeping can take time, but it’s straightforward and work that’s well worth the investment. The agent will review the claims history and check the status of current claims. That person will also ask for records that show risks have been reduced.
Some carriers will demand extensive records. Others will accept a very good client profile. Having more information for the carrier to look at will put the owner and agent in a superior negotiating position.
A strong client profile will affect more than the premium. It could mean better deductible options, removals of exclusions that negatively affect the client, or many other coverage improvements. A good client profile can mean the difference between a carrier agreeing to write a policy or the properties becoming uninsurable.
Sometimes there are programs that can insure properties that may have a rough claims history. Franklin Street has multiple programs for multifamily properties that are exclusive to their agency and help clients to insure their properties at the lender required coverages. Along with meeting Fannie Mae and Freddie Mac requirements, these programs include terrorism, equipment breakdown, ordinance or law coverage, and agreed value in lieu of co-insurance.
4. Avoid Using Too Many Brokers
Most recently, we have seen a demand for more detailed information in the marketplace. This includes detailed construction info, capital improvements, claims history, claims handling, risk management procedures, etc. We urge all the owners we work with to invest time upfront to provide the necessary data so we can deliver the best solution for their assets.
Now more than ever, it is vital to work with a broker that specializes in real estate. Insurance companies have been tightening their requirements, which has led to multiple carriers exiting the multifamily insurance market. However, the most important issue in our minds is the competition among insurance brokers.
A common misconception about insurance shopping is the need to work with several brokers. While at the surface it seems logical to bring in three or even four brokers, it does not lead to the most favorable results. As we mentioned above, the real estate marketplace (especially multifamily) is a small space. Working with several brokers will significantly lower the chances of you receiving the best combination of pricing/terms for all needed lines of coverage (Property, General Liability, Umbrella, etc).
Our recommendation is to a closer look at the experience, knowledge, and services your insurance broker brings to the table. This will ensure you are represented by the most qualified broker in the marketplace.
Ryan Cassidy is a Senior Director for Franklin Street Insurance Services. He can be reached at [email protected].
Garet Marr is a Senior Associate for Franklin Street Insurance Services. He can be reached at [email protected].
