Insurance Lessons from Hurricane Irma

Insurance coverage is top of mind for Florida’s commercial property owners following the damage left from Hurricane Irma. Building owners had rushed to review their policies to determine whether they had adequate insurance coverage in place in preparation for the storm.

Tom Kersting, president of the insurance services division of Franklin Street, and Nancy Sheinberg, vice president of insurance services, discussed how insurance providers are helping property owners navigate their Irma policy claims.

What pre-hurricane steps did your team take to help expedite the claims process?

Kersting: We spent several days on the front end of Irma communicating with our clients, pushing out proactive risk management tips, encouraging them to review coverages and make sure they had their policies readily available post-storm. This information is provided when our clients bind policies, but it becomes important to “refresh” as a major storm approaches. This year we also developed a variety of digital tools so clients can easily get in touch with us and report claims if they have one.

Sheinberg: What we did before the storm really made a big difference. An emergency claims phone system was set up so clients were getting a call back within minutes of submitting a claim. Franklin Street has also developed a proprietary master policy layered program that can save property owners thousands of dollars both regionally and nationally, while meeting all lender requirements. Hurricane Irma is showing that our insurance coverages are solid, so it gives credence to the program.

What type of insurance claims are you getting most frequently? 

What we’re seeing most are trees down and roof damage from fallen trees or water leakage. But we still have many clients in South Florida who haven’t been able to get to their properties to inspect the damage.

Kersting: Much of the damage that has been reported to us has been to our multifamily properties.  Often multifamily assets are wood-framed buildings that are generally not as protected as office buildings.

The majority of our claims are coming from the east side of the state. We still expect more claims to come in, at this point some owners haven’t been able to visit their properties yet. This is especially the case with out-of-town owners who may have difficulty getting access for a few more days. In other cases, it’s common for owners to be aware of damage but they haven’t decided yet if they want to report a claim or go about funding repairs themselves. 

What are some important lessons learned from Hurricane Irma?

Kersting: From an insurance stand point, there haven’t been major insurance claims incidents in Florida for over 10 years. An event like Hurricane Irma makes policy holders reevaluate their insurance coverage and take a hard look at their deductible levels. These are conversations that need to be had, we don’t want our clients to be surprised in a time that they turn to their insurance carrier for help.  We continuously push to educate our clients about their coverage options and show them how their insurance policy will be a valuable tool to protect their balance sheet, not simply an expense burden that appeases a lender. This is what Franklin Street Insurance has been doing for 10 years and what we will continue to do.


What To Do About Insurance Sticker Shock

Owners and buyers of multifamily housing are experiencing sticker shock when they refinance, sell or purchase properties. Insurance premiums have jumped as much as 25% because of the broadened insurance requirements set forth by lenders. caught up with Ryan Cassidy and Evan Seacat, both senior directors at Franklin Street Insurance Services, for a deeper understanding of why lenders have changed their standards and what owners and buyers can expect in part one of this exclusive interview. Stay tuned or part two, in which the duo will discuss how changing lender practices have impacted the market.

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Property Insurance Forecast for 2017: Reinsurance Front Keeps Clouds Away

As commercial property owners renew their insurance programs in 2017, they’ll be pleasantly surprised to see their property premiums continue to decrease. Those owners can thank favorable meteorological and financial conditions for their good fortune.

Florida hasn’t been hit by a major hurricane in more than a decade. Hurricane Matthew skirted much of Florida’s coast, ultimately reeking damage and disruption in Jacksonville, but overall, had a relatively small impact on the state and the insurance industry as a whole. Insurers have enjoyed the good weather, which has attracted more competitors to the state at the primary and reinsurance levels, while better technology and predictive modeling have driven property catastrophe (CAT) coverage closer to a commodity, making it difficult for existing carriers to firm up rates, let alone drive increases.

Weathering the Storm

Even if we were to experience major storms in 2017, the effects of any jolt would be contained. As carriers begin the new year with significant surplus in their coffers and the January treaty renewals wrapping up, initial reports point to another year of declining reinsurance costs. For carriers, the cost of capital has declined materially for years and their ability to strike a better deal has cascaded down to property insurance buyers.

Alternative capital, which for some time has disrupted the reinsurance industry, has in recent years become available directly to property insurance buyers through regulated carriers and products. These new capital sources offer cost advantages over their more senior competitors, as they aren’t building robust internal distribution salesforces, regional offices or policy execution infrastructure, as was the traditional model for the existing carriers with legacy infrastructure.

Real estate owners and managers seeking to decrease their insurance operating expenses will best leverage these conditions by finding an insurance broker that specializes in commercial real estate properties. These niche brokers communicate daily with the wholesalers and hot managing general agent (MGA) programs to gain access to products and capacity provided by emerging capital sources.

With the right help, owners can find new, private companies that: 1.) aren’t burdened by legacy claims, 2.) are aggressive about growing market share, 3.) have a higher risk tolerance than publicly traded companies and 4.) have investors waiting in line to park their cash in the industry.

The market was very different a decade ago when we had very few dominant players competing on a primary basis for catastrophic exposed risks, commonly referred to as “wind coverage” in Florida. The number of companies with an appetite for wind coverage has doubled today. And for larger CAT-exposed property portfolios, as many as 40 carriers will compete for an excess layer of risk in a shared tower program.

Coverage from Reinsurers

Reinsurance carriers, which backstop the primary market, have a similar predicament. Insurance carriers turn to reinsurance markets to transfer some of their exposure in the same way property owners do. Solid performance and years of historically low interest rates have steered capital into reinsurance firms, where returns are stable. During the past several years, capital has poured into the reinsurance space, where investors are seeking higher yields than that available on treasuries and similar investments. Other factors, such as trends toward greater retentions, more accurate modeling, new regulations, industry consolidation and technology, have all compounded to challenge the market’s desire for rate stabilization.

In a market long on cash and short on claims, the capacity of reinsurers has grown, while the amount of reinsurance purchased by primary carriers — due to their own surpluses — has reduced. Further compounding the already competitive environment, mechanisms now exist which allow the capital markets to more easily enter the markets quickly. Consistent with some opinions that the current conditions are the “new norm,” it’s possible that when a hint of rate increase is felt, it will be quickly undercut by new entrants, looking to capture market share and willing to put their capital to work, for less. This trend will continue, likely until a market surprise of sorts, making people think twice about investing in the industry.

On the Horizon

What could cloud these conditions? One possibility would be a storm or series of storms that prove worse than predicted, resulting in industry total losses that exceed projections from forecasted catastrophe models. For instance, reinsurers would remain calm if claims reached into the hundreds of millions of dollars, so long as the total loss fell within an acceptable range from what was modeled. Again, the capacity exists to absorb great losses, and in this case, the fundamental underwriting and exposure modeling would be shown to be sound. However, the market could be buffeted by a storm that caused $100 million in damage when just $30 million was expected.

This scenario could cause some doubt or lack of confidence in the way catastrophes are modeled and lead carriers to question whether exposures are adequately priced. Higher interest rates, which have been expected from the Federal Reserve for some time, could slow the rate at which capital flows to the reinsurance markets, which long-term could have an effect on industry surplus. However, in the short-term, incremental interest rate increases would have little impact on the property insurance rates proposed in owners’ upcoming renewals.

The question today is what to do with the savings. Should a property owner or manager send the savings to the bottom line? Or should they maintain the premium figure and tweak sublimits and deductibles?

The answer depends in large part on the insured’s risk profile and capital position. How much does an owner or manager want to pay out of pocket? Higher sublimits and lower deductibles will lessen cash demands should a property sustain even minor damage. And if a major hurricane hits, owners and managers can rest easier knowing that the cash demands will be tempered by better coverage.

— By Tom Kersting, president of Insurance Services for Franklin Street. Tom can be reached at


Is This Key Coverage Missing From Your Insurance?

MIAMI—The first hurricane to hit Florida in nearly 11 years could rise up this weekend. Known only as 99L, there’s a 60% chance a storm system in the Atlantic could develop into a tropical storm named Hermine.

With that in mind, caught up with Evan Seacat, a senior director atFranklin Street, to get his take on what commercial real estate owners need to know in part two of this exclusive interview. You can still read part one: Why Some CRE Owners Are Skipping Hurricane Insurance. What kind of coverage and conditions do lenders place on the hurricane policies they require property owners to have? Given that not all lenders have the same requirements, does it pay to shop lenders and insurers at the same time?

Seacat: While I am not a capital/lending specialist, experience has shown me that it’s advantageous to look at lenders and their specific insurance requirements. Some lenders are more thorough with their requirements. When do insurers usually stop writing policies? Is it enough to call an agent and get a “yes” from that person?

Seacat: Coverage cannot be bound, altered or amended through an e-mail or voicemail. A client must speak directly with a representative of its respective agency to ensure any and all issues are handled.

When a storm gets within a certain area of the coast of Florida, all insurance carriers will put a compulsory restriction on new business being bound. Please keep in mind that at renewal of a policy, the premium must be in the hands of the current insurance carrier before this restriction occurs. Specific binding restrictions vary by carrier. Let’s say a storm damages a building so badly that repairs or replacement will require bringing the building up to current code. Is that covered under a hurricane policy?

Seacat: No. Owners need law-and-ordinance coverage.

Older buildings that are damaged might need electrical, heating, air-conditioning, plumbing, or additional updates based on current city codes. Most areas have ordinances that require a building to be demolished and rebuilt in accordance with current building codes rather than simply being repaired.

The extent of damage is typically 50%. Law-and-ordinance coverage provides coverage for: loss of the undamaged portion of the building; cost of demolishing that undamaged portion of the building; and the increased cost of rebuilding the entire structure in accordance with any and all building codes.


Why Some CRE Owners Are Skipping Hurricane Insurance

MIAMI—The National Hurricane Center on Tuesday issued a warning. There’s a weather system in the Atlanta ocean and 50-50 chance it will turn into a tropical cyclone. That could eventually turn into a full-blown hurricane and threaten Florida.

Against that backdrop, caught up with Evan Seacat, a senior director at Franklin Street, to get his take on what commercial real estate owners need to know in part one of this exclusive interview. Stay tuned tomorrow for part two, in which he will discuss when insurers usually stop writing policies and other issues you need to understand. Property owners may be getting complacent because we haven’t had a major storm since 2005. What aren’t they most likely to be overlooking or forgetting?

Seacat: With no hurricane to hit South Florida in the past 10-plus years, we are starting to see more and more clients self-insure for windstorm-hurricane insurance. If no lender is involved, companies are more willing to take the risk that they’ll lose 100% of the property. They are also not insuring coverages that we feel are extremely valuable and important: loss of rental income with windstorm insurance and law-and-ordinance coverage. What in their corporate finances needs attention, given that windstorm policies never cover 100 percent of the damage and exclude items such as landscaping?

Seacat: Most windstorm policies in South Florida have either a 3% or 5% deductible. An owner with a $10 million building will pay out of pocket either $300,000 or $500,000 before the insurance policy kicks in.

We always recommend to our clients, “Be prepared for this. Have a reserve fund set aside in this instance.” This region has been extremely fortunate to see storms pass by our region, but that luck is going to run out and we need to start getting prepared. When shopping windstorm insurance, what should property owners be looking for in terms of deductibles and loss of rental income coverage?

Seacat: Insurance companies charge a higher premium for the lower of the two deductibles, but, in the event of a claim, the out-of-pocket expense is lower. Property owners should shop both deductibles to determine which best fits their budgets now and when a storm hits.

Many companies self-insure the loss of rental income. This is a huge risk.

If a hurricane displaces half of the tenants of an office, retail, or industrial center, the owner loses rental income for the two or three months before they can return. Property owners with coverage for lost rent should review the policy with their current insurance agents to ensure it is there. A lot of times an owner will have loss of rental income coverage but it will be special form excluding windstorm insurance. Now is the time to check, while storms are far at sea and weak.

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