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Four secrets to lowering your commercial insurance premiums

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 ryan.cassidy@franklinst.com

Garet Marr is a Senior Associate for Franklin Street Insurance Services. He can be reached at garet.marr@franklinst.com

 
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Four Ways to Save Your Commercial Property from Disaster

Franklin Street, a full-service commercial real estate firm, has produced a “2017 Hurricane Preparedness Guide” for commercial property landlords and tenants. Developed by Franklin Street’s property management and insurance experts exclusively for our clients, the guide offers proactive steps to ensure the safety of your tenants and the value of each property.

The 2017 Hurricane Season officially began on June 1st and ends on November 30, 2017. Franklin Street’s guide includes resources for employers and employees such as an emergency preparation and supply checklist, instructions for what to do if a Hurricane Watch or Hurricane Warning has been issued, and contact information to local and federal emergency management offices.

“Now is the ideal time for all employers and employees to prepare and recognize the risks and potential dangers of hurricanes and what to do before, during and after a storm,” said Patrick McGucken, Vice President of Retail Management Services at Franklin Street.

“Property owners need to take the time to review their insurance policies now,” said Lonnie Kitchen, Senior Director for Franklin Street Insurance Services. “Checking to see if you are properly protected after a storm hits is too late.”

Here are four steps you can take to protect your commercial property from disaster.

1. Review property insurance with the company’s insurance agent concerning the hazards of a hurricane.

Even as rebuilding is in progress, building and business owners have learned that insurance policies are works in progress and should be reviewed and clarified regularly, well in advance of any disaster.

2. Preparation for a hurricane should begin as soon as a Hurricane Watch is posted.

When a Hurricane Watch is issued, preparations should be made for a possible facility shutdown and evacuation. Do not wait until a Hurricane Warning is issued, as there may not be enough time to complete all the necessary actions. Any action that can be performed without interrupting ongoing business operations, such as storage of site furniture, should be done immediately.

3. Stockpile the emergency supplies needed in preparation for the hurricane season.

Supplies are essential to sustain you and your employees in the event you are temporarily stranded in the workplace during a storm. Please review the following list of items that will be useful in case this happens:

• Food – stock your office with non-perishable foods such as food bars and dehydrated foods.
• Water – ensure you have a three-day supply of purified water available. It is highly recommended that at least two quarts of water is stocked per day, per employee.
• Emergency Lighting – light sticks, flashlights, flares.
• Batteries – ensure you have a supply of batteries on-hand.
• Medical – ensure you have a First Aid kit on hand that is well-stocked with fresh supplies. It is recommended that the kits are designated to treat earthquake-related injuries such as heavy bleeding and broken bones.
• Blankets – lightweight fire and shock retardant emergency blankets.
• Radios – two-way radios as well as portable transistor radios with an extra supply of batteries.
• Medications – persons on medication should keep a 72-hour supply of such medications in their desk.

4. Keep a list of important phone numbers handy to help you through the emergency.

Make certain your tenants update their emergency contact information with your property management office. Also, make sure your emergency contact list includes these numbers:

Emergency: 911
Federal Disaster Assistance: 1-800-621-FEMA (3362); www.fema.gov
American Red Cross (Evacuation Resources): 1-800-975-7585
Hurricane Helpline: 1-800-227-8676
Finding Loved Ones: 1-877-LOVED-1S

For more information on how to prepare your commercial property for severe weather, visit Franklin Street Management Services. For information on how to protect your business with commercial property insurance, visit Franklin Street Insurance Services.

To learn about specific risks in your area, contact your local emergency management agency.

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Commercial owners can mitigate flood insurance rate hike

The National Flood Insurance Program (NFIP), where most businesses buy coverage, has announced that rates will increase 5.4% in April.  Other changes are coming, many of them tied to sea level rise, observers say. But business and commercial property owners can take actions to mitigate the hit.

“Sea level rise is obviously a real thing and is going to have an impact on rates,” said Douglass A. Jones, partner in the JAG Insurance Group.  “But storm surge is an even bigger issue.”  Low-lying areas are most at risk, he said.

Backed by the Federal Emergency Management Agency, the NFIP was considered the best source for low rates but suffered intense losses from Hurricane Irene and superstorm Sandy, observers say. Private insurance companies, once not major sellers of flood insurance, have become a real alternative.

“the private market was always out there, but people didn’t know about it,” Mr. Jones said.  “Their rates can actually be less than the government’s. They have a diversified book of business; they can write a little bit of everything,” allowing them to recover more quickly from a loss in one area.

But not all insurance agents can or will sell private flood insurance, he said.  “Consumers need to know the options that exist,” he said.  “Go with a larger broker.  Shop around.  Don’t be pigeonholed.”

It’s important to know that bank policy-makers are concerned about sea level rise, he added. Despite the fact that Miami Beach has installed stronger pumps and is raising the streets, at least one bank recently declined to write a 30-year mortgage for a home on North Bay Road, Mr. Jones said.

Consumers should also be aware that the federal government is likely to re-map Miami-Dade County for flood insurance purposes, said Dulce Suarez-Resnick, vice president of NCF Insurance Associates.  The last map was drawn in 2009, and map reviews are usually conducted every 10 to 15 years, she said.

Recent events might prompt more areas to be considered high-risk, she said.  “Though they installed pumps on Miami Beach, when the king tides coincided with the full moon, we still flooded.”

The Biggert-Waters Flood Insurance Reform Act of 2012 “authorized and funded the national mapping program and certain rate increases,” said the NFIP website.

But once it was enacted, rated skyrocketed, Ms. Suarez-Resnick said.  “The industry went to Washington and said, ‘You can’t do this. Homes will become more difficult to sell and more difficult to stay in.’  So they enacted the Homeowner Flood Insurance Affordability Act of 2014,” which lowered some rate increases, and implemented a surcharge. “But,” she said, “business owners are not protected.”

Private insurance, she said, allows owners to add some “bells and whistles” that government coverage doesn’t, including loss of income after an emergency.

Florida property owners deserve a break, she said. Of 5 million flood insurance policies sold in the U.S., 2 million are for property in Florida, and those premiums subsidize damages in states more prone to flooding. “I always knew we were a donor state,” Ms. Suarez-Resnick said. “I think we are THE donor state.”

“We have to start looking at ways to make buildings more resilient,” said Wayne Pathman, a principal of Pathman Lewis LLP. “We have to press government for better solutions. Raising the roads and putting in pumps is not a resilient solution; it’s a mitigation solution. We have to find better ways to disperse water. But because of the uniqueness of South Florida, a lot of solutions are not applicable.”

After disasters like Hurricane Katrina and superstorm Sandy, the federal government “was $25 billion to $27 billion in the red, and rates are going to rise significantly,” said Mr. Pathman, who is chairman of the Mimi Beach Chamber of Commerce and chair of Miami’s Sea Level Rise Committee. When the Biggert-Waters Act removed subsidies, some policyholders saw their rates increase 500%, he said.

”Infrastructure is the responsibility of the city, county and state, but people should be concerned with what they can do for their own properties,” he said. While the federal government relies on maps to determine flood risk, private insurers deal with each property on an individual basis, he explained. “They look to the owner to reduce risk.”

Owners should make sure their elevation certificates are accurate “especially if their rates are very high,” said Ryan Cassidy, Franklin Street senior director of insurance services. “It’s important to look into that.”

They can also hire an insurance consultant to help make their buildings more flood-resistant and to scrutinize other aspects of their insurance picture. “Our agency works with a few,” he said. Consultants can question whether a property is, indeed, in a flood zone “and sometimes get an amendment that pulls them out of a flood zone.”

And a consultant can help with the decision to stay in the government program or use a private carrier, “which are now more aggressive,” Mr. Cassidy said.

 
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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, GlobeSt.com 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.

GlobeSt.com: 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.

GlobeSt.com: 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.

GlobeSt.com: 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.

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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, GlobeSt.com 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.

GlobeSt.com: 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.

GlobeSt.com: 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.

GlobeSt.com: 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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Hurricane Lawyers and CPAs: Be Ready for the Storm

Just because there are only four named hurricanes predicted for the 2016 hurricane season doesn’t mean commercial real estate owners can breathe easy.

The Weather Research Center estimates there’s a 70 percent chance a named storm will make landfall along Florida’s Gulf Coast this year—and that’s just taking into account the named storms. Tropical weather systems without a name can arise without much warning.

“Our Cyclone Strike Index provides forecasts of the most probable landfall of where a tropical cyclone will occur during the 2016 Atlantic Hurricane Season,” said Jill Hasling, president of the Weather Research Center. “The west coast of Florida and Texas coastal areas have the highest risk of being impacted this year. And of key importance is that the Gulf of Mexico oil leases have a 90 percent chance of experiencing a named tropical cyclone.”

With these dire warnings in mind, GlobeSt.com, an ALM affiliate of the Daily Business Review, reached out to “hurricane lawyers” and accountants to get strategic advice for commercial real estate owners facing the possibility of massive storm damage. The key questions: What should you do before and after the storm?

David White, an attorney at Thompson & Knight in Dallas, said lawyers should review a client’s policies long before a storm hits to make sure the most likely risks are covered.

“Those risks include physical damage to the property and equipment; business interruption to cover lost profits while the company is getting back to normal operations; contingent business interruption or ‘service interruption’ if the company is shut down because utilities are cut off or crucial suppliers are interrupted,” White said. “Also ‘law and ordinance’ coverage if civil authorities order evacuation or restrict access to the property.”

Ryan Cassidy, a senior director at Franklin Street Insurance Services, said a property owner could be left paying a huge out-of-pocket expense without law and ordinance coverage.

“If a building was built in the ’70s and there have been multiple building code changes since then, there is potential for a total loss to leave the owner coming up short,”Cassidy said. “In this scenario, the insurance company would only pay for the cost to replace the old building to 1970 standards. However, it now needs to be built to 2016 standards, which leaves a large gap in coverage and oftentimes means hundreds of thousands of dollars of out-of-pocket expenses.”

All policies impose certain responsibilities on an insured in the event of a loss such as providing prompt notice, showing the damaged property and mitigating the damage, said attorney Gina Clausen Lozier, a Boca Raton associate with Berger Singerman and member of the firm’s dispute resolution team.

“Failing to comply with any one of these responsibilities can prejudice an insureds right to recovery,” she stressed. “It is crucial for a business owner to be familiar with the specific obligations of the insurance policy to avoid jeopardizing a claim from the outset and consulting with an insurance attorney can provide business owners with a roadmap for handling the initial claim stages.”

What about after a hurricane strikes? That’s when attorneys step in and help expedite a claim decision and avoid delay. Michael J. Higer, a Miami partner with Berger Singerman and a member of the firm’s dispute resolution team, said attorneys can also assist in compiling documents responsive to an insurance company’s request to make sure claim forms are submitted properly, as well as working with the insurance company to obtain advanced payment to resume operations as soon as possible following a hurricane.

“Additionally,” he said, “if the insurance company denies or underpays the claim, an insurance attorney can advise of the available remedies to seek proper coverage and compensation for an insured’s losses.”

Money-Saving Advice

CPAs play a role in helping commercial real estate owners weather storms. Amy Landry, a loss control engineer at Risk Strategies Co., said accountants can help clients make sure the values insured for each building are sufficient to replace the property in today’s construction cost environment.

“Accountants can review rental income and time element exposures and values to ensure their property policy reflects current and projected budgets,” Landry said. “Accountants may look to include extended period of indemnity coverage in the property policy that covers a reduction in income for an extended period of time even after damaged property has been repaired or replaced.”

Landry also points to client relations as part of the equation. Accountants can assess any customer and supplier contingencies that may impact the revenue stream even if an owner’s or developer’s property is not damaged or destroyed.

“One thing accountants could advise is to have a reserve fund,” said Mary Ann Jordan, a senior analyst of risk management at Transwestern. “Even with insurance, expenses relating to a hurricane can be staggering. Deductibles are high and exclusions are plentiful. The claims adjustment process could take a long time, so having cash on hand is a prudent idea.”

Landry recommends having a pre-loss contract with a forensic accountant who will be able to immediately help owners and developers measure their property damage and time element losses and provide the insurance company with records and documents to support their claim to accelerate the claims payment process.

“Include in the property policy a designated adjuster to handle all property damage claims for a developer or owner,” Landry said. “Adjusters are going to be in high demand in the event of a catastrophic event so it is prudent to make pre-loss arrangements to have one ready to hit the ground when disaster strikes. Advise owners and developers to carry enough contingent cash on their books to protect against uninsured loss.”

 

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Hurricane-free insurance market offers commercial bargains

As the years roll by without a hurricane, the already soft commercial insurance market continues to liquefy, offering bargains to those who are willing to shop, observers say.  

Rates are at 10-year lows, said Gary Reshefsky, a principal at Century Risk Advisors, a full-service agency with offices in Coral Gables and Boca Raton.

“The leading type of insurance that drives our local economy is property insurance, and in this soft market you can negotiate very favorable terms and conditions for your clients.”

Part of the reason is the hurricane-free years since Katrina and Wilma, but the entrance of new players into the market has also had an impact, he said. 

“In the past 12 months, there’s been an infusion of non-traditional capital into insurance companies, and that has caused rates to go down even more,” he said.  Institutional investors such as pension funds are attracted to insurance companies as “short-tail” propositions that prove to be favorable investments – or not – within a year or so. 

They’re looking for a quick return and they are investing in catastrophic insurance now because they are not able to get the return in other places,” Mr. Reshefsky said. 

Even if hurricane does hit South Florida, he doesn’t see institutional investors fleeing the state, as they have recognized a good investment opportunity, he added. 

Meanwhile, on the flood insurance front, some are still waiting for the other shoe to drop on last year’s changes to requirements for commercial properties.

Beginning in April 2015, the federal government – which up until then had been the primary provided for flood insurance – introduced a per-policy fee of $250, a $45 surcharge, a 15% fee to build up reserve and a 15% fee to build up reserve and a 15% across-the-board rate hike.  In addition, it raised the required limits, which used to be $250,000, to $500,000.  And while the government can’t force anyone to carry flood insurance, lenders can, said Ryan Cassidy, senior director of Franklin StreetInsurance Services.

“Lenders who did not catch the changes last year can require clients to carry the highest limits, which will automatically increase the premiums,” he said recently.  “We expect a lot of people to get caught with it this year or the year following.”

Insurance policies are renewed yearly, but sometimes lenders don’t notice the changes until they audit the files, he explained.  

Rates are rising, he said. “I’m seeing a trend in the upwards direction, up to a more reasonable number to protect what’s really an overleverages market.”

The payouts after Superstorm Sandy in 2012 were extreme, Mr. Cassidy said, and lenders don’t require flood insurance everywhere, so the burden was strongly felt in the areas most likely to get hit, including the Atlantic coastline.

With rates on the rise and money to be made, private companies are getting into the flood insurance business, he added.  “They are coming out of the woodwork, now that premiums are going up.”

Private companies entering what has historically been a government-run marketplace is good news for businesses that need coverage, Mr. Reshefsky said. 

“A lot of companies are now writing primary flood insurance, which is a new development,” he said.  “We can negotiate better terms and conditions.”

For instance, traditionally the owner had to assume the first 5% of flood losses as a deductible, but now that competition has heated up, in some cases that deductible can be negotiated down to 1% and the insured will still pay the same premium. 

Nevertheless, some insurers, he said, will always wary of doing business in South Florida.  “They’re afraid of Miami” because of the area’s reputation for excessive litigation. “We are at a bit of disadvantage there.”

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CRE Owners Shouldn’t Skimp in Insurance This Year

MIAMI—The Atlantic Basin experiences on the average 11 to 12 named storms, six hurricanes and three major hurricanes, according to Global Weather Oscillations (GWO), a hurricane cycle prediction company. The firm predicts the 2015 hurricane season to be a little above average and more dangerous, with 14 named storms, eight hurricanes and three major hurricanes.

This may not the best year to bet on high-deductibles on your hurricane insurance. GlobeSt.com turned to Evan Seacat, senior director at Franklin Street Insurance Services in South Florida, for some wisdom in reviewing your insurance policies before a storm strikes in part two of this exclusive interview. You can still read part one: What CRE Owners Need to Know This Hurricane Season.

GlobeSt.com: When building owners or managers sit down to review their policies, what should they consider?

Seacat: First, they should look at the deductible per building. A 5% deductible is the most common, but some carriers offer a 3% option.

Is it worthwhile to pay a higher premium but less out of pocket when a hurricane hits? That depends. Let’s say a building is worth $10 million. The deductible will be $200,000 less with the lower percentage figure.

What would it cost to upgrade the building after a storm rips through it? Based on that estimate, amortize the difference in the premiums over the number of years without a major storm. If an owner had the lower deductible just before the major storms of 2004 and 2005, he or she would come out ahead.

We haven’t had a major storm in 10 years, so many owners saved money with the higher deductible. But who knows when our good fortune will end. Second, if the property hasn’t had an appraisal in a number of years, order one and use that figure to update the policy. Prices are going up, and the estimated value on the policy may be too low.

GlobeSt.com: Speaking of rising values, multi-family properties are hot. What should owners be doing about those?

Seacat: They should tell tenants to get coverage for their personal property. A lot of people don’t realize that if a storm tears off the roof or blows out the windows, they are responsible for the contents of their apartments. The landlord will not be replacing their big-screen TVs, sofas, beds and personal items. Renters’ insurance is cost-effective and offered by most car insurance companies. Everyone should have it.

 

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What CRE Owners Need to Know This Hurricane Season

MIAMI—Hurricane season is right around the corner and forecasters are predicting the most active and dangerous spell in three years. The next three years of the 2015 Atlantic Basin, in fact, will be the most dangerous in 10 years, according to Global Weather Oscillations (GWO), a hurricane cycle prediction company.

While hostile upper atmospheric winds that suppressed tropical activity the past two hurricane seasons—2013 and 2014—GWO predicts the next few years will enter a natural “Climate Pulse Enhancement Cycle” that will be favorable for more active and intense hurricane seasons. What does that mean for commercial real estate owners?

GlobeSt.com caught up with Evan Seacat, senior director at Franklin Street Insurance Services in South Florida, to get some answers. In part one of this exclusive interview we asked him how policy owners tend to put themselves at risk and how building owners can take a hit during a storm.

GlobeSt.com: What do policyholders tend to omit from their coverage and how are they putting themselves at risk?

Seacat: What I see most often is that building owners and managers don’t take loss of rents coverage. They do not want the added premium.

If there’s hurricane damage to the property, they expect to relocate tenants, but keep them on the property and paying rent. That’s a hope, not a plan. If a major storm rips the roof off a building, tenants will have to move. During that time, the property will generate no rental income.

Loss of rent coverage protects against that occurrence. It has a deductible based on a percentage of the property’s value. Almost all lenders will require the coverage. I suggest keeping it even after the mortgage is paid in full. And if the policy is from Citizens, the owner will have to buy coverage from another insurer as Citizens does not offer that particular coverage.

GlobeSt.com: How else can a building owner or manager take a financial hit from a storm?

Seacat: By not having proper Law and Ordinance coverage. Almost all lenders require it for re-financings and new purchases. But it may not be part of an older policy.

Law and Ordinance coverage applies when a building experiences extensive damage, the kind that a hurricane can cause. The law says that when more than half of the property is damaged, the property must be rebuilt to current code.

That becomes expensive for buildings from 1970s and earlier that don’t have the safety equipment that’s required today. The older the building, the more expensive the upgrade; Law and Ordinance coverage pays for that expense.

 
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My view: Storms are coming: Are you ready if one hits your building?

Commercial real estate owners in South Florida have been very fortunate over the past eight hurricane seasons. One year, maybe this one, their luck will run out and damage from a major storm will force them to file insurance claims. Before that happens, a building owner needs answers to two questions: Is my property and casualty policy in order? And, am I getting the most for my money?


The answers don’t involve shopping around for a new policy; that time-consuming process could bring only a temporary reduction in your premium, and you could still miss out on savings. Your time is better spent reviewing your properties and policies. That effort could produce a huge reduction on your property and casualty premium and avoid costly surprises when you do file claims.

Here’s what to look for:

Are you getting all the windstorm mitigation credits you deserve?
The credits are based on a number of factors such as location, when your building was completed, when and how your roof was constructed, and window protections. Start by obtaining a building inspection, which is cheap compared to the potential savings. Compare the report to what you have on file with the insurer. A property owner in North Miami lost 10 years’ worth of savings because he did not conduct an inspection and correct the windstorm mitigations on his properties. After our company updated his policy, he saved nearly $150,000 in one year by providing his insurer with the correct information on his portfolio. You might enjoy a similar pleasant surprise if your policy is with Citizens Property Insurance Corp. It can provide up to 65 percent in savings based on the findings of a wind mitigation report.

Is your building insured for what it’s worth today?
Property values suffered during the Great Recession, but they are recovering. Some sub-markets, such as the Design District and Wynwood in Miami, are hot, with some properties doubling and tripling in price. If you’re not insured to the correct value at the time of loss, an insurance carrier can deny your claim or penalize you for being underinsured. That will be displeasing to you and your lender. The remedy: Look at your current cost per square foot. If that figure is over $130 per square foot, it’s probably time to order a new appraisal. We are seeing concrete buildings that qualify as fire resistive being appraised for $95-$100 per square foot and wood-roof buildings in the $80-$90 square-foot range. That’s probably too low.

Are the records on your building construction accurate?
Get your facts wrong, and your insurance company could deny your claim. You’d be surprised to learn that we regularly find buildings listed as having floors and roofs made of combustible materials and having concealed spaces as being fire resistive. We have found that about one in every 10 properties is rated incorrectly. You can save money today on your premium by having a higher rating on your building than it deserves, but when a major storm hits, expect the insurance company to penalize you for providing inaccurate information when you applied for coverage.

What’s the right deductible?
Most property owners look for a low deductible so the insurance carrier bears the brunt of the cost of repairing a building damaged by a hurricane. However, that low figure comes with a higher premium. If you are looking for savings today, consider increasing your hurricane and other peril deductibles. Be sure to consult your lender; it may way to weigh in on how much risk it’s comfortable with you assuming.

Evan Seacat is a director of Franklin Street Insurance Services and is based in Miami. 

Read more here: http://www.miamiherald.com/2014/05/11/4108952/my-view-storms-are-coming-are.html#storylink=cpy