Close Call: Hurricane Dorian Passes, But Is CRE Ready For The Next Storm?

Excerpted from Bisnow story.

Now that the winds have slowed down and evacuations have stopped, South Floridians agree: unpredictable Dorian was the most annoying hurricane ever. The near-miss should nudge commercial property owners to get ready for the next storm. 

Insurance rates could see a bump following Dorian, said Ryan Cassidy, Franklin Street’s senior director of insurance services. “It’s like gas prices,” he said. “On the commercial side, they look at each other to see what can be charged, and when a catastrophic event happens, [insurers] start jacking the prices.”

In the reinsurance market, rates had fallen for a few years, but because of natural disasters the past two years, rates are expected to rise up to 5% in January, Reuters reports. Standard & Poor’s said rates would likely rise around 5%, while Fitch predicted 1% to 2%. 

For commercial property owners, “the biggest thing is checking their policies, even having an outside agent … review the policy, or even a public adjuster, to see if potential gaps could be present,” 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, 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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