| 2006 was a record year for the insurance industry. | | | | that multifamily owners end up renewing their policies |
| $60 billion in profits were recorded, one of the | | | | at lower rates thinking that they are getting |
| industry's highest grossing years in history. A primary | | | | favorable deals; however, the reality is that they are |
| contributing factor to these record returns was a | | | | leaving money on the table. |
| 2006 hurricane season that was uneventful in | | | | The oversupply of capital in the marketplace favors |
| comparison to the few years that preceded it. In | | | | multifamily owners, if they are armed with the |
| contrast, insurance companies had been compelled to | | | | knowledge to take advantage. What might your |
| raise premiums for coastal and earthquake insurance | | | | commercial insurance agent or broker not be telling |
| after witnessing the damaging impact of numerous | | | | you that he or she should be to avoid common |
| hurricanes and other natural disasters in 2004 and | | | | errors? |
| 2005. This shift resulted in the profit windfall of 2006. | | | | 1. Choose the right broker and meet your carriers. |
| Subsequently, the commercial insurance market has | | | | Working with a broker who is an expert in multifamily |
| been flooded with capital looking to get a piece of | | | | insurance, and who works with multiple properties, |
| future returns. This has created new carriers, new | | | | can ensure you are getting a favorable deal. If you |
| capacity, and alternatives that are itching to get in on | | | | are your broker's only client, the chances that you |
| the action. | | | | are getting the best terms possible are slim. Working |
| For apartment owners, the result is that commercial | | | | with an experienced multifamily broker who is backed |
| insurance carriers will be stepping over themselves to | | | | by a solid team will allow you to efficiently manage |
| win your business. Growth for these carriers is | | | | claims, know the latest trends in pricing, understand |
| imperative, thanks to shareholder demand, despite | | | | the best timing for a renewal, and know which |
| the impossibility of them maintaining the record profit | | | | carriers offer the best deals. Plus, if your broker |
| pace of 2006 or the inflated premiums for another | | | | handles large dollar amounts worth of coverage, he |
| year. To expand, these commercial insurance carriers | | | | or she can exercise more leverage on your behalf. |
| will be forced to enter industries that may have | | | | Having a relationship with your carrier is important as |
| previously been considered too risky. Writing new | | | | well; if they know your expectations and know you, |
| lines of coverage is their only way to grow. To win | | | | garnering favorable terms and the occasional favor |
| your business, they will have to increase coverage or | | | | will be much more likely. |
| lower premiums to undercut the competition. | | | | 2. Have a renewal strategy and renew early. If the |
| The end result is that you, as an apartment owner | | | | market softens, you may want to cancel a current |
| seeking multifamily insurance, will win with more | | | | policy and grab one that gives you lower rates, |
| favorable insurance terms. The carriers have to deal | | | | depending on how much you have already paid in |
| with the influx of new capital, new carriers, and new | | | | premiums. Lowering premiums mid-term could also |
| capacity in the marketplace. Any first year Economics | | | | release money being held in escrow, freeing up more |
| student can tell us that when demand stays constant | | | | cash for you. In addition, consider other timing |
| but supply increases, prices are going to drop. In this | | | | factors such as planning to renew near quarter's end |
| case, with these particular conditions in the | | | | when carriers are looking to make their numbers, or |
| commercial insurance market, the prices will be falling | | | | before hurricane hype sets in if you manage coastal |
| quickly. | | | | properties. The last thing you want to do is not have |
| Unfortunately, buyers are usually the last ones to | | | | a strategy and end up renewing too late. You may |
| know where the market stands at any particular | | | | be held hostage by last-minute quotes, and not give |
| point in time. Most commercial insurance clients only | | | | yourself enough time to shop your business in the |
| review their policies once each year, but the market | | | | market for the best deal. |
| can change significantly in the interim. Additionally, | | | | 3. Know your replacement cost per square foot. You |
| many of the reports that are generated by the large | | | | cannot simply reduce your insured valued or |
| brokerage firms and insurance carriers are inaccurate. | | | | replacement costs with the expectation that it will |
| This creates "sticky" pricing on the downward side of | | | | result in lower premiums. Most multifamily insurance |
| the market cycle. | | | | carriers will run your insurance schedule through their |
| Understanding the market, with a foundation of | | | | own model and then price you based on their |
| accurate information as a basis for that | | | | replacement cost estimates. If you underestimate |
| understanding, is an imperative first step towards | | | | yours, you could wind up paying the same price for |
| getting a good deal on a policy. Many commercial | | | | less coverage. |
| insurance brokers and agents, however, do not have | | | | 4. Do not over-insure. The odds of every property |
| enough experience in the multifamily insurance | | | | you own being decimated by a natural disaster are |
| business to accurately assess the market. Even some | | | | small. Why buy coverage to protect against that |
| of the larger brokerage firms, who do have the | | | | very event? In tough markets, you are costing |
| requisite experience and knowledge, are just as | | | | yourself money by paying for limits you will almost |
| bloated and slow to react as the market itself. | | | | certainly never meet. However, by effectively |
| Typically, information about the commercial insurance | | | | planning a probable maximum loss (PMSL), you can |
| market comes from select industry groups and the | | | | more accurately estimate how much coverage you |
| carriers themselves. What commonly occurs is that | | | | should have. Then you can sleep a little easier |
| statements are issued and information is distributed | | | | knowing you are adequately covered and saving |
| that is six months behind what is actually attainable in | | | | money at the same time. |
| the marketplace at that particular time. The result is | | | | |