Higher premiums in 2020: 4 ways to reduce insurance costs

An onslaught of claims from catastrophe storms in 2019 means carriers are reducing what they offer in coverage and limits in 2020.

Chris Dunlap
Vice president and
senior risk consultant,
HUB International

Many real estate insurance carriers found themselves under water at the end of 2019 – literally. An onslaught of claims from recent hurricane and hail catastrophe disasters as well as other attritional losses from fire and water damage have come together to create the perfect storm. This increase in both quantity of claims and their costs, including subsequent settlements, has forced property, general liability and umbrella carriers alike to assume significant losses.

In many cases, these losses are over 100% of the policy. For each dollar real estate carriers took in last year, they paid out $1.15, on average. Now, they’re looking to recoup their shortfalls. To do so, carriers are reducing what they offer in coverage and limits. The result could be lower limits and term restrictions and/ or higher deductibles – especially for businesses that experienced losses in the last few years.

James Hutchinson
Executive vice president
and chief marketing officer,
real estate practice,
HUB International

While the market is hardening, there still are a number of strategies property owners/operators can employ to minimize costs and transfer risk. Following are four ways to improve the real estate business’ insurance outlook in 2020.

1. Practice good preventative maintenance. Controlling losses internally will both “keep your house in order” and minimize rate increases. Ensure safety by instituting the right policies and procedures. Don’t forget to test fire pumps monthly, install hand railings where there’s a potential for slips and falls and replace old electrical panels. If a property is in a flood zone, make sure there’s a strong emergency plan. Buildings should maintain ample security on the premises that appropriately reflects local neighborhood risks. Because the market is tighter, insurance underwriters may request to make a site visit to investigate potential concerns first hand. Consider vetting third-party contractors as well. Make sure they’ve got the right policies and procedures in place and they operate with best practices. Ask for their certificate of insurance to ensure they’re covered for any damage they could potentially do to your property. A tighter market means underwriters can be more selective. Make sure you’re a risk they want to take.

James “Chip” Stuart

James “Chip” Stuart
Chief sales officer,
HUB International

2. Consider alternative insurance options. As the insurance market gets tougher, businesses with losses, or those that operate on a tighter budget, will want to consider alternatives to traditional policies. Alternatives can include participating in a risk purchasing group or a captive, taking on a higher deductible, self-insuring or bifurcating policies. RPGs and captives are best for like businesses with minimal risk that want to save on premiums. Self-insuring can be a good option for businesses with ample money in the bank. Bifurcating typically is considered in mixed-use facilities that are over 30% habitational. By splitting the policy between two carriers, or based on different types of risk within a single facility, premium costs can be reduced or limits increased. Work with your broker to determine what options are best for your unique risks.

3. Layer carriers to reduce total cost. Real estate portfolios that traditionally have been insured by a single carrier may need to employ several to maintain the insured’s desired limits. While insureds may have enjoyed a single policy with a single carrier across their portfolio over the last decade, brokers more often are layering insurance programs with multiple carriers to reduce costs. Brokers will know what each and every carrier’s limitations are, and will be able to bifurcate policies when appropriate. It may be time to see what lenders will allow and what more can be passed onto tenants as far as coverage and premiums in common area maintenance. Talk to your broker about this option.

4. Toot your own horn. If your facilities already are actively engaged in risk management, now is the time to toot your own horn. Let your broker know what you do well so they can go to bat with the underwriter to earn the best premium for your risk. Don’t get caught with old underwriting information. Over the last 15 years, insureds tend to renew as-is using existing data. Update your building costs per square foot for replacement cost (excluding land value). Restate your rent roles. What leases allow to push the insurance to triple-net clients that you may have overlooked?

2020 growth and beyond. While property insurance premiums are creeping up on real estate businesses, construction still is booming, especially when it comes to secondary U.S. markets like Denver. Industry experts hope this boom will help moderate premium rates and bring the market back to center in 2020 and beyond.

Featured in CREJ’s January 2020 Property Management Quarterly

Edited by the Colorado Real Estate Journal staff.