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Dec. 19, 2013

Risk Mitigation 101: Insurance Best Practices for Apartment Owners

Five Steps You Can Take to Reduce Your Exposure to Risk

By Mark Ohlstrom, Capital Insurance Group

Ohlstrom_Mark largerManaging a multifamily housing development can mean confronting new challenges every day—some of which are entirely out of your control.

Extreme weather events and other unpredictable disasters have affected nearly every region of the country in the past year, leaving owners and managers of apartment buildings scrambling to recover. Unfortunately, you can’t prevent the next “Act of God,” or super storm or wildfire. But you can significantly reduce your risk of loss from a host of other disasters by adopting a handful of insurance industry best practices—saving yourself time and energy, not to mention stress and money, in the process.

1.      Adopt a smoke-free policy

According to the most recent statistics from the National Fire Protection Association (NFPA), home and apartment fires started by smoking cause an estimated $516 million in direct property damage per year and kill more people than any other type of fire. Apartment owners and managers can significantly reduce their exposure to smoking–related fires by adopting smoke-free policies in their buildings and on their property

Adopting a smoke-free policy within a multifamily housing development you own or manage is well within your legal rights, and, indeed, it is part of a trend that is gaining momentum in communities around the country. Because they recognize that smoke-free policies significantly reduce the risk of fire, some insurance companies have even begun offering premium reductions to apartment owners who adopt them. Capital Insurance Group (CIG), for example, offers a 10 percent premium credit to apartment building owners and condominium associations who maintain a smoke-free environment in their buildings and units. Smoke-free policies present additional benefits for apartment owners, including greater peace of mind, faster and cheaper rehabbing of units, and increased marketing advantages as more residents seek smoke-free environments.

2.      Guard against stovetop fires

Unattended cooking is the leading cause of cooking fires, and cooking fires account for the majority (44 percent) of all home and apartment fires, according to the NFPA. In 2011, cooking fires accounted for 156,300 home and apartment fires, resulting in 470 deaths, 5,390 injuries and $1 billion in direct property damage.

The good news: Special fire suppression technology is now available that extinguishes stovetop fires before they have a chance to spread. Small, easy-to-install canister devices mount under the vent hood, microwave hood, or cabinetry above a stovetop. These fire suppression devices have proven so successful that communities in states around the country have enacted ordinances mandating their installation and use in multifamily dwellings.

Owners and managers of multifamily housing who install stovetop fire suppression products report as much as a 99 percent reduction in average fire claim costs. A few insurance companies are offering a premium credit to apartment owners who install stovetop fire-prevention devices in each of their units. In addition to receiving a premium credit, some insurance companies are also partnering with fire suppression technology providers to extend product discounts to apartment owners who install these types of safety devices. This collaboration between insurance carriers and manufacturers of fire suppression technology helps apartment owners lessen the risk of stovetop fires and realize significant cost savings as well.

3.      Reduce flood risk

Water damage due to a malfunctioning appliance can cause tens of thousands of dollars’ worth of damage to a rental property. Fortunately, there are flood-prevention devices that can detect leaks and automatically shut off the water supply. These types of devices are available for any appliance with a water-supply-line connection, including water heaters, washing machines, toilets, dishwashers, etc.

As with stovetop fire prevention devices, apartment owners who install flood-prevention devices in their units can be eligible for premium credits from some insurance companies. These insurance companies are also partnering with manufacturers of flood-prevention devices to offer their clients product discounts. Such partnerships provide apartment owners with a cost-effective means to reducing flood risk.

4.      Protect residents against carbon monoxide poisoning

Called the silent killer, carbon monoxide (CO) can do just that. The colorless, odorless, highly toxic gas is produced by improperly operated or vented fuel-burning appliances found in many homes and apartments. If undetected, elevated concentration levels can be fatal. According to the Centers for Disease Control and Prevention (CDC), about 500 Americans die each year from accidental CO poisoning, and another 20,000 are sickened.

To help combat this risk, legislation in some parts of the country requires that all residential dwellings with a CO source—such as an oven, furnace, or fireplace—have functioning CO detectors in the immediate vicinity of sleeping quarters. Whether or not you are legally bound to do so, installing CO alarms in your rental units lowers your risk and keeps your residents safe. CO alarms are widely available and effective at detecting leaks, and here, too, insurance companies offer discounts to policyholders on the purchase of such detectors.

5.      Carry sufficient business income loss coverage

Despite the best risk mitigation practices, disasters can still take place. And though your commercial property insurance should cover most direct losses to property, it generally doesn’t extend to indirect losses you may face while you are working to repair and rebuild and cannot generate income at normal levels.

Owners and managers of multifamily housing developments should consider carrying business income insurance to be fully protected in the event of a loss. An additional line of insurance, business income insurance supplements lost income and covers continuing expenses, allowing building owners to pay their mortgages and utilities, meet contractual obligations and retain personnel until their properties have been restored.

Reduce your risks, save money, increase peace of mind

Given the complexities involved in owning and managing multifamily housing developments, isn’t it nice to know that there are concrete steps you can take to make your job just a little bit easier? Not only that, by implementing these insurance-industry best practices, you can provide greater protection to your property and residents while saving money in the process. It’s a win-win-win situation.

Mark Ohlstrom is risk assessment manager at Capital Insurance Group (CIG). Serving the West since 1898, CIG is the western regional leader in apartment insurance.

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