Tips for Tackling High Insurance Costs

James "Chip" Stuart of Hub International on cost and risk management strategies.

James “Chip” Stuart

The real estate industry will face several challenges in 2024: Slower real estate markets, less liquidity, worsening weather events, and higher insurance rates. An appropriate insurance plan and strong risk management, however, will keep real estate owners and operators on the path to success.

Multifamily housing has been booming, with nearly 1 million units under construction in March 2023. Yet with elevated insurance cost and higher interest rates expected to continue, margins are under pressure. 

Indeed, just six months later, vacancy rates for multifamily housing had surpassed 5 percent, and rents held steady in most markets. However, as with any other real estate question, geography is the key. Thriving local areas such as Dallas are performing much better than sluggish markets such as San Francisco.

Another challenge is insurance rates. Premiums have risen across the board, even for owners and operators with strong risk management and few claims. In catastrophe-prone regions, real estate investors are seeing double- or triple-digit premium increases. Completed apartment and HOA units have a hard time finding competitive insurance when ready to sell.  Therefore, multifamily owners and operators will have to focus on risk management strategies and, in some cases, commercial alternatives to secure appropriate coverage.

Manager retention

More than 50 million workers quit their jobs in 2022. While the labor market improved slightly in 2023, turnover in property management remains at 33 percent of the workforce, compared with 22 percent for U.S. businesses as a whole, according to NAA.

Unfortunately, properties require maintenance whether you have a manager or not. Properties can degrade quickly, leading to greater exposures and expensive claims. And a strong workforce can help control insurance costs and protect profits.

The answer? Personalized benefits. Property owners and operators can support recruitment and retention efforts by delivering quality employee experiences that create an environment in which employees are more engaged and productive.

Industry employees are desperate for it. In a culture that prizes mental wellbeing and work-life balance, it’s the key to recruitment and retention. According to HUB’s 2024 Outlook Executive Survey, only 41 percent of real estate executives offer personalized benefits—leaving an opening for those that do. Grab the edge by offering specialty insurance or extended personal leave.

Resilience comes from the right coverage

Insurance rates are rising across the board. Property rates have been trending and could go up another 15 percent, and catastrophic perils coverage could increase more than 30 percent. Some real estate owners and operators may find it challenging to offload their assets—either because prices are prohibitive or because the coverage simply isn’t reasonably available.

As a result, risk management will be essential not only to secure coverage—any coverage—but also to help manage the bottom line. Catastrophic weather has hit insurers hard, leading to record losses. And nuclear verdicts have also impacted the industry, with average awards topping $30 million. Building owners and operators will need to safeguard their buildings from both challenges. Proper maintenance and site security are essential. Ask your broker for alternatives. 

Some states will respond through legislation. Building codes may get a boost to help ensure properties are strong enough to weather the storm. And alternative risk transfer vehicles such as self-insurance, tenant default captives, spot captives, deductible aggregates and contingent capital arrangements can help owners and operators cope with rising rates.

Here are four ways property owners and operators can plan for success.

1. Determine your options

Work with an expert to develop a personalized strategy to protect your bottom line, support your employees and strengthen your business. Consider these tips:

Identify your risk profile and your budget. Lower premiums by looking at your recent losses and accepting a higher deductible that eliminates “nuisance claims,” or lower costs with an alternative risk transfer vehicle. Your broker can help identify the best options, especially if you share any business changes at least 90 days ahead of renewal. Explore specialty captives that contribute positive cash flow.

2. Focus on safety

Protect against nuclear verdicts through extra safety training and increased security for all properties. A focus on prevention can literally save several basis points.

3. Analyze loss trends

Identify what led to large losses in the past and take steps to prevent similar claims. Then share your story so you can better explain it to carriers.  Make sure you provide all upgrade information to underwriters regarding your plumbing, roofs, and electrical.

4. Offer personalized benefits

Work with your broker to analyze the data and identify what your employees need and want. Then support recruitment and retention efforts by delivering quality employee experiences.

James “Chip” Stuart is the corporate chief sales officer and practice leader for global insurance brokerage Hub International’s real estate specialty in North America.

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