Apartment Property Insurance Goes on the Upswing in 2011

A year can make quite a difference, and it has in the National Multi Housing Council's annual Apartment Cost of Risk Survey. As per the study's results, the cost to insure apartment properties increased from 2010 to 2011, going up 1 percent.

Washington, D.C.—A year can make quite a difference, and it has in the National Multi Housing Council’s annual Apartment Cost of Risk Survey. As per the study’s results, the cost to insure apartment properties increased from 2010 to 2011, going up 1 percent. It may seem like a minuscule leap, but it marks the first time that the average non-weighted Total Cost of Risk, or TCR, has increased in four years.

It’s all relative. Results from NMHC’s 2010 survey showed a 6 percent decline in the TCR, a gauge of the cost of property, general liability and workers’ compensation premiums. “On a combined Total Cost of Risk, 2011 was less than a 5 percent increase over 2010,” Clint Conning, director of insurance research with insurance industry asset manager and research provider, tells MHN. Harris conducted the analysis in his capacity as a consultant for NMHC. “What is new in 2011 is that property managers were seeing increases. Year-over-year decreases in each of the prior three years have been on that scale and larger.”

The survey involved the collection of data from 57 apartment companies operating 750,000 residences. The change in the TCR this year is primarily attributed to a whopping 25 percent jump in workers’ compensation rates from $833 per full-time employee to $1,040. A rise in general liability coverage premiums also played a role.

Other factors, however, tempered year-over-year TCR growth.

“Property insurance costs are the largest insurance spend for property managers at 65 to 70 percent of insurance dollars overall,” Harris explains. “Property premium rate decreases on renewals from September 2010 through May 2011 outpaced increases. However, increases for catastrophe-exposed properties began showing up for respondents with renewals in the latter half of 2011. Property insurance increases ultimately are a more impactive for many property managers than workers’ compensation costs.”

Despite the rise in TCR, there were some positive aspects pertaining to apartment insurance coverage. “Property managers reduced internal risk in 2011, on average, by lowering deductibles for property, general liability, and workers’ compensation insurance, he notes. “The lower level of assumed risk is likely because of a number of driving factors, including improved apartment industry conditions, as well as the attempt by insurers to increase risk in a marketplace where premium exposures were generally decreasing with the economy.”