Average Cost for Apartment Property Insurance Fell 11% YOY

By Anuradha Kher, Online News EditorWashington, D.C.–Apartment firms benefited from lower insurance costs across the board and more insurance availability in 2008, according to the National Multi Housing Council’s (NMHC) annual Apartment Cost of Risk Survey (ACORS).  On average (nonweighted), apartment firms saw a 17 percent price decrease in 2008.  This compares favorably with the 10 percent to 25 percent reductions recorded in the broader commercial property sector. All three components of the total cost of risk for apartment firms (property, general liability and workers’ compensation) fell in 2008 compared to 2007.According to Conning Research and Consulting, which conducted the survey for NMHC, the commercial property insurance marketplace was extremely competitive in 2008 thanks to favorable underwriting and investment results recorded by insurers in the two prior years. Both factors fueled the increase in underwriting capacity and desire for growth well into 2008.Costs for property insurance, which accounts for 67 percent of the average apartment firm’s insurance budget, fell 13 percent from 2007 to 2008. Implied (calculated) premiums were $0.219 per $100 in total insured value, down from a recent high of $0.427 in 2006. The average per-occurrence property deductible decreased 12 percent.Premiums for general liability coverage fell 10 percent, with stated premiums dropping from $36 per unit in 2007 to $28 per unit in 2008. Premiums for workers’ compensation fell much less, at two percent, although average premium rates decreased more dramatically.In other findings, the number of firms with directors’ and officers’ liability coverage dropped from 100 percent in 2007 and 2006 to 55 percent in 2008. The number of firms taking out environmental insurance coverage, on the other hand, grew from 38 percent to 41 percent. Premiums for environmental insurance coverage fell 23 percent this year, from about $64,000 per $1 million limit in 2007 to about $49,500 per $1 million.Conning analysts say it is unclear whether these trends will continue in 2009, as insurers struggle with general economic uncertainty, underwriting and capital losses in 2008 and lower investment returns for 2009. These factors will likely reduce underwriting capacity and many insurers are already declaring that premium rates are as low as they can go to cover claims and maintain profitability.