Easing Insurance Sticker Shock

Coverage will take a bigger bite this year, so be mindful of these steps recommended by experts at NMHC’s annual meeting.
Kyle Herren of Lockton Cos. and AMLI’s Char Sparrow speak with audience members following a risk management panel discussion at NMHC’s annual meeting in Orlando.

Property owners face sticker shock when insurance policy renewals roll around this year. After years of underpricing, insurance rates are under upward pressure from both perennial issues and new considerations. That trend threatens to put a dent into funds from operation. But by pursuing a prudent strategy, multifamily property owners can mitigate price hikes and improve their long-term risk profiles. 

That was the message last week at the National Multifamily Housing Council’s annual meeting in Orlando. “Carriers are getting more selective about which accounts to put capacity on, and how much capacity,” said William Penley, executive director at Morgan Stanley Investment Management. That raises the need for insurance customers to take a competitive stance as they seek coverage. “Now that everybody’s getting increases, everybody’s going to market,” he said.

Panelists urged an open, proactive approach as the key to managing both risk and insurance costs. Experts stressed the importance of property operators giving insurance carriers the best possible account of their risk management practices. “There’s huge value, with the help of brokers, to spending time in meetings to discuss risk with insurers,” Penley said.

Holistic Approach

In those conversations, operators help their cause by presenting the most complete possible information about a property’s loss history. Property operators may also need to seek coverage from multiple carriers in order to meet their needs, Penley added.

A key part of that approach is incorporating risk mitigation into every aspect of the business. The most difficult renewals are for companies in which “no loss control or safety measures have been taken in the last five or 10 years,” reported Kyle Herren, senior vice president & producer at Lockton Cos., a global insurance brokerage.

Photo by Chris Gallagher on Unsplash

Changing conditions necessitate a new approach to decisions. Penley noted that Morgan Stanley now views potential acquisitions through the lens of resiliency; properties are evaluated for how they fit into a city and how they would be managed in a catastrophe.

The timing of such an assessment matters, as well. Evaluating the roof of a Denver asset in August is different from sizing it up in December, noted Char Sparrow, the panel’s moderator and senior vice president for legal and risk management at AMLI.

New Risks

Panelists also commented on trends in various categories of insurance. A recent entrant to the risk management arena, cybersecurity coverage, is well worth the cost at a fraction of the price of general liability. So advised Dan Freudenthal, president of CRIO Group, a consortium of risk management companies.

Sparrow had a warning for the audience about cybersecurity insurance: “Be tough on vendors. If you’re sharing information with vendors, make sure you’re transferring risk to your partners.” The concern, she explained, is that cybersecurity vendors tend to be startups and don’t carry liability insurance. “Breaches will come back to you if they don’t have coverage. You need cybersecurity protection, but you want your vendors to have it, too.”

Char Sparrow, AMLI; William Penley, Morgan Stanley Investment Management; Dan Freudenthal, CRIO Group; Kyle Herren, Lockton Cos.

Floods present another challenging area, as events are occurring with greater frequency and in unexpected locations. Damage estimates are typically much less accurate than they are for wind damage, Freudenthal observed, adding that lenders may also mandate specific levels of flood coverage.

He advised retaining a professional to help assess flood exposure and establishing both a pre-event mitigation strategy and a post-event recovery plan. “The number one thing is not to look at (insurance) as a commodity, but really as a proactive, enterprise-wide part of your business,” he asserted.

Panelists concluded the session by offering their top advice to reduce risks, mitigate losses and obtain robust coverage at competitive prices.

  • Dan Freudenthal: “Be proactive, don’t look at it as a commodity, understand the risk to your business.”
  • William Penley: “Start early, tell your story and get your data right.”
  • Kyle Herren: “Be better stewards. Look at carrier partners as your partners. If you’re not adding inflation to your quotes, you’re going to have a surprise this spring.”
  • Char Sparrow: “Look at your losses, identify one area and improve on that” (e.g., losses from water, mold, or slip-and-fall).