Insurance Costs Down for Apartments

According to the National Multi Housing Council, apartment owners saw a 6 percent decline in insurance costs in 2010 compared with last year.

According to the National Multi Housing Council, apartment owners saw a 6 percent decline in insurance costs in 2010 compared with last year. The finding came from the organization’s annual Apartment Cost of Risk Survey, which surveyed 45 owners who supplied cost data for insurance procurement for more than 750,000 apartment units.

The decline represented a drop in the mean (nonweighted) average total cost of risk (TCR), which reflects the cost of the three principal components of insurance premiums: property, general liability and workers’ compensation. The weighted average cost of risk, which is less distorted by very large or very small respondents, dropped by a full 14 percent.

Rate decreases for two of the three TCR components—property and workers’ comp—drove premiums down. The mean average property cost of risk decreased by 11 percent from 2009 to 2010, driven largely by falling property rates. The mean average workers’ comp cost of risk declined by 3 percent, from $858 per employee to $833. By contrast, the third TCR component, general liability, saw a small increase of 3 percent in cost of risk.

Two-thirds of apartment firms, some 66 percent, now require residents to have renters’ insurance, according to the survey. That is a big jump from last year’s figure of 44 percent, and up dramatically from 2008’s total of 24 percent. The most common limit required is $100,000

The momentum of insurance rate decreases accelerated in 2010, notes the NMHC, following decreases in 2008 and 2009. The frequency and severity of losses have been on a decreasing path since 2004, so insurers are relatively flush with capital and thus rates are low. According to industry experts at survey partner Conning Research and Consulting, who analyzed the data for the survey for the NMHC, these conditions will continue until significant events push rates upward.