Offsetting the Rising Costs of Multi-Family Insurance
Rising insurance rates continue to burden multifamily operators. Uncertainty is often insufficient for business, but lingering pandemic fears and increased natural disaster repair costs are putting pressure on owners in ways they’ve never felt before.
We’re seeing carriers limit coverage in new and potentially challenging ways due to what’s called a hard market. A market hardens when coverage shrinks and prices go up. One area that merits your attention when purchasing coverage is the Assault and Battery (A&B) exclusion. Before we provide guidance on what you can do to protect yourself, here’s some helpful background information from our team of multifamily experts:
- A&B Exclusions leave policyholders exposed to lawsuits, claiming negligence for not taking the proper precautions to protect tenants. Recent juries have awarded plaintiffs with multimillion-dollar settlements.
- Carriers and underwriters have started to implement the use of crime scores. Underwriters can now analyze the probability of crime in any given area using historical data of past claims and predictive indexes.
- If your multifamily property has a crime score that exceeds their threshold, they will deny coverage, reduce limits, or require a significant deductible.
Here’s what to keep in mind:
Prior to purchasing or acquiring new assets, it is crucial to understand the underwriter’s position and proactively run crime scores early in the due diligence process.
- Develop a plan to rebut crime scores that are not an accurate representation of actual property characteristics.
- Consider separating some properties off the master policy to get better rates and terms on your less risky assets versus the riskier ones.
- Document a plan for mitigating future A&B claims and have your broker share a narrative in the carrier RFP to paint the whole picture.
- Consider implementing controls to reduce exposures. This could include improving site security, key fobs, video surveillance, and guest validation. Document tenant pre-screenings reports and complaints.
Think this change won’t impact your team? Many owners have already told us that this update caught them completely off guard. Partner with a broker who keeps you in the know before your left without coverage.
This material has been prepared for informational purposes only and was generated from information provided to BKS from the client and/or third-party sources. Therefore, BKS makes no warranty or representation(s) as to the accuracy or appropriateness of the data and/or the analysis herein. This information is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your tax, legal and accounting advisors for those services.