It’s fair to say that until recently, insurance was something the real estate industry didn’t spend much time thinking about. Property owners and developers simply saw it as a necessary evil. A box in the list to be ticked. But insurance now ranks as high as number two or number three on the list of expense line items, and a clear sense of strategy must be brought into play. Just like a baseball pitcher considers the type of ball to pitch.
It’s all in good time
Our customers have said things like, “That’s a sunk cost. We need it. We know we need it. Banks demand it. There is no way out. Give us a Balkan number.” So I’m speaking from experience here. And the biggest impact I believe anyone looking to take care of their P&C insurance coverage can have is improving their time. Not leaving it to the last minute to involve a mediator.
To leave it less than two weeks before a policy is renewed will leave it too late. It doesn’t give your broker enough time to properly advocate for you, fully analyze the property/project and get you the best coverage and price.
Ideally, if you have enough time, it is best to collect and analyze as much data as you can and present a complete history to the conveyancers regarding the insured property and the family or company involved. It is worth considering that submissions to insurance companies are approximately 10 times what they were five to ten years ago. Carriers are overwhelmed, and if you are able to submit a detailed file, your insurance claim goes to the top of the list and is signed much faster.
Not that eleventh hour requests for coverage are always the customer’s fault. It is not unheard of for some brokers to only send a policy renewal reminder a few days in advance, when not much can be arranged through an alternative policy or a lower premium.
The main feeling of the customer in that case is that they have been “trapped” and are looking for an escape clause. Brokers may share terms with clients well in advance of renewal, although it is not always in their best interest to give clients time to look for alternatives.
Honestly, my advice would be to play hard ball. Policyholders can turn to their broker, or a rival broker, to analyze their coverage requirements and costs as early as 120 days before renewal. This is without any obligation or paying any service fees. So get it much sooner, be proactive rather than reactive, and the outcome is much more likely to be in your favor.
Beautifully controlled and delivered with nuance
Just like a professional baseball pitcher has more than one pitch in their arsenal (for example, a splitter, slider, or curveball), I can’t stress enough how necessary it is for businesses looking for help with their P&C resist “one size fits all”. The approach is one-size-fits-all.
Some brokers can be complacent in this regard. You may find that the longer your relationship with your broker, the less likely they are to investigate new angles on your properties and portfolio.
For example, the conversation might go something like this: “‘Are you in the Northeast? Boom. Here’s a request for boiler plate insurance. Thanks. It’s a pleasure doing business with you.'”
Whereas what you really want to hear from your broker is: “I see that the building is in the northeast. Well, not every property in the area is in the flood zone, including yours – so you won’t need the $50 million flood risk limit.”
It is this type of due diligence that can have a real impact on lowering insurance premiums. Especially if you are the owner of an existing building or perhaps applying for a new mortgage or new purchase loan, there are always lending requirements set by your bank that must be met. If only to ensure that you have the insurance in place to pay for any claims that may occur, so that the building continues to operate and your cash flow is not affected.
Thinking outside the box
It’s decision time. All bases are loaded. And the standard game is to see which of the big hitter insurance companies are willing to take your risk. But what if you could play it differently for a change? What if you could share it?
A new approach is emerging called “alternative risk financing.” It is designed for market top performers who have substantial, well-managed portfolios that make few claims each year.
Currently, the premiums paid by these business owners are heavily subsidizing the claims of bad actors, who have recently contributed to a sharp increase in litigation and whose poor management is keeping premiums higher.
But alternative risk financing gives them a mechanism by which they can take a limited portion of their insurance risk. As long as they keep making few claims, they can turn their insurance policy into a profit center every year.
Viewing insurance as an asset instead of just an expense? To many, alternative risk financing is like the four-layer fastball strategy that pitchers call upon to fundamentally change the game to their advantage.
Patrick Yannotta is the senior vice president of commercial real estate for Varney Agency.
The opinions expressed here are the author’s own.