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Risk in Context

Four Ways to Stand Out in a Crowded Real Estate Insurance Market

Posted by Paul Foye April 04, 2016

The real estate market’s recovery continued in 2015, and positive conditions have persisted so far in 2016. With the US economy growing, major cities have again become attractive to real estate owners and developers across all segments, including multifamily, office, retail, industrial, and hospitality. Capital continues to flow into the real estate market, including from foreign investors — a positive sign for the industry’s long-term health.

Conditions are similarly positive in the real estate insurance market. Buoyed by strong capacity, pricing was competitive across most major insurance lines in the fourth quarter. And yet insurers remain concerned about several specific risks and program elements. For example:

  • Property insurers are seeking to hold all other peril deductible levels constant in order to avoid picking up more attritional losses.
  • Many casualty insurers are requiring maintenance deductibles for habitational buyers and remain concerned about physical violence on habitational properties and general liability claims related to marijuana.
  • As consolidation among real estate investment trusts (REITs) continues, directors and officers (D&O) liability insurers are uneasy about increasing merger objection litigation and similar claims from activist investors.
  • Cyber insurers are closely monitoring real estate companies’ data and privacy exposures. Multifamily property owners, for example, often retain tenants’ and employees’ Social Security numbers and other personally identifiable information.
  • Environmental insurers are concerned about a rise in mold and legionella claims for hospitality and multifamily clients.

Despite the generally positive market conditions, results for individual insureds varied significantly, due largely to individual insureds’ risk profiles and their ability to differentiate from their peers.

Here are four ways that real estate companies can position themselves to get the best possible outcomes at renewal:

  1. Submit high-quality property and casualty data. Location, occupancy, and construction type are critical to property underwriters’ catastrophe modeling exercises. And casualty insurers expect buyers to provide detailed exposure data, including occupancy rates and payroll information, historical loss data, and workers’ compensation class codes.
  2. Adhere to comprehensive, documented environmental due diligence protocols. For example, work with a qualified environmental consulting firm to perform baseline environmental due diligence reports in accordance with ASTM International standards, with additional screening for mold and indoor air quality.
  3. If you are the subject of merger-objection litigation or the target of activist investors, keep D&O insurers abreast of events as they unfold. Insurers should be assured that REIT management is addressing the needs of all constituents, including short- and long-term shareholders and bondholders.
  4. Make sure your cyber-insurers know that you have identified and categorized your cyber risks, have applied appropriate controls, and that you have reviewed and updated controls regularly and as needed. You should also share details about how your IT department communicates with management and the board on cyber risks.

Taking these four steps can help ensure you’re more effectively competing for insurers’ capacity — something you always need to do regardless of market conditions.

For more information, read Marsh’s United States Insurance Market Report 2016.

Related to:  Real Estate

Paul Foye