Alliant Insurance Services
Our featured guest on this episode of Apartment Academy is Matt Nicholas, and we’re discussing multifamily insurance.
Matt has been in the insurance industry for about 20 years now, with a focus on habitational insurance for a good part of that. Today, Matt is a Vice President at Alliant Insurance Services, a top 10 national broker.
Multifamily insurance isn’t always the most exciting topic, but there are some very interesting and even alarming trends happening right now in multifamily.
Multifamily Insurance Trends
The habitational insurance market has always been a tough one for carriers. There’s a lot of inherent risk. And a lot of carriers have just bailed on ensuring certain risks in the market over the last four or five years. And multifamily has been hit harder than other asset classes or other types of risks out in the insurance market.
As the supply of capacity has gone down, carriers are tightening up their underwriting guidelines for multifamily businesses. They’ve started requiring higher deductibles, charging higher premiums, or both.
For smaller owners with smaller balance sheets, this is a real struggle. They have to balance fixed costs, or the insurance premium, and variable costs, which is the deductible. And you have to figure out what amount of risk you can accept and how much fixed cost are you can pay. And that balance has become difficult for small to medium-size operators these days.
Common Types of Multifamily Insurance
The insurance coverages that owners typically need to carry usually start with property and liability coverages. That covers fire, storms, bodily injury, etc.
In addition, a lot of owners will carry environmental coverage. That’s for mold exposure and other things that property and liability programs typically exclude.
And depending on an owner’s contractual relationship with their property manager, they may also need some sort of hired and non-owned automobile liability coverage, and potentially owned automobile liability coverage.
Another common coverage is crime or employee dishonesty coverage. Cyber and data breach coverage that protects tenants’ personal information from being stolen or lost is another. Employment practices liability insurance has become important for owners and managers as of late. Errors and omissions coverage is also very important for property managers if tenants claim wrongful eviction or owners claim mismanagement that led to a financial or physical loss.
Minimizing Exposure Liability to Improve Insurance Rates
With the right contracts and systems in place, property owners can minimize exposure liability. You can even give your broker the power to negotiate better rates.
Demonstrating that you’re lower risk starts with the contracts that you have in place with your vendors and property managers. The type and quality of vendors and property managers that you hire, and the contractual risk transfer that you put in place, are important.
The insurance carrier wants to see that you, as an owner, are mandating that the vendors and those contractors that come on-site carry a certain level of liability insurance. They need to add the owner as an additional insured to that insurance program rather than rely on their own insurance program. There’s less risk for the owner that does that versus the owner that doesn’t.
Further, owners can have master tenant, legal liability, or renter’s insurance programs in place that act as the first layer of defense before tenant-caused losses hit your insurance program.
Tracking and managing tenants’ insurance certificates is another step, but you also need a solution for tenants that don’t provide proof of insurance. That’s the other step, making sure that 100% of the units that you own have some level of renters’ insurance or tenant legal liability in place.
The Hallmarks of a Well-Implemented Risk Mitigation Program
First, a well-implemented risk mitigation program outlines property walk-throughs.
These aren’t your typical lease-turn walkthroughs. You’re looking for issues like potential slip-and-fall hazards and seasonal items like hurricane preparation, snow build-up on roofs, etc. Having that built into the overall risk management program for the portfolio is important.
Also, you need to adhere to and document your procedures. That’s the big thing — being able to go back later and say you did A, B, and C like you always do. And here’s the documentation that proves it. This can really help with getting litigation thrown out.
Resources for Mitigating Multifamily Insurance Risk
We recommend some third-party providers as a resource. Leonardo247 is one of the better ones that we’ve worked with. It really does a great job in getting that information out to the operators for that owner.
Appropriate risk management procedures like regular, documented walkthroughs also help owners stay on top of legitimate concerns that pop up on the property like slip and fall hazards. You can use that information to be proactive and remedy those situations so they don’t become an issue.
The right resource also helps with filing a timely incident report when there is a claim. And those incident reports should include signatures, photos, and statements from witnesses if possible. A rich data set upfront is always better. Any time there’s an incident, appropriate documentation like witness statements and photos are always a good idea.
Further, property owners usually have a duty to notify the insurance carrier in their policy, but you also want to get them involved. Getting an incident report documented and off to your broker efficiently helps your insurance carrier to advocate on your behalf.
They’re looking out for their own interests and yours. They’ll make sure, for example, that illegitimate claims are dealt with early and often. That way they don’t affect your balance sheet or your insurance program.
Finally, if you are a smaller operator with a regional insurance carrier, you can request a third-party administrative adjustment firm written into your insurance policy. And those third-party administrative adjusters work with clients on a particular level to look out for their interests. It’s not quite the same level as a larger broker’s claims advocacy group, but it’s definitely useful.