By CHRIS DUNLAP
A long-standing soft commercial property market will lead to a rise in property policy premiums in 2019. Thanks to the catastrophic 2017 hurricane season and years of depressed building valuations, coastal properties and other loss-affected assets, may experience spikes as much as 25 percent.
Positioning your portfolio has never been more important. Those who can improve their standing will keep rising costs at bay.
How? By improving risk management, including disaster preparedness ahead of the next catastrophic event, and engaging your broker to negotiate policy language and premium rates tailored to your portfolio’s unique strengths and exposures.
When it comes to insurance, the 2019 real estate market is about examining your portfolio with the following in mind:
- Biggest premium increases will be in habitational real estate. The largest property policy increases in 2019 will occur in habitational real estate, driven largely by traditional loss leaders, including water and fire damage as well as increased property valuations. Considering building construction costs experienced a greater than 3 percent inflation rate last year, a property valued at $1M just a decade ago is likely significantly underinsured today. To best position your habitational real estate: champion risk management, preventative maintenance, emergency response — and make sure you have a water mitigation plan.
- Water damage continues to flood the market as a loss leader. Water damage claims will continue to wreak havoc in 2019 as a major driver of commercial property losses. As a result of new construction defects and aging infrastructure, both commercial and residential high-rises experience significant water damage claims. What typically begins as a small pipe burst in a single apartment or office quickly becomes a massive building-wide claim as water spreads to affect multiple areas of a building. Underwriters are taking note and are including additional deductibles on 2019 property policy renewals to for protection.
- Sharing Space is the New Preferred Work Environment. Shared workspaces and warehouses seem to be going up everywhere, counteracting shrinking retail demands across the country. With strong leasing power, shared workspaces have found success passing the savings along to businesses looking to reduce their footprint. Like renting a car, it doesn’t strain the budget to lease office space by the day, week or month – especially when someone else is taking care of the back-of-house technology infrastructure and facility operations, and front-of-house office management. Consult your broker/carrier to find out what type of insurance and risk transfer methods are possible when it comes to shared workspaces.
- It’s not easy being green. Sustainable initiatives are great – when they don’t come with additional liability. When they do, property owners and operators will face limited coverage options. For example, wood facilities are difficult to insure due to their increased risk of fire, solar panels introduce the chance for electric shock. If charged, firefighters won’t spray water on them to extinguish a building fire. Near the coast, roof-installed renewables have blown off in storms, causing additional damage to neighboring structures. Discuss sustainable building materials and renewable options with a broker/carrier before investing in them.
2019 Growth and Beyond
Portfolio managers looking to minimize property policy increases in 2019 must strategically institute best practices in the hopes of minimizing common loss leaders like water damage, institute only sustainable initiatives that don’t increase risk and consider investing in and moving their offices to shared workspaces. Those who engage their insurance broker to help minimize premiums and optimize policy language will be best positioned in 2019 and beyond.
Chris Dunlap, MS, ARM-E, CBCP, CFPS, CLCS, CRIS, is vice president and risk services lead for Hub’s National Real Estate Practice.