Multi family insurance rates tripling; what to do?
I own a large, subsidized multi family portfolio. Our insurance company dropped us because of hail damage claims over the past couple years. Our insurance broker is having trouble finding a new company to take on the whole portfolio and, as a result, our 2023 habitational insurance bill is going from ~$500,000 annually to $1.5mm annually in 2023. Is anyone else running into similar problems? Any solutions other than “ask a different broker?”
[{"id": "iyhhs4h", "text": "Tripling sounds crazy. It does sound like the carrier simply doesn't want to insure this product anymore.\n\nAlso, most insurance companies are jacking up the replacement costs due to materials price increases. In my experience, they are over insuring which yields higher rates. \n\nDo you know anyone else who owns a similar portfolio? I would ask who they are using. I equate it to some lenders who simply don't want to lend on a particular property type. My insurance broker has told me that a given carrier wants out of the business when they jacked my rates so we had to shop around.", "replies": [{"id": "iyid47u", "text": "tcbafd is correct. This has happened to us about 3 times over 20 years of investing. And we have only ever claimed one incident! Some companies just change what and where they want to insure, or they are too heavily invested in one area or sector.\n\nFind a commercial real estate broker who can shop your portfolio to multiple insurance companies. Good luck!", "replies": [], "depth": 2}, {"id": "iyk5rfr", "text": "Curious where you are seeing limits being over insured? Everything I am seeing with property losses is that almost everything is significantly under insured and the property coverage just isn\u2019t there unless a blanket limit is in place across all properties which carriers are just not offering right now. I am seeing inflation guard indexes increasing property limits from 15-20% at renewal.", "replies": [{"id": "iyknd7p", "text": "Not sure I fully understand what you are saying. My take on the insurance business is- get as much in premiums as they can and pay out as little as possible. And, if you have a loss, they will jack the shit out of your rate.\n\nAside from losses, I'm seeing an over coverage in replacement cost. Yeah, lumber and materials got expensive and the insurance companies were real quick to adjust up. However, I don't need $1mm for a property that I can rebuild from the ground up for $700k. I'd rather ask for $700k (or even less) limit and raley chances with a total loss.", "replies": [{"id": "iykthbz", "text": "Most insurance carriers pay out close to a dollar for every dollar collected in premium, between claims, operating expenses and agent commissions breaking even can be difficult especially right now, profits usually come from the equity investments so most carriers aren\u2019t profitable in this climate. Doubt a business or home owner wants to rebuild their own location even if they could technically do it for \u201cless\u201d than a builder, most don\u2019t have the skill or resources and they are probably more concerned about their own job or operating their own business.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iyhjdqs", "text": "Your general location and expense per unit metrics are more useful than hard numbers. Insurance has been increasingly significantly the last few years, so this isn't surprising.", "replies": [{"id": "iyhli74", "text": "It\u2019s rural east coast. Insurance expense per unit going from about $450/unit to almost $1500.", "replies": [{"id": "iyhndjz", "text": "I got out of the multifamily sector, mostly - but I have a few 3-family buildings in Connecticut.  I pay less than that, and all are within 1 mile of the beach. One is 3 blocks. Anything over $1000 seems egregious. \n\nMost of my units are 3-bedroom, full floor flats.", "replies": [], "depth": 3}, {"id": "iyhqmtt", "text": "I work as a national lender, I have not really seen anything over $1,000 / unit outside of Florida and the Gulf Coast due to flood/hurricane risk. Obviously excluding special circumstances (flood zones, environmental issues, old electrical, etc.)", "replies": [{"id": "iyip7o2", "text": "My properties in Detroit, gulf coast Texas, and boston are all way over $1000/door. I have shopped and shopped and not been able to do better.", "replies": [], "depth": 4}], "depth": 3}, {"id": "iyhzb29", "text": "Holy shit that\u2019s insanity. 3x insurance costs kills cash flow. Wtf. \n\nI\u2019d shop around. We were able to save 20% from using other insurance carriers", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iyhl2t5", "text": "Yes very curious as to what your premium per unit is? In NYC, a cheap policy for MF would be $650/unit if you\u2019re lucky and in the BX (again, because carriers don\u2019t want to insure these Properies) premiums can exceed $1100/unit.", "replies": [{"id": "iyi3ss1", "text": "Yeah we got a building in East New York running at about 1650 a unit in premiums.", "replies": [], "depth": 2}], "depth": 1}, {"id": "iyhodt3", "text": "Are you on a master policy, or can you be? We\u2019ve been getting our property managers master policy as that\u2019s tended to be the cheapest option.", "replies": [], "depth": 1}, {"id": "iyhuw96", "text": "Have you looked at increasing your deductibles so insurer is more interested and this reduces fees?\n\nDoes the insurer ever do property visits and have maintenance recommendations on your properties to reduce liability?\n\nSome brokers say certain times of year insurers have more capacity.  Can you renew for a shorter period to change your renewal date?\n\nAssuming you get better rates, can you commit to 2 years to an insurer?  I\u2019m told that shopping portfolios every year can make some insurers tired of it as they never get it and they don\u2019t like clients who switch yearly.\nLastly, how is your broker paid? Flat fee or % of premiums?  Can broker give you a deal on their fee?\n\nThese are anecdotal tips, may or may not apply to your situation or be relevant, feel free to do as you please with them.  In Canada where I am, insurance has been going up a lot, but not tripling for multi family.", "replies": [], "depth": 1}, {"id": "iyhxedx", "text": "Welcome to Q4 2022. What state are you in? Our rates haven\u2019t tripled but they\u2019ve certainly risen by an average of roughly 25%-40% depending on where the asset is located.", "replies": [], "depth": 1}, {"id": "iyinkfm", "text": "Im a residential insurance broker and residential insurance market has been shifting in the past few years and people who are being dropped are being forced to shop during a \"hard market\" which is the reason rates are tripleing. In other words people who do not file claims have grandfathered in their rates and are not being forced to shop in a hard market. They are keeping rates from a different time in the economy. I heard that commercial insurance is doing better adjusting to the hard market than is residential. Every broker can be appointed to different carriers , so my suggestion would be to ask a different broker.  Someone else might have other options they can offer. Hope this helps!", "replies": [], "depth": 1}, {"id": "iyj5rdr", "text": "Wait to you check out fire insurance in the high fire area", "replies": [], "depth": 1}, {"id": "iyk57i1", "text": "With those premiums you\u2019re talking about a significant property exposure going into a hardening property market due to substantial losses across the industry. The insurance carriers dictate your terms and pricing but with this amount of property value the insurance carrier pricing is being dictated by their reinsurers who are taking the excess limits of property. Given your recent loss history, substantial property limits and a tightening reinsurer market you may be lucky you are even getting offered terms right now. May just need to raise the rents, pay the premium and hope the market smooths out in a year or two.", "replies": [], "depth": 1}, {"id": "iyl2q05", "text": "Which market are you in? We're having this issue with our FL properties.", "replies": [], "depth": 1}, {"id": "iyl9kr9", "text": "here's what you do you make sure that you get a cost segregationist study on your building if you have not had one already (which I'm assuming you have, but not everyone does)\n\nMulti-Family - New Construction, IN\nConstruction Cost including Land $16.7 million\nDepreciable Basis $14.4 million\n\n~Owner's 2020 depreciation expense without cost segregation - $87,230\n~Owner's 2020 depreciation expense with cost segregation - $4,650,000\n\n(accelerated amount was 32%)\n\n\nLarge Multifamily Apartment, Boise, ID\nPurchased 11/2020\nPP $14,393,083 (of which $12,245,031 is the depreciable basis)\n\n~Owner\u2019s 2020 depreciation expense without cost seg - $261,692\n\n~Owner\u2019s 2020 depreciation expense cost with cost segregation - $3,918,400\n(accelerated amount was 32%)\n\nIf you have any questions, DM me full disclosure, I do work for cost segregation firm, and this stuff is a no-brainer", "replies": [], "depth": 1}]