December 14, 2006

Insurance costs will likely continue their post-Katrina climb

  • Look for 50 percent increases in the cost of catastrophic coverage.
    Cascade Risk Placement

    Last year, I was asked to write an article relating to the insurance costs for real estate owners in the Northwest as a result of hurricane activity in the Southeast. In that article I addressed the thought that we might experience higher costs in our territory even though we had little or no experience with hurricane-type winds.

    Unfortunately, the prediction has turned into reality as the cost of real estate property insurance has increased across the board on asset owners buying catastrophic coverage lines, such as earthquake and flood.

    Reinsurance costs for catastrophic coverage lines such as earthquake, flood, hurricane, tsunami and tornado are increasing at a rapid pace. Expectations are that we will see further increases after the Jan. 1 reinsurance renewal date.

    Controlling these fluctuations in the market is not easily done by your agent and/or insurance consultant. Understanding the changes and providing a knowledgeable solution, however, are very controllable and can determine the success your organization has with the renewal process.

    Three major changes will be realized during the renewal process:

    1. Rates will be increasing at a minimum of 30 percent to 50 percent for catastrophic coverage lines.

    2. Capacity will be very limited for catastrophic coverage lines.

    3. Due to a lack of capacity, many more layers of insurance will be needed to support desired limits.

    Getting to the market early in the renewal process and having the ability to access the “full” market place is imperative for your agent or consultant to provide the most comprehensive and competitive responses. Working with an agent/agency that has a focus in the real estate insurance industry is going to continue to be an important decision for your firm.

    Not all agencies have market relationships with insurance companies that focus on the real estate industry. Unfortunately, your agent can only provide insurance from markets they represent. Often the lack of markets available will significantly limit the ability to fully place your insurance needs at the most competitive pricing and terms.

    Group programs will once again be looked at as a solution to the frustration over significant cost increases. In the last three years, many new programs were created in an effort to stabilize pricing for larger property owners and managers. Those programs were created when the market had capacity available and can now provide a solid solution for owners and managers looking for a competitive placement.

    What can owners/managers do to control insurance costs this year?

    We often suggest to our real estate clients they should find a way to consolidate their assets into a master insurance policy to add premium and coverage volume to a single source insurance company. This combining of dollars will significantly reduce their costs of insurance while at the same time increase their limits of coverage.

    If an owner does not have multiple assets that can be combined, the next best option is to join a group that has an insurance product available to them.

    Finding these programs is one of the larger hurdles most owners will endure. Checking with your local real estate association groups or professional memberships will allow you some avenues to find solutions. Probably the best solution is to find an agent or agency that has expertise in the real estate insurance industry, as they can steer you towards a product that favors your current position.

    Shane Sullivan is president of Cascade Risk Placement in Bellevue. CRP specializes nationally in group programs for real estate accounts such as commercial, multifamily, hotels, vacation rentals and single-family homes.

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