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Important Commercial Real Estate Lessons From Hurricane Irma

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Insurance coverage is top of mind for Florida’s commercial property owners following the damage left from Hurricane Irma.

Building owners had rushed to review their policies to determine whether they had adequate insurance coverage in place in preparation for the storm.

GlobeSt.com caught up with Tom Kersting, president of the insurance services division of Franklin Street, and Nancy Sheinberg, vice president of insurance services, to discuss how insurance providers are helping property owners navigate their Irma policy claims.

GlobeSt.com: What pre-hurricane steps did your team take to help expedite the claims process?

Kersting: We spent several days on the front end of Irma communicating with our clients, pushing out proactive risk management tips, encouraging them to review coverages and make sure they had their policies readily available post-storm. This information is provided when our clients bind policies, but it becomes important to “refresh” as a major storm approaches. This year we also developed a variety of digital tools so clients can easily get in touch with us and report claims if they have one.

Sheinberg: What we did before the storm really made a big difference. An emergency claims phone system was set up so clients were getting a call back within minutes of submitting a claim. Franklin Street has also developed a proprietary master policy layered program that can save property owners thousands of dollars both regionally and nationally, while meeting all lender requirements. Hurricane Irma is showing that our insurance coverages are solid, so it gives credence to the program.

GlobeSt.com: What type of insurance claims are you getting most frequently?

Sheinberg: What we’re seeing most are trees down and roof damage from fallen trees or water leakage. But we still have many clients in South Florida who haven’t been able to get to their properties to inspect the damage.

Kersting: Much of the damage that has been reported to us has been to our multifamily properties.  Often multifamily assets are wood-framed buildings that are generally not as protected as office buildings.

The majority of our claims are coming from the east side of the state. We still expect more claims to come in, at this point some owners haven’t been able to visit their properties yet.

This is especially the case with out-of-town owners who may have difficulty getting access for a few more days. In other cases, it’s common for owners to be aware of damage but they haven’t decided yet if they want to report a claim or go about funding repairs themselves.

GlobeSt.com: What are some important lessons learned from Hurricane Irma?

Kersting: From an insurance stand point, there haven’t been major insurance claims incidents in Florida for over 10 years. An event like Hurricane Irma makes policy holders reevaluate their insurance coverage and take a hard look at their deductible levels.

These are conversations that need to be had, we don’t want our clients to be surprised in a time that they turn to their insurance carrier for help.  We continuously push to educate our clients about their coverage options and show them how their insurance policy will be a valuable tool to protect their balance sheet, not simply an expense burden that appeases a lender.

(There are legal issues involved in filing insurance claims of which you may not be aware. Find out what you must know now to avoid felonies.)

 

Source: GlobeSt.

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Property Insurance Rates Fall Up To 20% For Those With Low Catastrophe Risks

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Primary commercial property insurance is a buyers’ market with rate decreases of up to 20% for many U.S. accounts that renewed at midyear, with the exception being those with high catastrophe exposures.

Limited catastrophe losses and an influx of insurance capacity exerted considerable pressure on prices, brokers and market experts say. “The market is very insurance buyer-friendly right now,” said Duncan Ellis, U.S property practice leader at Marsh USA Inc. “Purchasers of property insurance are finding a very favorable environment toward pricing, toward capacity and toward interest in their risks.”

Premium decreases should be “on an average basis, probably high single digits to low double-digit percentage decreases,” Mr. Ellis said. Some accounts could see rates fall up to 20% “based upon good solid competition in the marketplace.”

“For 2014, we are definitely in a rate decrease environment,” said David Finnis, Atlanta-based national property practice leader at Willis North America Inc. Willis clients saw property rates fall 7.5% to 12% through June 30, he said.

However, catastrophe-exposed accounts will find a somewhat “less friendly” market than those without catastrophe exposure, Mr. Finnis said. “As one would expect, premiums are still higher in high-catastrophe areas like Florida and California vs. noncatastrophe areas like the Midwest,” he said.

Stewart Ellenberg, risk manager for the city of Boulder, Colorado said the city was fortunate to renew with a “slight” rate increase despite a large property insurance claim related to the September 2013 flood in the region. Likewise, Union County, North Carolina renewed its commercial property coverage for a 2% price increase, but deductibles for flooding and earthquake each doubled to $50,000, said Tiffany Allen, the county’s risk manager.

Looking ahead, about the only thing that could turn the market would be a major hurricane or other disaster. “If there are no catastrophe events, we predict that you’re going to be looking at double-digit decreases for the remainder of the year,” said Al Tobin, New York-based managing principal of Aon Risk Solutions’ property practice. “Double-digit decreases will continue,” approaching 20% for some accounts, he said.

“There’s just so much capacity in the property market right now, between incumbent insurers wanting to increase their lines or new underwriters trying to get on to the accounts,” Mr. Finnis said.

Mr. Tobin said, “What’s driving the market as much as anything is increased appetite among the top 10 catastrophe property carriers.”

“The absence of major losses … would be the No. 1 market driver, because that’s starting to attract capital,” Mr. Ellis said. “When looking at the results for 2013 combined with what we have seen in 2014 thus far, property is looking like a solid bet right now and is thus why we are seeing a lot of money or capital flowing into the property space.”

Analysts Agreed

“If you take a step back, it’s how financial markets work,” said Cliff Gallant, an analyst at Nomura Securities International Inc. in San Francisco. “There’s been an area where profits have been pretty good in recent years relatively speaking and so capital is flowing there in different forms.”

“I think where there’s underwriting success, that attracts capital to those lines,” said James Auden, managing director at Fitch Ratings Inc. in Chicago. “So if you have large underwriting gains in a segment, existing players put more capital into those lines.”

Alternative capital flowing into the reinsurance space may reduce reinsurance pricing for primary insurers, but it has not significantly affected primary insurance prices. “Reinsurance is just one ingredient in the makeup of (primary insurance) costs,” Mr. Tobin said.

Also, there is no broad lingering effect from Superstorm Sandy on property pricing this year, Mr. Tobin said. “Insurance companies are more acutely aware of deductibles and limits, but price has not been affected,” he said.

“There is no Sandy hangover on pricing,” Mr. Finnis said. “The only lingering result is that individual insurers are no longer providing $100 million in limits in the areas that were affected.” Those policy limits now vary by account but usually range from $25 million to $50 million.

What’s more, the uncertainty of congressional renewal of the federal terrorism insurance backstop thus far has not caused property pricing movement. The backstop will expire at the end of the year unless Congress renews it. Renewal legislation has been introduced in the House and Senate.

“There has not been any effect on (property) pricing and there is not likely to be because there is more supply,” Mr. Tobin said of the federal terrorism program.

 

Souce: Business Insurance

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