MULTIFAMILY INSURANCE COSTS ARE THROUGH THE ROOF

By LAUREN LIEB

Landlords and investors across the country are encountering extreme increases in insurance premiums. Renewal premiums are increasing anywhere from 20% (at the low end) to 200%+ of the previous year’s premiums, which is putting landlords in a precarious situation when looking at how to afford such astronomical increases.

WHY ARE INSURANCE PREMIUMS GOING UP SO MUCH FOR LANDLORDS?

Various factors are causing the steep increase in insurance premiums in the multifamily industry, and according to insurance companies, those increases aren’t likely to go away this year – or next.

Climate Change

The primary reason for heightened rates is tied to the increase of both the severity and the frequency of catastrophic weather-related events. The GulfCoast states all the way up the Atlantic have faced a large increase in claims and payouts due to hurricanes. The West Coast has been inundated with large wildfire claims, since the wildfire season is no longer being contained to the hotter months, but instead are occurring year-round.

Increase in Tenant Lawsuits

Higher claims due to tenant-caused damage and liability lawsuits are also directly impacting the industry’s premium trends, especially for properties that don’t require or track their tenants’ renter’s insurance. That gap leaves the landlord’s policy to be primary on a claim they may not be responsible for.

Inflation

Properties are also facing higher replacement costs, which are directly tied to insurance premiums, which are in turn due to inflation, labor costs, supply chain issues, and increased timeframe of construction.

Insurance Providers Exiting the Market

Due to an historically high claims payout history for the multifamily industry, some insurance carriers, who had previously specialized in multifamily, have also pulled out of the industry all together, causing less competition in the market. Most of the standard carriers remaining have put a cap on the age of the building they deem as allowable risks, which has put properties older than 30 years at a severe disadvantage when approaching the standard market.

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HOW CAN YOU PREPARE FOR INSURANCE INCREASES

For investors, it’s important to underwrite deals with an insurance agent who is knowledgeable about the industry trends. Assuming a cost-perdoor that last year would have been $500, is now going to likely be double that today. Underwriting without the input of an expert will cause certain strife when budgeting.

It’s also important to take insurance costs listed in Offering Memorandums with a very large grain of salt. Rarely are those figures on the mark, and without the specific details of what the seller was insured for, it is essentially comparing apples to oranges.

Those with or preparing to work with lenders also need to pay specific attention to what the lenders are requiring regarding insurance requirements. Those with government-backed loans will need to budget for the additional coverage that must be carried when working with those lenders.

Lastly, be sure to shop for insurance if you haven’t received a quote in the last 2 years. An insurance broker can help you determine if you are in fact getting the best insurance rate possible and what improvements you can make to your property to reduce your premium.

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