Greetings readers, and welcome back to Cost Cutting in 2011. Today I will focus on different ways to lower your property insurance premiums while highlighting different opportunities and pitfalls when purchasing a policy.
Building Type:
As we saw in last week’s post, your premium will vary based on the use of the building. Insuring multifamily properties is trickier than office or retail space, due to occupier density, more combustible materials, appliances, and moral hazard. Tenants who rent living space typically don’t rely on the space for business operations, yet tenants in office and retail buildings have a significant interest in preventing property damage, as their business operations would suffer from any type of interruption. In industrial buildings you need to know who your tenants are. If you have two tenants competing for space, a company that packages wooden furniture and a company that packages metal products, your monthly insurance premium is going to be much higher if you lease space to the furniture company.
Aggregate:
If you own a portfolio that specializes in a single asset class, your broker should strongly consider buying an aggregated master insurance program. The more assets you have to insure, the greater your negotiating strength becomes when looking for an insurance quote. If you currently have 100 properties and 100 individual policies, you’re spending way too much money. If you have a diversified portfolio of real estate assets, you’ll want to compare the costs of a master aggregate program with a different program for each class.
Market Cycles:
Due to artificial supply in the property insurance markets, costs have been driven down and we currently sit in a soft market. According to Rob Odell, Chairman of Odell Studner Insurance Brokers and Consultants (one of the premiere insurance brokers in the northeast region) even in the forthcoming hard market, insurance companies will be hesitant to increase rates, for fear of losing market share. Make sure that you or your broker uses this to your advantage if your insurer attempts to adjust your rate upwards in coming years.
Past Experience and Loss Control:
For the most part, the insurer will consider such factors as claims history or specific loss-control measures when making adjustments to your rate. In states where rates cannot be adjusted, dividends are commonly used as a way to reduce premiums. Installing smoke alarms, heat detectors, and security guards are obvious ways to lower your rate. Fire extinguishers, standpipes and hoses, and automatic sprinkler systems are other ways to show the insurance company you’re serious about controlling losses.
Vacancy Risk:
Keep in mind many insurance policies become inactive if a property is more than 70% vacant. If you have a shopping center that had a Circuit City and a Borders in it with an individualized insurance policy, you might be paying a monthly premium that gives you zero coverage.
If you have an office building in a tough market that’s only 25% leased, make sure you’re not paying your insurance company for nothing.
Conclusion:
In summation, take inventory of your assets, make sure you have an appropriate program in place, leverage your claims history and loss-control measures to reduce your premium, and make sure your coverage will kick in should you experience a loss.
reprint from Llenrock.com written by Max Marine