Covering Your Assets: Four Common Insurance Questions from CRE Leaders

October 4, 2017
Written by: Sue Myers, CREW Chicago

Are all of your assets in separate insurance programs? Feeling lost in a sea of policies? The number one mistake real estate companies can make when it comes to insurance is buying stand-alone programs for each asset or investor portfolio.

A great insurance broker can structure one program to cover all your assets. The key is to make sure when covered under one program that the limits aren’t shared. Each building should have its own limits. This prevents a loss at one location from impacting the coverage for another.

You’ll not only benefit from huge time savings, but also the following:

  • One renewal date

  • Option for blanket limits on property and liability

  • Ease of adding in new locations

  • Strong relationships with your partner carrier

  • Flexibility when adding in new locations based on construction type

  • Losses span a greater ratio based on multiple properties on one policy

  • Simplified billing

Here are four common questions that arise when I recommend policy consolidation:

“Won’t consolidation reduce my limits of coverage?”

On paper, more policies seem like more limits and coverage, but they are not. You can structure liability policies to allow the aggregate limit (a typical example is $2M) to apply individually. Every liability policy has a clause called the “Separation of Insured” that defends each named insured individually. Lastly, you can buy umbrella/excess coverage to increase the total limits. In property coverage, you can aggregate the limits into a blanket limit which actually will provide more coverage than stand-alone limits as individual buildings can now share from a larger pool.

“Hmm. But you’ll probably have to reduce or restrict coverage provided, right?”

Not exactly. You’ll find this improves your coverage terms. Coverage sub-limits are a fraction of the size of the insured values and square footages. The larger the premium, the broader the terms or the larger the sub-limit options offered. There are often exposures–for example, development land or vacant buildings–that a standard carrier will not insure on an individual basis. In a master program, it’s included and less expensive. Important coverages such as no coinsurance, ordinance or law and loss adjustment expense are included for no charge as opposed to the additional premiums charged on smaller policies.

“More coverage sounds like more cost, so will we have to pay more than necessary?”

Hate to break it to you, but if your program is stand-alone, you’re already paying more than necessary. Besides gaining economy of scales, as discussed a moment ago, there are also filed fees for policy production, state filing and minimum expense loadings. We’ve found that these factors combined will save clients on average between 15% to 40% (this is an example; individual results may vary) on their insurance spend–which means more money back in your pocket.

“But what if one property has a loss? Won’t all the rest have to pay for it?”

Insurance policies are typically written on 12-month terms. If there’s a large loss, the pricing is set for the remainder of the term until renewal. At renewal, you can make the determination to remove the location or continue down the path of a master program. In practice, we’ve found the larger premium will absorb shock losses better than individual properties which can be subjected to significant increases or, even worse, cancellation. Consolidation provides stability and flexibility on program costs.

It’s time to learn more about covering all your assets with a master insurance program.

Sue Myers is a Vice President at Assurance who specializes in real estate and hospitality with over 16 years in the insurance industry as a commercial Property & Casualty broker and underwriter. Myers  currently holds the following designations: Chartered Property Casualty Underwriter (CPCU), Associate Risk Manager (ARM), Associate in Claims (AIC) and Associate in Insurance Accounting and Finance (AIAF). She is a member of CREW Chicago. 

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