We all love real estate. Real estate is an awesome investment, like no other. We buy it to create cash flow and appreciation – as well as depreciation and other tax write-offs.
If it drops in value, you still have the property; and hopefully it’s rented and at least breaking even. If you lose money one year, you get to take the loss off that year’s taxes; essentially, the ever-shrinking numbers of America’s tax payers help you through the cycle. And, you still own it; you still have the patch of land and the physical property on it. There are exceptions, but generally, it is an investment that will eventually make money. History proves this.
Like Real Estate itself, insurance premiums run in cycles. Often, our cycles are going in the opposite direction. It is not at all unusual to see premiums increase in recessions and decrease in good times – increasing your cash flow month to month. There is empirical evidence to this.
There are times that premiums will increase due to all types of factors that have nothing to do with the local or national economy. These factors include climatic/catastrophic claims, cost of materials & labor, governmental regulations, legislation of coverage requirements, increased useage of credit-based underwriting, and the lack of market competitiveness (insurance companies backing off a losing business segment). And, there are other factors, such as the simple math of loss trends: more losses over a period of years than income.
In the past five years, we’ve had all of that with the possible exception of inflation. Yet with the “one world” economy the cost of goods has increased (concrete is unbelievably expensive); even with the cost of labor off-setting a lot of that increased cost for a while, that trend is changing too with inflation starting to show itself in certain areas of the economy.
What is happing now – what’s the current trend? Insurance premiums are going up. Why? For all of the reasons listed above:
- Loss trends (there have been severe claims hits in 4 of the past 5 years)
- The cost of replacing damaged property has increased
- Insurers restricting what types of property they will write or outright abandoning the marketplace due to unfavorable experience.
You are now seeing it all happen at one time – something you won’t normally experience. So, underwriting restriction plus 10-15% premium increases are not at all out of line in the current marketplace; expect it. It will cut into your cash flow, and it will be unavoidable. You can lessen your protection and save a bit of cash, but then to save a little you may risk a lot – possibly the property itself.
Now, more than ever, you want to hang with the big-boys, like Safeco. The company’s market penetration, in this insurance segment, will keep them in the game. And, you – as a consumer – want that consistency; you need to know that your insurance will be there in good times and bad (try being an out-of-state Landlord and buying insurance in the Midwest if you don’t believe me).
It took our agency 5 years to get the best insurer of landlord properties – Safeco – to team up with us. We approached them in 2002 when companies wanted little or none of this business (they were all losing money in this business segment), and it wasn’t until the end of 2006 until Safeco jumped on board with us. And now, still fewer insurers would even consider creating an aggressive new landlord insurance program. Kudos to Safeco, for not only staying with us but also for allowing us to remain aggressively active in this business.
And, as a company not to be forgotten, we secured ASI (American Strategic Insurance)to compliment the Safeco program; they see the value of this market segment and also know how to underwrite it.
Yes – rates are going up, but you can secure your position with the best insurers in the business. Contracts and consistency: That’s what you want in Landlord insurance. Be certain you have it.
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