You want Great Insurance Rates? Here is What Your Insurance Company Wants in Return

| November 16, 2021
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You want Great Insurance Rates?  Here is What Your Insurance Company Wants in Return

In last month’s issue of the Apartment Journal, we provided an outline of coverage enhancements that can make your insurance experience much more pleasant as these newer products tend to come with more competitive premiums and expanded coverage forms.  

This type of approach (packaging broadening coverages and offering the entire insurance contract for less than if you purchased 3-4 of these items separately on your current insurance contract) has occurred often in the past; there is nothing new or conspiratorial about this approach. 

The companies will, however, want something in return for their largesse.  They will want significant upgrading to your older properties as well as elements of a risk management approach toward your properties, the latter being something easy to accomplish if you have professional property management in place – which we highly recommend.  

Here is a partial list of what the companies will want, from you: 

  1. For the better property policies – offering the most coverage for the least premium, they do not want to see any construction activities on the property aside from general maintenance.  If you are gutting a portion of your property to bring it up to code, the competitive insurers will want that work completed before they offer you coverage.
  2. In Southern California, we are used to everything being new; except for a few new buildings that are constructed in the SoCal cities, most of the properties are starting to age a bit.  For the newer property forms, here is what they want to see on your properties:
  • Electrical wiring, Heating, Plumbing, and the Roof mut be replaced within the past 30 years.  Sometimes, we can get a close situation passed through underwriting if you have an extremely favorable inspection report from a licensed general contractor.  
  • Electrical fuses, aluminum electrical wiring, and defective (older) electrical panels will disqualify your building from the newer, preferred programs.  These all need to be replaced for the better programs. 
  • Some companies will not offer the newer programs on properties with ANY galvanized plumbing.  That is a rough one for most of L.A. County!

These types of construction updates have a lot of history behind them.  In our offices, over the past 40 years, we have seen the worst claims come from either insufficient or defective utilities (electrical, water, heating), or from inattentive tenants. Common claims include cooking claims (tenant takes a turn at wok cooking); inattentiveness claims (walking away to the beach while the muffins are cooking in the oven, which eventually catch fire); electrical fire claims behind the walls (often the result of bad electrical work or systems not to code); heater fire claims that are not serviced regularly; and electrical overload claims on systems that are not updated  but which your tenant expects will handle the Christmas Tree, lamps, aquariums, and the TV all on the same outlet with the assistance of a multiple outlet unit with a worn-out breaker. 

Insurance companies are painfully aware of these common situations that will lead eventually to very large and frequent claims.  No one wants to spend money that will take away from cash flow, particularly now as landlords may not be collecting their full rents.  Once you can update your properties, then you can reap the reward of lower prices with more coverage; you will also save by reducing the chances of claims and the accompanying deductibles as well as the lost time and increased frustration and angst which always accompany a claim.

Insurance companies are also quite aware that they pay a lot of claims resulting from water intrusion through older roofs. The kind of weather we have been experience the past few months (heavy winds, followed by rains) creates vast numbers of claims that could be avoided.  Since the companies must pay these claims, they are now starting to insist upon newer roofs, certainly under 30 years old for apartments.  It could be worse; in other states, roofs that are over 15-20 years old are disqualified immediately from preferred residential programs.  Make a new friend and develop a relationship with a roofer!

Other items that can cause you the inability to obtain preferred coverage or possibly even lose what you have now include the following:

  1. Insurance companies just do not like certain breeds of animals; check with your company to see if you even have coverage if your tenant with an aggressive breed bites a guest to the premises. 
  2. If one of your tenants is operating a small (or larger) child-care business, if the companies know about this, your coverage may be cancelled; certainly, the newer, more broad and better priced forms will not allow this to occur.  They will ask, and if upon inspection you find out one of your tenants is doing this, the insurance company will cancel your policy as soon as it can legally do so. 
  3. Insurance companies do not like units mostly filled with students or which cater to student housing; this may be a disqualifying question on the application for new policies.
  4. If any property you have is more than 25-30% vacant, that may disqualify you for newer programs; this may also void your current coverage.  Check with your agent.
  5. Insurance companies want to be certain that your new leases prohibit smoking on premises; some will not offer coverage if any of your remaining leases do not prohibit this.   
  6. Smoke and carbon monoxide alarm system must be current, powered with 10-year sealed batteries, and be placed in accordance with the requirements of the governing municipalities. 
  7. If you have had past claims, or policy lapses in the past 3 years, you may not qualify for these better programs; keep your insurance current and practice safe property management with the assistance of the AACSC and professional property management.

So, as you can see, there is no free lunch, but once you can qualify for these newer, more comprehensive, and competitive programs, you will find that your insurance experience will be more of a positive one with a partnership with you, your insurance agent and property management company, and your insurance company.  This is how your insurance program can be developed and cultivated for your maximum benefit.  

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