Property policy premiums have nowhere to go but up. That's why positioning your portfolio will be more important than ever in 2019, and not just to your potential clients. This year, it’s important to your property underwriter, too.
The lasting impacts of the catastrophic 2017 hurricane season and ongoing depressed building valuations have taken their toll. The result is a long-standing soft commercial property market that will drive insurance rate increases in 2019, with coastal and other loss-affected properties experiencing spikes as high as 25%.
Those that can improve their standing will keep rising costs at bay by best positioning portfolios with improved risk management. This includes disaster preparedness ahead of the next catastrophic event, and engaging your broker to negotiate policy language and premium rates tailored to your portfolio’s unique strengths and exposures. Looking ahead, here’s what is in store for real estate in 2019:
1. Habitational real estate will take a hit this year. Driven largely by traditional property loss leaders, including fire and water damage and increased property valuations, the largest property policy increases will be felt by habitational real estate owners. Building construction costs were up 3% in the first half of 2018 alone. Considering this rate of inflation, a property valued at $1M just a decade ago is very likely significantly underinsured today. To best position your habitational real estate, champion preventative maintenance, risk management, emergency response and have a water mitigation plan.
2. Water damage continues to flood the market as a top loss leader. Water damage claims remain a major driver of commercial property losses, and will continue to wreak havoc throughout 2019. As a result of aging infrastructure and new construction defects, both commercial and residential high-rises experience significant water damage claims. What typically begins as a small pipe burst in a single apartment or office quickly becomes a massive building-wide claim as water spreads to affect multiple areas of a building. Underwriters are taking note and are including additional deductibles on 2019 property policy renewals to protect themselves.
3. Being green isn’t always sustainable. Sustainability initiatives are great – when they don’t lead to additional risk. When they do, property owners and operators will face limited insurance options. For example, photovoltaic (solar) panels on the roof introduce the chance for electric shock, and therefore, firefighters have refused to spray water on them if they’re charged. Roof-installed renewables near the coast have blown off in a storm, causing additional damage to neighboring structures. Similarly, new wood-frame constructed structures have proven difficult to insure due to their increased risk of fire. All of these have led property policy underwriters to rethink potential exposures. Consider discussing renewable options with your broker/carrier before installation.
4. Working together has never been so easy. Warehouses and shared workspaces are exploding, counteracting shrinking retail demands across the country. With strong leasing power, shared workspaces have found success passing the savings along to businesses looking to reduce their footprint – and operational costs. Like renting a car, it doesn’t strain the budget to lease office space by the day, week or month - especially when someone else is taking care of the back-of-house technology infrastructure and facility operations, and front-of-house office management. Consult your broker/carrier to find out what type of insurance and risk transfer methods are possible when it comes to shared workspaces.
2019 Growth and Beyond
Real estate portfolio managers need to look inside their facilities and strategically institute best practices in the hopes of minimizing common loss leaders like water damage, be prepared when instituting sustainable initiatives that could potentially increase risk, and consider investing in and moving their offices to shared workspaces. Those who engage their insurance broker to help minimize premiums and optimize policy language will be best positioned in 2019 and beyond.