“Hail, earthquake and construction exclusions are all reasons that the carriers are making changes at renewal,” Morgan says. “You might have pre-agreed to certain conditions with your lenders, but as you renew your policy you could be taking yourself out of compliance.”
Markling and Morgan spoke recently on this topic at BOMA International’s National Advisory Council (NAC) meeting in Scottsdale, Arizona. The NAC is composed of C-suite executives from the leading commercial real estate companies, and insurance changes also have been top of mind for these industry executives.
Both Markling and Morgan warn that certain policy protections that favored the commercial real estate sector under previous policies might no longer be available today. “Ten years ago, policies said, ‘For every location you have, the liability policy would apply on a per-location basis,’” Morgan says. “Now, carriers are saying, ‘This is the maximum we will pay—and there’s no per-location aggregate anymore.’”
The ability to purchase as much insurance protection as you did in the past might be limited now, Morgan says, “and what you do buy, is much more expensive.”
Insurance companies are “way ahead” of most of their commercial real estate customers right now, they say. Morgan highlighted sample language from one general liability policy, saying it included eight clauses essentially noting that a carrier would only provide certain types of coverage if it were required in the written agreement between the lender and the property owner. “This is putting a lot of the onus on your legal team,” Morgan says. “If they don’t understand this, you are not going to have the coverage available to you, because you didn’t require a written agreement for this.”
Commercial real estate professionals should review and revise their previous insurance policy language to ensure that they are properly protected should a casualty occur, Morgan advises.
“Hail damage was routinely included in your general property policy,” he explains. “Now, carriers have created—in certain counties in Texas and Colorado—hail zones, where coverage is limited, and the deductible is much higher.”
This trend has been unfolding for the past two years, Markling says, citing the impact on the insurance industry of losses caused by hurricanes, hail damage and other disasters.
Markling and Morgan fought back.
“We knew this was coming before they hit us,” Markling says. “We negotiated and worked our carriers very, very hard. Instead of waiting, we mitigated a substantial amount of pain that would have been inflicted had we sat back and waited.”
Markling advises others in the commercial real estate sector to:
• Be aggressive. “If you’re passive, they will dictate the terms to you,” he says.
• Be prepared. “We engaged the brokers and markets ahead of time and said we want to talk about this,” he shares.
• Be willing to negotiate. “On our hail zones, they redefined these specific hail zones. They had a cap on coverage that was lower than our normal program and had a much higher deductible,” he shares. “We said, ‘We’re willing to accept the deductible increase, but we will keep the maximum limit of our program policy. They agreed. That was a huge win.”
• Be transparent with your data. “You have to give them data on the building—lots of data,” he says. “If you’re totally transparent and honest with the data they will underwrite you more favorably than if you don’t tell the truth. They don’t like surprises.”
Ultimately, Markling says, you don’t have to accept what the insurance markets offer you.
“You have to fight, negotiate and be honest about your data,” he advises, “because the last thing you want is a denied claim.”