Multi-Family Housing Insurance:
New Challenges, New Solutions
It’s no secret that the global pandemic of 2020 has resulted in local-level challenges for owners of multi-family housing. Now, on the heels of operational and logistical issues forced by COVID-19 come the secondary shocks of significant changes to commercial insurance policies that accompany a suddenly hardening market.
As owners face renewals, the realities of sharp increases in property rates are further complicated by larger deductibles and a decreased willingness among conventional carriers, reflected in many cases in significantly larger deductibles. These factors, which of course influence profitability models, not only affect communicable disease coverages, but prohibited access and relocation expense coverages as well.
For these reasons, ownership groups of multi-family housing and other related commercial enterprises are considering self-insuring self-insurance options to cover these risks. A captive insurance company can be a powerful vehicle for alternative risk financing, giving increased agility and peace-of-mind when funding these liabilities. Let’s take a look at some issues that have become commonplace in this changed insurance environment.
Communicable disease and multi-family housing
The reality is that most commercial carriers are adjusting their coverage forms as a direct result of a change in the level of risk. In apartment complexes and other multi-family living environments, the risk of disease spread through contact is not limited to individual units. The risk of airborne contact extends to shared spaces, recreational facilities and multi-use areas. Even a single person can become a transmission vector for all.
While communicable disease coverage has been a standard component of commercial insurance for decades, carriers are in many cases dropping these risks entirely, leaving owners with no clear recourse to funding risks off their balance sheets.
A second threat is reduction or elimination of prohibited access coverage. This risk occurs when access to a floor or even an entire building must be curtailed or denied, leaving owners with a resultant loss of income. This restriction of access may be not be limited to the damage to an owner’s premises, but could also occur when access to the entire surrounding area is restricted.
Relocation expenses and other matters
Yet another change in renewals develops when owners are liable for relocation expenses when tenants are forced to move out of the premises, or move-back expenses after a threat subsides. Such situations are complicated in a tight real estate market, in which tenants may not be able to find comparable housing at a rate similar to that which the tenant was paying.
In the new environment, insurance carriers often are even unwilling to cover the cost of similar housing. In this case, owners often find themselves responsible for the difference between the two rent amounts. A further complication arises when, in addition to the increased rent expense, a property owner may be liable for the moving expenses of the tenant and family.
Finally, carriers are also responsible for the protection of personal property from their coverage forms. This complicates matters considerably. Given a triggering event, owners should make every effort to protect a tenant’s property that is in imminent danger. In addition, owners should consider the risks of post-loss mitigation efforts or remedial measures taken to limit damage to the premises.
In each of these circumstances, self-insuring the risks involved allows the owner the agility to proceed in a much quicker fashion, reimbursing for the expenses incurred from vacating premises due to water, fire and other causes.
Creating a captive solution
Today’s rapidly changing risk environment demands creative solutions from and for owners. Establishing a captive insurance company can provide coverage for these new exclusions in your commercial policy while creating a more robust risk management program.
In the event you are either being forced to take larger deductibles, or your desire to take larger deductibles raises questions on the part of lenders, Atlas has programs that can put lenders at ease. A complete risk analysis will provide more protection for your business, as well as new profit centers provided by Property Damage Loss Waivers and Security Deposit Waiver coverages.
Agility and foresight today could protect your bottom line now and into the future of risk.
