Landlord w/ 6 Properties & Multiple Insurance Claims WHAT TO DO?

Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes

Hello BP World,

I currently have 6 rental properties that are all in my personal name. Over the years I have had 3 different claims at separate properties some that I no longer own. My problem is insurance companies are now not insuring me personally for my primary residence or if they are insuring offering really high rates because I am considered high risk individual in their eyes.

How have you guys avoided this issue? Are you experiencing similar issues?

Regards,

Alex B.

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Jason BottPro Member

Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes

@Alex Babayev At your size, I would have recommend filing all of those claims. That way you push off the out of pocket cost in the form of higher insurance premiums over the following years, instead of an immediate big hit.

Once you move to an LLC, insurance companies look at a 5 year "Loss Ratio". The Loss Ratio is the amount in premium collected divided by the amount of claims in 5 years. Let's assume you pay $5,000 per year for all 6 properties, with your claim amounts listed above, that puts you at 128% loss ratio.

Insurance companies look at clients the same way you look at a rental property and see if the #'s work. With your claims, your #'s don't work for the insurance companies until they can get a premium that would make that loss ratio look closer to 70%-80%, or an annual premium of $9,000-$10,000.

If you had 5 x's as many properties, 30 units, you would be paying $25k. Hopefully you would not have 5x's as many claims. If this held true, the claims you had would have much less of an impact on your premiums.

I have clients with 1,000 units that average only 1-2 claims per year as they just have staff handle anything under $10,000.

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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
9y
Claims for what? Roof damage? Theft? Fire? Flooding?
If you had three separate claims for the same issue, I would be leery of doing business with you, as well because it indicates a strong possibility of happening again.
I don't have any suggestions on how to repair your reputation.
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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Alex Babayev I don't know if you can avoid high premiums if you make claims. One pretty much goes hand-in-hand with the other. If you end up in 3 car wrecks your premium will go up even if you're not at fault. Your premiums can go up if you live in an area where others get in wrecks even if you don't. It's all actuarial risk analysis. Your history of making claims just makes you a higher actuarial risk than someone who had made zero claims. I would hazard to say the way to avoid it is to not make minor claims. Pay out of pocket. At the moment you might ask for an extremely high deductible policy. Wait 12 months with (presumably) zero claims and ask for a reduction or shop around again. I don't know if any short-term remedy.
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Kim Meredith HamptonBusiness Member
Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
9y
@Alex Babayev if you were you, would you hire yourself when you keep making mistakes or got fired from your last three jobs?? Highly unlikely.
If you can avoid making these claims, handle the items yourself and move on. You may have to self insure or pay the price
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Alex Babayev
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Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes
9y
@Kim Meredith Hampton @Andrew Johnson @Nathan Gesner
My logic is that the more properties I have the more exposure and chances of me filing a claim may happen. My claims came from water pipe burst, AC unit being stolen, and water damage in a condo from upstairs (all at 3 separate properties). All situations are out of my control.
I am wondering what people do when they have multiple properties 20 or 30 properties for example you can't avoid and control the claims.
Is the solution to put properties in LLC and get insurance in LLC name to avoid negative reporting on my name personally.
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Anthony GaydenPro Member
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
9y
Originally posted by @Alex Babayev:

@Kim Meredith Hampton @Andrew Johnson @Nathan Gesner
My logic is that the more properties I have the more exposure and chances of me filing a claim may happen. My claims came from water pipe burst, AC unit being stolen, and water damage in a condo from upstairs (all at 3 separate properties). All situations are out of my control.
I am wondering what people do when they have multiple properties 20 or 30 properties for example you can't avoid and control the claims.
Is the solution to put properties in LLC and get insurance in LLC name to avoid negative reporting on my name personally.
I very rarely make claims. It might also be that I have a higher deductible, so making a claim for smaller things would be counter-productive.
We had a particularly damaging hail storm in Tucson a couple of years ago that destroyed my skylights in all my units and front windows. The damage was over $1000 and I paid it out of pocket.
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Alex Babayev
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Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes
9y
@Anthony Gayden My deductibles are $1,000 on my properties.
But I don't agree with the logic of not using your policy and paying out of pocket.
My claims were $26K - $5K - $8K for separate properties separate issues.
That would be lots of out of pocket cash and a very unprofitable rental portfolio.
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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Alex Babayev I don't think it's a matter of agreeing with Anthony Gayden 's logic. It's a matter of practicality. You have to balance what you'd get from insurance against the deductible and projected premium increase. Anthony has paid more out-of-pocket, you will pay more in insurance premiums. There's give and take, I'm guessing Anthony guessed: $1,000 < Deductible + Premium Increase That analysis likely wouldn't work for a $25K claim. And insurance companies probably wouldn't kill you for a single instance. But you've hit them up 3 times with claims. I'm sure their actuarial profiles now deem you riskier than Anthony. Therefore, they charge you more.
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Alex Babayev
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Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes
9y
@Andrew Johnson I am not disagreeing that they see me as a risk. My question is to find out how other who have several properties and several claims handle the situation.
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Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
9y
Originally posted by @Alex Babayev:
@Anthony Gayden My deductibles are $1,000 on my properties.
But I don't agree with the logic of not using your policy and paying out of pocket.
My claims were $26K - $5K - $8K for separate properties separate issues.
That would be lots of out of pocket cash and a very unprofitable rental portfolio.
The $26k claim is the only one I would have made. With 3 claims what do you expect? Insurance companies aren't a charity, you're now looked at as extremely high risk and it will be priced accordingly. You can't claim every little thing, insurance should be used for the things that you cannot afford otherwise. Anyone can end up with one claim, people with 3 aren't desirable for an insurance company. Raise you deductibles as high as possible and maybe you'll find affordable rates.
I own 60 properties and have never filed a claim with my insurance companies. The only claim I've had was against a driver's insurance that crashed into one of my houses.
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Alex Babayev
OP
Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes
9y
@Patrick L. Are all 60 of your properties in your personal name?
let me rephrase my question.
Does it make sense to transfer all my properties into an LLC get insurance in the LLC name which will avoid future derogatory reporting on my personal name with insurance agencies?
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Jason BottPro Member
Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
9y
@Alex Babayev At your size, I would have recommend filing all of those claims. That way you push off the out of pocket cost in the form of higher insurance premiums over the following years, instead of an immediate big hit.
Once you move to an LLC, insurance companies look at a 5 year "Loss Ratio". The Loss Ratio is the amount in premium collected divided by the amount of claims in 5 years. Let's assume you pay $5,000 per year for all 6 properties, with your claim amounts listed above, that puts you at 128% loss ratio.
Insurance companies look at clients the same way you look at a rental property and see if the #'s work. With your claims, your #'s don't work for the insurance companies until they can get a premium that would make that loss ratio look closer to 70%-80%, or an annual premium of $9,000-$10,000.
If you had 5 x's as many properties, 30 units, you would be paying $25k. Hopefully you would not have 5x's as many claims. If this held true, the claims you had would have much less of an impact on your premiums.
I have clients with 1,000 units that average only 1-2 claims per year as they just have staff handle anything under $10,000.
11 Reply
Joe J.
Investor · Los Angeles, CA · Member since 2017 · 95 posts · 52 votes
9y
Originally posted by @Kim Meredith Hampton:

@Alex Babayev if you were you, would you hire yourself when you keep making mistakes or got fired from your last three jobs?? Highly unlikely.
If you can avoid making these claims, handle the items yourself and move on. You may have to self insure or pay the price
I don't completely agree with this analogy as I feel that you can have claims made on events that were not in your control.
With that being said, I agree with @Andrew Johnson that regardless of fault, the underwriting is set on a set of fairly rigid criteria. I have multiple policies through AAA and they seem pretty conservative. I have 2 claims myself related to water loss on two separate properties and they will no longer approve any new policies for me. I'm not that concerned as their criteria looks at the past 5 years and my first claim will drop off shortly. I also learned the hard way as I wasn't aware of this underwriting requirement when I filed my claims (my deductible is $2,500 and claims were about $8k each).
You can always shop around as there are other insurance companies that may have looser requirements, although they may be more expensive or provide less coverage/customer service. Good luck!
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Alex Babayev
OP
Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes
9y
@Jason Bott Thank you! very helpful explanation. I appreciate it.
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Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
9y
Originally posted by @Alex Babayev:
@Patrick L. Are all 60 of your properties in your personal name?
let me rephrase my question.
Does it make sense to transfer all my properties into an LLC get insurance in the LLC name which will avoid future derogatory reporting on my personal name with insurance agencies?
Only a handful are in my personal name. I have almost all of them in LLCs. I have had AC units stolen, vacant properties broken into, water damage from plumbing, etc but I have always just sucked it up and fixed those without insurance. If one of my tenants starts a major fire then I'll save my claims for something like that.
I'm not an insurance expert so I don't know if moving them into an LLC will be of any benefit to getting those properties insured now as the LLC won't have any financial/insurance history so they'll have to look at you personally. It may help your personal insurance if you have future claims against the rentals but I'm not sure.
Insurance companies are very good at making money and if they're losing money on you they'll either drop you or try to make it back up with premiums.
3 Reply
Matt John
Investor · Bentonville, AR · Member since 2016 · 32 posts · 22 votes
9y
@Jason Bott Why would someone with 1,000 units carry insurance on all of them? They have enough units to spread the risk out. They could likely rebuild the entire unit on the 1-2 claims they have per year for the cost of the premiums they are paying.
1 Reply
Jason BottPro Member
Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
9y
@Matt John 2 main reasons.
1) to leverage to get that many units, there will be a bank involved demanding certain limits of insurance be carried.
2) the cost to insure at that level is much less than if you have juat a few units.
5 Reply
Stone Jin
Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
9y
@Alex Babayev I'm in a similar position. I've had 2 claims in the last 5 years across my properties and when I tried to apply for a new policy with State Farm(I would have been a new customer), I was denied. I went back to one of the providers that I already had policies with and they insured my additional properties with no real issues. I think underwriting and the actuaries aren't set up for landlords with multiple properties. The guy with 100 properties will have more claims than the guy with 1 property.
Basically just have to suck it up for 5 years for the claims to drop off and then try again.
1 Reply
Michael Seeker
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
9y
Originally posted by @Alex Babayev:

@Anthony Gayden My deductibles are $1,000 on my properties.
But I don't agree with the logic of not using your policy and paying out of pocket.
My claims were $26K - $5K - $8K for separate properties separate issues.
That would be lots of out of pocket cash and a very unprofitable rental portfolio.
In addition to the great feedback provided by others, I'll also point out that most insurance claims are at a much higher rate than it would actually cost you to resolve the matter on your own. Case in point is $5K for an AC condenser. Even somebody completely ignorant to HVAC equipment/costs and only getting one bid for this work should not pay $5K. Depending on the size of the unit and the type of property, I'd pay as much as $2500 for a new condenser or possibly $500-$1000 for a used one. Had you called around to 5 or 10 HVAC contractors, you could have gotten that resolved for about what your deductible is (or less) and left it off the insurance company radar. I suspect all of these claims could have been handled out of your own pocket for around $10K versus the $39K that your insurance company paid to resolve them. As somebody else mentioned, I might have utilized insurance on the $26K claim but that would be it.
You are not a "good risk" from an insurance company standpoint, so there is no reason for them to give you preferential pricing/treatment.
Changing the insurance from your personal name to an LLC does not change the claim history or your likelihood to file a claim.
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Alex Babayev
OP
Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes
9y
@Stone Jin This is exactly my point! "The guy with 100 properties will have more claims than the guy with 1 property."
@Michael Seeker My point is I have never had a claim on my own PERSONAL residence EVER. Currently insurance underwriting does not separate a persons business properties vs Personal residence. I am getting dinged for my business. I am trying to figure a solution out - I understand because of my previous risks I am considered a high risk candidate (I am not debating that) but I am trying to structure my business going forward to avoid being dinged for claims on my rental.
2 Reply
Tyler Parish
Investor · Newcastle, Ontario · Member since 2016 · 25 posts · 10 votes
9y
I think you need to go see a lawyer and accountant. Present your case to them, ask how you can structure your business. Maybe you need to have a corp, two corps, a trust. They will be able to set this up for you.
2 Reply
Jason R.
Real Estate Investor · Orlando, FL · Member since 2015 · 24 posts · 8 votes
8y
Bump to this. Going thru it right now. Farmers doesn't cover in some states.. on the phone all day, also working with a local bank to see if they have a product that will fit.
Amazingly no one seems to really talk much about the insurnece issues with multiple property's... they all just talk about how easy it is to buy there guru make money fast course... hmm...
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Alex Babayev
OP
Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes
8y
@Jason R. Yes, I feel this is a big issue and the market does not have a proper product for us investors to utilize.
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Jason BottPro Member
Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
7y
Originally posted by @Alex Babayev:

@Jason R. Yes, I feel this is a big issue and the market does not have a proper product for us investors to utilize.
Just want to follow up on this thread. There are many products in the market place for multiple properties, but you need to connect with the right type of insurance Broker. If you are asking your Home and Auto agent or calling Progressive and Geico, you will only have problems trying to fit your REI Business into a personal lines product.
99.9% of my clients are on policies that can handle multiple locations over multiple states.
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Alex Babayev
OP
Flipper/Rehabber · Atlanta, GA · Member since 2015 · 105 posts · 133 votes
7y
Can you insure my properties in Atlanta? If so lets connect @Jason
@Jason Bottundefined
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Jason BottPro Member
Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
7y
Originally posted by @Alex Babayev:

Can you insure my properties in Atlanta? If so lets connect @Jason
@Jason Bottundefined
Alex, yes I can. I'll PM you my info. Talk soon.
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