Tips for Controlling Your Insurance Costs in 2020
Following the trends of 2017 and 2018 (which saw five of the 15 costliest catastrophes in history), 2019 continued to see property and liability rates rise, and more stringent underwriting requirements. Some insurers’ once strong appetites for risk in the habitational insurance market are waning. Investors with properties in catastrophe-prone areas are likely to continue to feel this rate pressure into 2020, particularly those in areas susceptible to windstorms, flooding, and fire.
So, how do you control your insurance costs without jeopardizing coverage?
If you find yourself experiencing increases in your property rates, or are just looking for ways to maximize ROI of your property portfolio, consider some of the following ways to control your insurance costs:
Shop your rates with multiple carriers.
Work with an independent agent that is contracted with several carriers and programs AND understands your unique needs as an investor. This allows your property to be considered by several different carriers that may have a very different approach to the risk in question. Carefully review the differences between the cost options presented to you, as cheaper is not always better. Know what is and is not covered, and what you are giving up for a lower rate. Never jeopardize coverage and peace of mind to save a few bucks.
Be sure you know what type of loss settlement method you will be subject to in the event of a loss – Replacement Cost or Actual Cash Value. Replacement Cost can be a 20-25% higher rate but provides you the opportunity to recover depreciation. Consider your plan for the property in the event of a total loss. If you would choose not to rebuild, you would be overpaying with Replacement Cost coverage. Just be sure you are adhering to any requirements from your lending institution.
Consider a higher deductible.
Have you ever considered your deductible to be self-insurance? That’s exactly what it is, and the more you self-insure, the lower your insurance rate. Increasing your property deductible from $1,000 to $5,000 could save you as much as 25%.
For a good gauge on the deductible you may be comfortable with, consider the minimum claim you would turn in, then double it. Look also at opportunities to increase the deductible on certain perils, such as Wind/Hail or Water Damage, especially if you have past claims for these types of losses.
Carefully consider what claims you file. A property claim (regardless of size) can increase your premium for as much as five years following a loss. This means you may pay more in increased premiums over time than you would by just paying out-of-pocket for a $500 or $1,000 loss.
Make your property more resistant to a loss.
By properly managing your investment properties you may be able to avoid preventable losses and demonstrate to your insurer that you are serious about risk management. Many carriers will provide credits on their rates for working hardwired smoke detectors, central station burglar alarms and sprinkler systems. Install Carbon Monoxide detectors and fire extinguishers. Upgrade old electrical systems, furnace and HVACs.
Be sure that you or your property manager are regularly visiting the property to perform routine inspections and maintenance. Provide your agent with as much ammunition as you can to assist in reducing costs.
Require all tenants to carry renters insurance.
Many rental property owners have a clause in their lease requiring the tenant to carry renters insurance. While this is a plus for your tenant, it also helps you save money in the long run. Tenants do negligent things. Having a renters policy in force allows a tenant-caused loss to be paid for by the insurance company representing the negligent party. This will assist in stabilizing your property rates long-term.
Where not to cut corners
While property damage represents more controllable or “known” expenses, do not skimp on Liability coverage, where potential losses are unknown. Carry as much as you can afford with a minimum of $1,000,000 per occurrence and $2,000,000 aggregate annually. Lower limits save little money and can leave you and your business dangerously exposed in the event of a serious liability suit.
If your policy has co-insurance, don’t be tempted to insure your property to a lower value to save on premium. This can come back to bite you in a loss.
What other coverage you should consider
Cyber crimes like social engineering, hacking and wire fraud increasingly target small and mid-size businesses. As a landlord, property manager, or lender, you are exposed to cyber risk every time you send or receive an email, collect rent online, use an online tenant screening tool, and nearly any cyber activity. Cyber insurance can provide coverage for the cost to respond and recover from a data breach, including business interruption.
Following the 9/11 attacks, insurers increasingly began excluding acts of terrorism from a standard commercial insurance policy. Many are now offering this coverage as a standalone policy, primarily for property damage and business interruption. If you own a large number of properties in a concentrated geographic area, Terrorism coverage may be a consideration for you.
Depending on the location of your rental properties, consider additional endorsements for excluded natural disasters. Flooding is the number one natural disaster risk in the United States; and the risk is increasing. Earthquakes and sinkholes are also excluded perils you may consider a separate policy for, though not always available in all states.
Now is the time to work with your agent and take all necessary measures you can to control your insurance costs. Do not wait until your renewal is a few days out, and you are blindsided with a large increase in premium and no time to shop.