Multifamily Risk Management - Are You in Good Hands?

(March 2012) One of the most costly fixed operating expenses for multifamily owners is property insurance.  As apartment buildings fluctuate in value due to market conditions and cashflow, the key to maintaining proper risk management is thru policy evaluation.  Savvy Owners undergo policy term reassessment on an annual basis to determine if coverage is adequate and in line with current metrics.  Primary elements to review on policy declarations include dwelling, liability, deductibles, and riders; additional coverage for protection against events such as weather crisis, earthquakes, and the like. 

As premiums and terms (bi-annually or annually) are competitive, be thorough in your respective due diligence and entertain discussions with at least three (3) property insurance resources.  Be mindful that quotes will vary based on property characteristics such as number of units, year built, construction type, and square footage.  Other attributes factored into rates include roof type, amenities, and property history.  As an apartment owner, it’s vital to retain the services from a carrier, preferably experienced in commercial real estate and disciplined in multifamily.  Seasoned property insurance professionals offering such credentials in most cases tend to be solutions-oriented, insightful about current and forthcoming coverage programs, and aggressive in claims mitigation.  For credible recommendations, consider consulting fellow local multifamily owners or real estate brokers specialized in multifamily advisory.

During the selection process, don’t lose sight of who’s in charge.  As your multifamily assets are at stake, carriers should be placed in a position to earn your business.  With that said, it’s imperative for multifamily principals to become solid interviewers.  Prior to solicitation, consider drafting a questionnaire as a point of reference.  Suggested questions include 1) what’s the average local market rate per unit or square foot for my property type?  2)  are there discounts available for building portfolios?  3) what trends are you seeing in replacement costs for multifamily?  For holders in possession of multiple apartment assets, inquire about umbrella policies and the benefits involved.  For investors rehabbing distressed multi-dwellings, ask about availability of short-term landlord insurance for vacant assets.  Principals involved in new construction, redevelopment, or retrofitting should engage conversation about discounts for sustainable features and or LEED (Leader in Energy and Efficient Design) certifications.  At all costs, avoid one-size fits all cookie-cutter policies and seek options with flexibility to customize coverage based on your risk management requirements.  Regardless of multifamily type (2-4 units, low/mid-rise, garden-style) or level of ownership experiences, take the necessary steps to assure that your prized apartment assets are in good hands.