Commercial Real Estate Risks Urged to Separate from Peers

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by Jonathan Schwarzberg

Real estate property insurance rates, particularly for large organizations with catastrophe exposures, were up last year, according to insurance broker Marsh, which advises these clients to distinguish themselves from their peers and keep an eye on risk trends in the field to get the best insurance deals when renewing policies in 2012.

Rates were also generally up for casualty insurance, including workers’ compensation, and slightly down for management liability and environmental insurance.

In its recent report, Navigating the Risk and Insurance Landscape: U.S. Insurance Market Report 201, Marsh said its U.S. real estate clients renewing their insurance programs in the fourth quarter of 2011 saw the following conditions:

  • property insurance rates were up by as much as 15 percent for large, catastrophe-exposed organizations; generally up 5 percent to 10 percent for midsize, catastrophe-exposed organizations; and generally down 5 percent to up to 5 percent for organizations without catastrophe exposures
  • general liability rates were generally flat to up 5 percent;
  • management liability rates were generally flat to down 5 percent; and
  • environmental insurance rates for pollution legal liability and contractors pollution liability were generally flat to down 10 percent.

“Following several years of soft insurance market conditions and poor investment results, coupled with record catastrophe losses in 2011, property and casualty insurers began to apply pressure on rates at the end of 2011,” said Jeffrey Alpaugh, Marsh’s Global Real Estate Practice Leader. “Premium rates for residential risks, especially those with heavy concentrations of frame construction, and those with significant catastrophe exposures likely will continue to increase in 2012.”

Marsh said underwriters will be looking for ways to separate individual accounts from the pack.

“For all real estate firms in 2012, the ability to distinguish their risk profiles from their peers will generate the best results when renewing commercial insurance policies,” Alpaugh said. “Providing complete, accurate, and quality data to underwriters is key.”

In addition Marsh’s report identified trends that real estate risk managers should monitor:

  • Capital markets are challenging for real estate firms, as lenders and investors continue to scrutinize property type, location, and sponsorship. Continued uncertainty around the European sovereign debt crisis is adding to the pressure.
  • High vacancy rates have taken their toll on real estate companies, but are easing to varying degrees around the country. The strongest improvements have been seen in apartments, office, and industrial properties. Retail vacancy rates have also improved to a lesser degree.
  • Declining asset values have led property owners and management companies to reduce operating expenses, including the postponement of building. Asset values could rise if job creation continues in metropolitan areas and vacancy rates continue to improve.
  • Insurers remain concerned about widespread environmental claims, including contaminated drywall and mold/indoor air quality claims in the commercial and habitational segments, and chlorinated solvent claims in the retail and industrial segments.

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