Key Takeaways
- Loss run analysis during due diligence reveals the property's true risk profile and future insurance cost trajectory.
- Tenant renter's insurance requirements with enforcement reduce landlord claims frequency and provide additional liability protection.
- Insurance claims require immediate documentation, detailed contractor estimates, and negotiation beyond the adjuster's initial estimate.
- Project insurance costs at 5-8% annual inflation and include deductible reserves in the capital budget.
This lesson recaps the practical insurance underwriting and analysis skills from Track 2: acquisition due diligence, loss run analysis, procurement workflow, tenant insurance requirements, and claims management.
Insurance Analysis Recap
Request 5-year loss runs and current declarations during due diligence. Loss ratios above 60% signal problematic properties. Pattern analysis in loss runs reveals root causes and informs capital planning. Obtain actual premium quotes rather than relying on seller's current costs. Project insurance inflation at 5-8% annually.
Claims and Compliance Recap
Engage brokers early and bind coverage 5-7 days before closing. Require tenant renter's insurance with additional insured endorsements. Document losses immediately with photos and video. Adjuster estimates are typically 15-30% low—negotiate with detailed contractor estimates. Ordinance or law endorsements cover code compliance costs.
Key Takeaways
- ✓Loss run analysis during due diligence reveals the property's true risk profile and future insurance cost trajectory.
- ✓Tenant renter's insurance requirements with enforcement reduce landlord claims frequency and provide additional liability protection.
- ✓Insurance claims require immediate documentation, detailed contractor estimates, and negotiation beyond the adjuster's initial estimate.
- ✓Project insurance costs at 5-8% annual inflation and include deductible reserves in the capital budget.
Sources
Common Mistakes to Avoid
Not updating insurance coverage after completing renovations or capital improvements
Consequence: The improved building value exceeds the insured amount, triggering coinsurance penalties that reduce claim payouts by 20-40%
Correction: Notify the carrier and increase coverage limits within 30 days of completing any renovation that increases the building's replacement cost
Failing to require certificates of insurance (COIs) from all contractors and vendors working on the property
Consequence: An uninsured contractor injury or property damage claim flows directly to the property owner's policy, increasing premiums and depleting coverage limits
Correction: Require COIs with minimum GL limits of $1M/$2M and additional insured endorsement naming the property owner before any vendor begins work on site
Test Your Knowledge
1.What loss ratio threshold signals a problematic property when reviewing insurance loss runs?
2.How far in advance of closing should insurance coverage be bound?
3.By approximately what percentage do adjuster initial estimates typically fall below actual repair costs?