Key Takeaways
- Blanket property policies covering multiple properties provide coinsurance protection and typically save 15-20% over individual policies.
- Total insurance costs for a well-structured multifamily portfolio typically run 3-7% of effective gross income.
- Gap analysis is critical—sewer backup, ordinance or law, and equipment breakdown are commonly missed coverages.
- Lead paint liability endorsements are essential for pre-1978 properties and are relatively inexpensive ($50-$100/unit/year).
Designing an insurance program for a multifamily portfolio requires balancing comprehensive coverage with cost efficiency. This case study follows the design of a complete insurance program for a 200-unit portfolio across five properties, illustrating coverage decisions, premium negotiations, and gap identification.
Portfolio Risk Assessment
The portfolio consists of five multifamily properties totaling 200 units valued at $22M: Property A (60 units, 1975-built, inland), Property B (40 units, 1985-built, flood zone), Property C (36 units, 1990-built, inland), Property D (32 units, 2000-built, inland), and Property E (32 units, 1968-built, inland with known lead paint). Risk assessment identifies: Property B requires flood insurance (SFHA Zone AE), Property E has lead paint liability exposure, Properties A and E have older roofs and electrical systems with higher fire risk, and all properties have slip-and-fall exposure in common areas. Total insurable replacement cost: $28M (replacement cost exceeds market value due to construction cost inflation).
Coverage Structure and Premium Analysis
The insurance broker structures a blanket property policy covering all five properties with a combined replacement cost of $28M, which provides coinsurance protection and averages risk across the portfolio. Individual property policies would cost $142,000/year total; the blanket policy costs $118,000/year (17% savings). CGL coverage: $1M/$2M per property on a portfolio master policy ($8,500/year). Umbrella: $5M ($4,200/year). Flood: Property B only, $500K NFIP plus $1.5M excess flood ($18,500/year). Lead paint liability endorsement for Property E ($3,200/year). Loss of rents coverage: 12 months of gross rents ($6,800/year). Total annual premium: $159,200 or $796/unit/year. This represents 3.8% of effective gross income—within the typical 3-7% insurance-to-EGI benchmark.
Coverage Gap Identification
The insurance review identifies three coverage gaps. (1) Sewer backup: not included in the blanket property policy. Endorsement added for $2,400/year. (2) Ordinance or law coverage: Properties A and E are pre-1980 and may face building code upgrade requirements after a major loss. Endorsement added at 25% of replacement cost for $3,100/year. (3) Equipment breakdown: the blanket policy excludes boiler and machinery breakdown. Separate equipment breakdown policy added for $1,800/year. After adding endorsements, total annual premium is $166,500 ($832.50/unit/year, 4.0% of EGI). The gap analysis prevented potential uninsured losses totaling $2M+ from sewer backup, code compliance, and equipment failure events.
Key Takeaways
- ✓Blanket property policies covering multiple properties provide coinsurance protection and typically save 15-20% over individual policies.
- ✓Total insurance costs for a well-structured multifamily portfolio typically run 3-7% of effective gross income.
- ✓Gap analysis is critical—sewer backup, ordinance or law, and equipment breakdown are commonly missed coverages.
- ✓Lead paint liability endorsements are essential for pre-1978 properties and are relatively inexpensive ($50-$100/unit/year).
Sources
Common Mistakes to Avoid
Managing insurance property-by-property instead of as a coordinated portfolio program
Consequence: Missing multi-property discounts, inconsistent coverage levels, and uncoordinated renewal dates that increase both cost and administrative burden
Correction: Consolidate all properties under a single broker and carrier program where possible to achieve portfolio pricing and consistent coverage
Not conducting an annual insurance review with the broker
Consequence: Coverage may become inadequate as property values increase, new risks emerge, or policy terms change at renewal
Correction: Schedule an annual portfolio insurance review with your broker 90 days before the renewal date to address coverage changes and market competitiveness
Test Your Knowledge
1.What does a portfolio insurance assessment include?
2.What is a gap analysis in insurance program design?
3.How should insurance costs be optimized across a multifamily portfolio?