What your clients should know about Habitational insurance
There are more than 500,000 businesses in the U.S. apartment rental industry, accounting for $163 billion in revenue.1 Additionally, in Canada, consumers have been flooding back to apartments where the vacancy rate is 1.3 percent.2 When setting out to own and operate an income property, entrepreneurs often consider what specific staffing plans, renter demographic, and environment will yield the best financial outcome. Insurance companies look at that same list from a very different perspective in a Habitational policy. Nick Freeman, Casualty Broker, Burns & Wilcox Brokerage, and Jack Swerdlin, Casualty Broker, Burns & Wilcox Brokerage, share four tips insurance brokers and agents can give clients purchasing Habitational policies.
Tip 1: Staffing plans for security and property management can affect rates.
Many clients attempt to secure their premises by providing security on their apartment premises. However, the source of the officers, and whether they are armed, can drastically affect the risk assessment.
“While security is looked upon favorably by insurance providers, clients who use their own employees may be considered a higher risk than those who hire a third-party firm,” said Freeman. “Those who carry a weapon are considered to have more of an exposure based on insurance carriers’ appetites.”
Brokers should guide their clients on security selection, highlighting that while tactically-trained security is a plus, armed security is risky. Additionally, clients oftentimes use property management companies—especially when several rental properties are in play. Owners frequently require, as part of the management agreement, that property managers procure a policy for all of the locations as part of a contingent liability.
It is important that clients take the proper measures to cover potential gaps. For example, if property grounds are not clear of tripping hazards, a fall victim might file a lawsuit against the owner, whose policy would likely be considered primary in a claim. Any additional damages or losses outside of the owner’s claim limits are then addressed through the property manager’s contingency if one exists.
Tip 2: Renter demographics can carry specific exposures.
“Insuring properties such as assisted living homes or student living are accompanied by very different, yet specific, risks,” said Swerdlin.
Slip and fall incidents within assisted living communities account for more than 15,000 annual fatalities among the elderly and result in more than $34 billion in spending in the U.S.3 Meanwhile, about 25 percent of criminal incidents reported by American college students are forcible sexual offenses, with aggravated assaults accounting for eight percent of reported crimes.4 Thus, over 30 percent of crimes reported by college students fall within Habitational policies.
“If clients are found negligible in properly securing the premises, they are likely to assume financial responsibilities typically paid out by their policy,” said Freeman. “The cost of fighting these claims can quickly exceed the payout of the claim.”
For these reasons, insurance carriers take criteria like crime scores and slip and fall occurrences into consideration when determining rates and appetites.
Tip 3: Be mindful of environmental factors like habitability.
“Carriers often add a habitability exclusion to these policies and will not pay clients for exposure due to bodily injury or property damage resulting from an owner’s failure to maintain safe, sanitary, and habitable premises,” said Swerdlin.
Common examples of this include insect infestation and dilapidation. In the U.S., consumers placed approximately 907,875 service calls to address bed bugs5 and those services were most commonly rendered to address infestations in apartments and condominiums.6
Clients need to ensure their properties are a safe, clean place to live and employ fair renting practices.
Tip 4: Understand how location makes a difference.
“One major underwriting criteria no matter the size of the risk is crime scores,” said Freeman.
So even if a premise performs well in terms of risk, if the crime score of the area is high, providers treat that premise as a high-risk area.
Habitational policies consider numerous criteria which cause pricing and coverage to fluctuate. It is important for brokers to help clients understand the exposures they face and turn to trusted partners to create tailored coverage solutions. While most insurance clients are price-sensitive, brokers should guide clients to an understanding that improved coverage at a slightly higher budget helps ensure losses get paid. This approach may save a client’s financial resources in the long run.
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