Real Estate Owners and Managers: you may be underinsured or uninsured

Spring is in the air and with nature coming out of its winter slumber and things beginning to bloom and the days getting longer which lends to renewed energy, it’s a great opportunity to do a deep dive and tackle things around that you may have been putting off or have not gotten your attention in some time.

For example, when is the last time you reviewed your insurance program? If your answer is, “I cannot remember,” now is the time.

What Is the Urgency?

You may unknowingly be under-insured or in the worst-case scenario, uninsured.

Why Does This Happen?

 
This can happen for several reasons, with a common one being a carrier terminates or non-renews a policy, for factors such as non-payment or underwriting changes. However, there are other factors that contribute to being uninsured or underinsured.

Communication issues can also contribute to loss in coverage. Proper delivery of notices is critical to ensuring that you, as the insured, stay properly informed. Contact information should be correct and should include a mailing address, email address, and phone number for the insured.

If you employ a management company or a managing agent, confirm that this information is correct and communicate any changes that occur. Should you make a change in your management company or agent, you should not rely solely on those parties to communicate to the carrier during the transition. As the insured, it is incumbent upon you to ensure information provided to carrier is correct and up to date.

If you collaborate with a broker, changes in the dynamic of the broker/client relationship can result in coverage issues. For example, your broker may reflect the current state of the market where customer-focused service is adversely affected due to talent shortages or mergers and acquisitions. Or possibly, your broker may be prioritizing decisions that support a growth-focused business development model instead of a retention-focused, relationship nurturing, and a business development model that prioritizes the needs of its existing clients AND seeks to foster new client relationships. If you and your broker are no longer aligned, coverage issues may result.

Another reason for lapses in coverage is not addressing carrier recommendations during the required period. Carrier recommendations refer to suggestions made by the carrier to improve a property’s risk profile and potentially lower premiums in some cases. Carrier recommendations aim to reduce the likelihood and severity of potential losses, ensuring the insurance company’s long-term financial stability and the policyholder’s continued coverage.

Recommendations cover a wide range of areas, including:

• Loss Prevention: Measures to prevent incidents that could lead to a claim, such as enhanced security systems or fire safety upgrades.
  
  
• Loss Control: Actions to minimize the impact of an event that does occur, like better emergency procedures or leak detection systems.
  
  
• Recommendations are often categorized as:
  • Critical (Mandatory): Requirements that must be addressed to maintain coverage, potentially leading to policy cancellation if ignored.
    
    
  • Advisory (Best Practices): Recommended actions that, while not strictly required, can significantly improve the risk profile and potentially lower premiums.

• Carrier recommendations should be understood as carrier requirements. These requirements are typically communicated when a policy renews, or following an inspection by the carrier, and the expectation is that these requirements are addressed during this policy period. In some instances, carriers expect compliance with supporting documentation to be provided to them within 30 days of receipt of the recommendation notice.

Carrier recommendations are a proactive approach to managing risk in property and casualty insurance, offering a valuable opportunity for policyholders to improve their insurance situation and potentially save money. Failure to comply with these recommendations signals the carrier that the insured is not taking the appropriate measures to proactively mitigate risk at your property.

Gaps in coverage can lead to serious consequences as well. Gaps in property and casualty insurance coverage occur when your insurance policies do not adequately cover all potential risks, leaving you vulnerable to financial losses. This can happen due to various factors, including inadequate coverage for specific events, exclusions in your policy, or simply not having enough coverage for the full value of your assets.

Underinsurance occurs when you do not have enough coverage to fully rebuild or replace your property after a covered loss, like a fire or storm damage. Factors like inflation, construction delays, and increased material costs can exacerbate this problem, leading to significant financial gaps.

Identifying and Addressing Gaps:

• The best way to identify gaps is to conduct a comprehensive review of your policies with your insurance agent or broker.
  
  
• Consider factors like the location of your property, potential risks in your area, and the true value of your assets.
  
  
• Ask specific questions about your coverage limits, exclusions, and how different policies might interact.
  
  
• Consider adding endorsements, increasing coverage limits, or purchasing supplemental policies to close any identified gaps.

What Could Go Wrong?

The consequences of having an under-insured or uninsured property are significant. If a property suffers a claim without coverage, paying for the claim out of pocket could result in financial hardship for the owner(s).

Furthermore, even if there are no losses, but the property is uninsured, financial implications still exist. When there are gaps in coverage, some carriers may decline to cover the property, and if those carriers are in the admitted market and now you only have options in the excess and surplus markets, coverage will be more expensive.

How Can Property Owners/Managers Avoid this Risk?

• Do not go at it alone with the carrier. Instead, partner with a reputable broker who can be your trusted advisor. 
  
  
• Ensure your communication between your broker and carrier is clear, consistent, and uninterrupted.
  
  
• When inheriting accounts and or properties, check your vital contracts with insurance being top of mind.
  
  
• Address all critical/mandatory carrier recommendations and promptly communicate with your carrier once completed.
  
  
• Create and implement a risk management plan.
  
  
• Regularly review your insurance program with a trusted broker and revise accordingly based on needs at the time of re-evaluation.
  
  
• Check your financial statements and make sure your premiums are being paid in a timely manner.

Act Today

Now is the time to evaluate your insurance program to ensure that you are properly protected. Not sure what to do next?

At Sahouri Insurance, we offer comprehensive, technology-driven insurance solutions to protect your commercial property. Contact Sahouri Insurance to ensure your coverage meets today’s market demands.