Insuring a multi-unit residential building has almost nothing in common with insuring a single-family home beyond the fact that both involve a roof and walls, according to Peter Kennedy, managing director at Aon, who said the differences start with sheer density of people and only compound from there.
"There's a bunch of differences," Kennedy said. "Obviously, there are a lot more people in a multi-unit building than there are in a single-family home. With that come complications, more likely for things to happen, unpredictability of the tenants in there, more so than in a single-family home as well."
That density affects both liability and property risk simultaneously, Kennedy said, since more people moving through a shared structure creates more opportunities for something to go wrong, whether that's an accident in a common area or damage caused by a resident or their guests.
"Just the fact that it's a bigger structure and involves more people, on the liability side and also the property side, makes it a more complex type of exposure to insure," Kennedy said.
Occupancy type adds another layer of difference, Kennedy said, since renters and owners tend to treat a property very differently over time, which in turn shapes how much day-to-day risk a building actually carries.
"Typically, in multi-unit, they're renters. In a single-family home, it's an owner," Kennedy said. "An owner would probably take a little more care in many cases, whereas a renter may view it as more of a short-term type of thing."
Kennedy said multi-unit buildings can also see situations rarely encountered in single-family homes, including hoarding, along with higher tenant turnover and more frequent subletting or subleasing arrangements, all of which introduce risks that a policy for a single-family home was never designed to anticipate.
Physical construction compounds the difference further, Kennedy said, since multi-unit buildings depend on integrated systems, HVAC, wiring, and shared structural elements like balconies, that simply don't exist at the same scale in a house. With residents sharing walls and ceilings throughout the building, that level of interconnection makes the entire structure far more complex to insure than a standalone home.
That shared infrastructure means a single point of failure, whether it's a mechanical system or a structural issue, can affect far more residents at once than an equivalent failure would in a standalone home.
Scale itself introduces a distinct kind of risk, Kennedy said, since the value concentrated in a single multi-unit building creates an aggregation exposure that a standalone house simply doesn't carry.
"Obviously, in a multi-unit build, it's a much bigger exposure," Kennedy said. "Yes, you could lose a house, and to replace that would be expensive for an insurance company, but not anywhere near what it would be for a multi-unit building, a high-rise, mid-rise, whatever you want to call it. There's an aggregation of values, which can present challenges, especially in natural catastrophe areas, whether it's flood or earthquake."
Business interruption is another factor unique to multi-unit properties, Kennedy said, since a residential building of this kind functions as a business rather than a household, with its own revenue stream that has to be protected the same way a commercial operation's income would be. Unlike a single-family home, which is fundamentally a family operation, a multi-unit building requires ongoing attention to business interruption and rental income values, considerations that simply don't factor into insuring a house.
That distinction, Kennedy said, is one many people simply don't think about until it directly affects them.
"The average homeowner just doesn't think about that," Kennedy said. "It's not a business, whereas the multi-unit building is a business."
Regulation adds a final layer of complexity, Kennedy said, since multi-unit buildings are subject to a far broader set of bylaws simply because of how many people occupy them, and those regulatory requirements can shift substantially over the life of a building.
"Multi-unit buildings, because of the people, they're much more regulated," Kennedy said. "That can come with additional responsibilities and additional liabilities placed on the owner of a multi-unit building."
Taken together, Kennedy said, these differences mean a multi-unit building can't simply be treated as a larger version of a house when it comes to structuring coverage, since nearly every dimension of the risk, occupancy, construction, scale, income, and regulation behaves differently than it does in a single-family context.
