Claims involving multi-unit residential buildings are both larger in scale and considerably more complex than anything a single-family home typically generates, according to Peter Kennedy (pictured), managing director at Aon, who pointed to a fire scenario to illustrate how quickly damage can spread through a shared structure.
"You can have a fire on the 5th floor of a high-rise building," Kennedy said. "You're going to have the fire damage on the 5th floor, you're going to have smoke damage going up the next 5 floors, and you're probably going to have water damage going down the bottom 5 floors once the fire department's there too."
That kind of cascading damage means claims are frequently bigger and more technically demanding to resolve, since a multi-unit building's more complex electrical, plumbing and HVAC systems require specialized repair expertise that a standard home claim rarely needs.
The number of parties involved in settling a multi-unit claim also sets it apart from a typical homeowner's claim, which usually involves little more than the homeowner and possibly a lender.
"You're going to have to be dealing with the landlord, the property manager, the tenants, you may have visitors that are there, you're going to have several lenders as well," Kennedy said. "That all complicates the settlement process, or adds to the complexity of the settlement process, versus the situation where you're just basically dealing with the homeowner."
Bylaws coverage stands out as one of the clearest gaps between the two property types, since municipal building codes can force a multi-unit building to be rebuilt to a higher standard than what existed before a loss, a requirement homeowners rarely face.
"You have to rebuild maybe to a higher standard than what was there before if the bylaws have changed in that municipality, whereas you generally don't get that for a house for the most part," Kennedy said.
Valuation accuracy carries far more weight in a multi-unit setting simply because of scale, Kennedy said. A modest error in replacement cost on a single home is a manageable miscalculation; the same percentage error applied across a hundred-unit building compounds into a significant shortfall.
Liability limits require the same scaled-up thinking, Kennedy said, since a major liability loss in a building with many tenants and guests creates far more potential exposure than an equivalent incident at a single-family home.
"You have to make sure you have much higher limits because you have just a lot more people at risk, a lot more activity within the building than you would for a single-family home," Kennedy said.
Vacancy and renovation coverage is another area multi-unit owners need to plan for directly, since suite turnovers and building-wide renovations, addressing HVAC deficiencies or other systemic issues, often require units to sit temporarily empty, a circumstance that rarely applies to a single home.
Water damage carries outsized weight in claims frequency and severity for multi-unit buildings as well, Kennedy said, since a burst pipe or overflow doesn't stay contained the way it typically would in a house.
"When the pipe bursts on the 20th floor of an apartment building, it's going to flow all the way down that stack, all the way down until it gets shut off," Kennedy said. "Whereas you have a pipe burst in a house, maybe into the basement, but that's about it. There's not the stacking of risk like you have within a multi-unit building."
Kennedy said many owners are already managing this risk well operationally but fail to translate that effort into how they're perceived by insurers. Regular inspections, capital upgrades, tenant fire drills and other preventive measures matter far less to an underwriter if they're never actually communicated.
"It's really critical in a more complex risk like a multi-unit building to have very robust policies, plans, maintenance, everything in place, and communicate that to the insurance companies," Kennedy said. "What differentiates your risk from another risk is telling them: we very actively manage our properties, we have all kinds of training in place, we notify the tenants, we do regular fire drills."
He said the strongest version of that approach goes beyond simply describing the practices in an application and extends to giving underwriters direct access to a property.
"We actually have a lot of our clients where we bring the underwriters out to see the building," Kennedy said. "There's no better way to understand a risk than actually getting to see it and meeting the people managing it and hearing from them firsthand."
Owners should also treat their insurance program as something to actively manage rather than renew on autopilot, Kennedy said, regularly revisiting limits, valuation figures and program structure as a building's needs evolve, particularly for larger properties that may require layered or shared-layer coverage arrangements rather than a single policy.
Increasingly, Kennedy said, technology is becoming part of that active management as well, with more property owners installing leak detection systems that alert management staff the moment water appears somewhere it shouldn't, allowing a response before minor damage becomes a major claim.
