For years, underwriters treating multi-unit residential buildings priced risk with one peril dominating the conversation. Building codes, inspection routines, and underwriting models were all shaped around the assumption that fire posed the greatest threat to a structure and its occupants. That calculus no longer holds, according to Glenda Johnston, vice president of commercial insurance at NFP.
"Well, fire's gone. It still exists, but certainly the leading cause of loss these days is water damage," Johnston said.
Fire losses tend to be localized and visible almost immediately. Water losses spread quietly, often before anyone notices a problem, and they follow paths that have nothing to do with where they originated. Johnston pointed to a common scenario in a multi-unit building: a leak starting on an upper floor.
"It's going to travel to the lowest point that it can possibly find, and it's going to impact other units that are below that," she said.
A single point of failure can generate dozens of parallel claims rather than one contained loss, and it forces residents out of their units during restoration, adding a business interruption cost on top of the physical repair. Insurers have responded by pushing water mitigation into the construction process itself, before a building has any claims history to underwrite against, including during phased occupancy, when parts of a building may already be in use while other sections are still being built.
"It’s good to have leak detection systems in place, having automatic shut-off valves as well," Johnston said.
Beyond the mitigation systems themselves, underwriters are also weighing a broader set of physical factors when they evaluate a multi-unit risk: the age of the building, the fire protection systems in place, and the condition of interior infrastructure such as plumbing, electrical wiring, elevators and boilers. How actively a building's management team keeps up with ongoing maintenance factors into that assessment as well, since deferred upkeep tends to surface only after a significant loss exposes it.
That shift in how insurers view water risk carries through to how Johnston advises clients to approach renewal, particularly for owners of older buildings where deferred maintenance is harder to spot from the outside. Her starting point is a reframe of what renewal is for.
"Treat your renewal as a risk management exercise, not just a pricing exercise," Johnston said.
In practice, that means starting the process early rather than waiting for a quote request. Johnston recommends having buildings assessed for replacement cost value, since underinsurance remains one of the most persistent problems in the segment. Construction, labor and materials costs have climbed steadily, and owners who haven't updated their coverage to match often don't find out until a claim exposes the gap. The consequence is coinsurance, a clause that ties an insurer's payout to how closely a building was insured to its actual replacement value.
"From a coinsurance perspective, you've got to insure to at least 90% of your replacement value," Johnston said.
Fall short of that threshold, and the owner effectively becomes a co-insurer on their own loss, absorbing a share of the shortfall regardless of what their policy limit says. Johnston also points owners toward bringing in specialists ahead of renewal: roofing, plumbing and electrical contractors who can flag deterioration before it becomes a claim, along with a review of any capital improvements made since the last renewal and whether emergency response plans have actually been tested rather than just filed away.
Claims themselves also move differently in multi-unit buildings than in single-family homes, which is part of why Johnston pushes clients toward prevention rather than response. More parties are involved by default: building permits, engineers, and specialized contractors brought in for features unique to a given structure, all of which can extend how long a claim takes to resolve and how complicated it becomes for the owner managing it. Owners who can show a history of proactive maintenance and documentation tend to fare better at renewal than those who show up only with a claims-free record, according to Johnston, because insurers are now pricing the difference between the two directly. In a market she describes as broadly soft, that distinction still separates which owners see the benefit of that softening and which continue facing tighter terms.
"We know from an insurance company perspective that underwriters these days are really rewarding well-managed properties," Johnston said.
