As the United States gets older, its multi-family habitational buildings also get older – it’s an aphorism La’Troya McKinney often repeats to clients in her role as commercial lines account manager with Abram Interstate Insurance Services, and it’s one that reflects the heightened risk profile of many apartment buildings on the West Coast.
“In San Francisco, people have been building since the 1850s. In Los Angeles, it’s been longer than that,” McKinney says. “And as they age, there are more and more risks that can create obstacles with insurance.”
Unless they specialize in aging and historic buildings, however, a large number of retail insurance agents aren’t familiar with those obstacles. Replacement costs, for example, are integral to a property policy, but notoriously tricky to calculate.
“The materials that were used to create the building in 1910 might not be available today,” McKinney explains. “Building codes are another problem – old wiring or plumbing is often not up to standard and when you rebuild something, you have to rebuild it to current standards. Both of those items push up reconstruction costs.”
Buildings that have been placed on the National Register of Historic Places are even more difficult to insure. By law, owners cannot change anything about the building – down to the wainscoting on the walls or the skeleton key knobs on the doors. With a limited number of manufacturers distributing these historic pieces, calculating replacement costs is an extremely challenging task.
For retail agents, finding an insurance market for aging and historic properties can be even more difficult. Thanks to the restrictive requirements and high costs involved, very few insurers in the standard market are willing to take on these accounts. Instead, agents must turn to the non-admitted market, which can be “more restrictive and less price sensitive” for the insured, McKinney says.
“When people buy older buildings, they often don’t know when the previous owner updated it – the roof, or the wiring or the plumbing – and that will have an effect on pricing," says McKinney. "Most major renovations are on the public record, so if you have a customer who doesn't have this information, you can research further, including pulling permits if required. That way, the agent will know what could be coming down the pipeline."
Additionally, providing records of renovations or services to the buildings infrastructure can help a property get into markets more favorable to the risk.
And of course, working with a knowledgeable managing general agent or wholesaler gives a retail agent a professional in their corner to locate the best coverage for an aging building.
The biggest thing to keep in mind, however, is how critical it is to communicate with the client the value of insurance coverage and why it is costing more than it would for a newer property.
“It can be hard to communicate to the insured that insurance is designed to make people whole after a catastrophic event occurs.
