This article was provided by REInsurePro.
Landlord insurance costs have skyrocketed over the last few years, driven largely by a surge in claim payouts for property damage caused by natural disasters. Although the property insurance market is beginning to stabilize, liability insurance is quickly emerging as the next major challenge–particularly for multi-family investment properties where higher occupancy, increased foot traffic, and structural features like outdoor stairs, decks, and walkways elevate risk exposure.
What is driving these changes? And how can insurance agents prepare for yet another hardening market?
After years of rising property insurance costs, liability coverage is now entering its own hardening phase. Besides premium increases, insurers are imposing stricter underwriting guidelines, narrowing the types of risks they’ll accept, excluding more form policies, and adding sublimits to specific liability coverages.
With property insurance, it’s common for weather events and rebuilding costs to drive up losses and increase rates. What we’re seeing now with liability is premium hikes fueled primarily by loss severity. In other words, it’s not just that claims are filed more often–it’s that the claims that do occur are more expensive to resolve. Lawsuits are resulting in larger settlements, pushing insurers to raise rates and tighten coverage to keep up.
A major factor contributing to the rising costs of liability coverage is the legal environment. In certain jurisdictions, litigation trends and tenant-friendly laws can contribute to larger settlements or more frequent lawsuits. Even if a landlord isn’t found liable, their insurer still bears the cost of defense. Court costs and attorney fees can add up quickly. In these instances, insurers are paying substantial amounts to defend landlords and resolve lawsuits, which adds pressure to liability rates over time.
Certain sectors, particularly hotels and other habitational properties, have been hit especially hard. Consider this: If a property owner’s primary liability policy is exhausted, and their umbrella or excess policy has to pick up the rest, both carriers are forced to pay large sums of money to resolve a single claim. This kind of multi-layered payout is becoming more common, driving insurers to reevaluate their appetite for liability risks.
Not all investment properties carry the same level of risk. You can expect properties with the following characteristics to be difficult to place, especially at a reasonable rate:
As liability losses continue to mount, carriers are becoming increasingly cautious in their underwriting approach. Many insurers are already pulling back on the types of risks they’re willing to take on. As mentioned previously, multi-family properties with many occupants, properties located in areas with high crime scores, and those showing signs of poor maintenance (such as loose handrails, uneven walkways, or aging decks) are all under greater scrutiny.
Carriers are also becoming more selective about providing excess or umbrella policies for liability coverage, making it difficult for real estate investors to layer protection beyond their primary policy limits. Even when coverage is available, it often comes with a higher price tag. You should also expect to see more exclusions and sublimits added to liability policies. Coverages like Assault and Battery and Sexual Abuse/Molestation are now more likely to have a sublimit or be excluded altogether.
As the liability market continues to harden, insurance agents can’t afford to wait until the last minute to secure coverage for their clients. Working renewals early and shopping around sooner will be a huge part of staying ahead of the curve. Prepare your clients for the inevitable premium increase. Explaining that these changes are driven by market conditions and loss trends will help manage expectations and keep clients informed.
In tight markets, carriers may prioritize submissions from trusted agents with whom they consistently work, especially in cases where capacity is limited. Building strong relationships with underwriters and leveraging those connections can give you and your clients a competitive advantage. In addition, working with a specialized insurance program manager can provide extreme value. A program manager can likely help negotiate better terms, secure coverage exceptions, and help navigate underwriting difficulties.
Stay proactive and connected to set yourself and your clients up for success, even in a challenging landscape.
REInsurePro (pronounced R-E-Insure-Pro) is an insurance program manager specializing in real estate investment insurance. We provide independent agents with a range of solutions to help navigate the challenges of insuring investment properties, especially in hard markets.
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