Property insurance has become one of the largest and fastest growing operating expense categories in real estate.
In some markets, premiums have tripled in five years. Managing insurance proactively is now part of asset management work.
Why Insurance Costs Are Rising
Climate related losses. Hurricanes in Florida. Wildfires in California. Severe storms across the country. Insurers have paid out large claims and are pricing forward.
Reinsurance pressure. Reinsurers passed on cost increases to primary insurers. Primary insurers passed them on to property owners.
Regulatory complexity. Some states have made it harder for insurers to operate. Companies pulled out. Reduced competition raised prices in the remaining markets.
The Midwest Advantage
Midwest properties have seen less dramatic premium increases than coastal markets. The risk profile is more predictable. Insurer competition is healthier.
This is one of the underrated benefits of operating in the Midwest. The operating cost base is more stable. NOI growth is not eaten by insurance increases.
Reshopping Annually
Every property gets its insurance reshopped at renewal. Three to five competitive bids. Compare premiums, deductibles, coverage limits, and exclusions.
Premiums can vary by 30 to 50 percent across carriers for the same coverage. The cost of getting bids is minimal. The savings can be material.
Sponsors who just renew with the same carrier every year are leaving money on the table.
Deductibles and Self Insurance
Higher deductibles reduce premiums. The tradeoff is more exposure on individual claims.
For a portfolio of properties, a higher deductible strategy can save significant premium dollars. The expected claim frequency across the portfolio supports absorbing more risk.
Single property owners are more exposed to deductible decisions because one claim hits the full deductible. Portfolio operators have diversification.
Risk Mitigation
Insurance costs reflect risk. Reducing risk reduces premiums.
Sprinkler systems. Updated electrical. Modern roofing. Better drainage. Each improvement reduces risk and can lower premiums over time.
Document risk mitigation work for insurers. The discount may not be automatic. Sometimes you have to make the case.
Coverage Layering
Larger portfolios benefit from layered coverage. Primary coverage at one level. Excess coverage above that. Umbrella above that.
Each layer has different pricing. Optimizing the layers can reduce total premium cost. This is sophisticated work that benefits from a good broker.
Broker Selection
Insurance brokers matter. A broker who specializes in multifamily and your geography knows the market. They have relationships with carriers. They can negotiate better than a generalist broker.
Get bids from multiple brokers. Compare not just the premium but the broker's expertise and service model.
Reporting Insurance to LPs
Insurance costs should be visible in operating reports. When premiums move materially, LPs should understand why.
Sponsors who hide insurance increases in lumped operating expenses are obscuring the story. Transparency builds trust. The market is what it is. Explaining it is the sponsor's job.
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