Insure This
By Various Authors
Q. I have had several break-ins at my property over the last year, though nothing substantial was taken. How will this affect my insurance premiums?
A. Insurance companies will generally not surcharge for a single small claim and, for that matter, will not generally surcharge for a single major claim. Multiple claims, however, even if minor or under your deductible, can create serious problems.
There are still possible ramifications for even a single claim. For example, where there is already a loss-free credit applied, you may lose that credit. Even more critical is the fact that a claim may alert the carrier to other issues at the property by precipitating an inspection or closer look at the application. Often, once a policy is issued, there is never a follow-up inspection until a claim of any size occurs, and then you find your building under the critical eye of review by underwriters.
Now, on to the other hammer that companies use: cancellation. A carrier will not typically cancel for just one loss, even if it is a very large one, especially if it is an unusual occurrence that is not likely to recur or if your building has been free of losses for some time. Frequency of losses is by far the more problematic in terms of rate increases or cancellation. In fact, if a company believes your building is a bad risk, they are far more likely to cancel the policy than to simply raise rates because the thinking is that one cannot collect enough premium for a bad risk. This is especially true of the “standard” markets (also known as “admitted” carriers) because their rates are filed and approved by the state, and that includes their maximum credits and debits. This means they have very little leeway to increase rates even if they want to, typically no more than 25% above their standard rate. A 25% rate increase does not come close to making a poor risk profitable to the insurance company.
If you are canceled for losses, the rates will likely go up sharply because most companies will not write a policy for someone whose previous policy was canceled for losses. It’s something like being blacklisted; you are then forced into the “surplus lines” market (also known as “non-admitted” carriers). Because these products are not filed with the state, they can set rates wherever they like. You will likely need to remain in surplus lines until your record is clear for at least three years, at which time the standard carriers may again entertain your risk—assuming that there have been no other losses.
So, what can you do to not risk a cancellation and the subsequent “huge” rate increase? The most controllable part of your claims record is increasing your deductible. As I mentioned, frequency of losses, even very small losses, is a big consideration in a carrier canceling your policy. Most commercial building owners take at least a $5,000 or $10,000 deductible these days. Condo associations almost invariably take deductibles this high so that they cut out the small losses; most of them have experienced the shock of being canceled and booted into the surplus lines arena—or at least they’ve heard the horror stories.
If you have had loss problems, you’ll want to do whatever you can to mitigate future losses. Then be sure to shop around. Once you are in the surplus
lines marketplace, prices vary widely. For example, my office saw a large building owner’s policy go from $60,000 to over $300,000 after a string of small losses caused the policy to be canceled by the standard carrier. We were able to find a different surplus-lines carrier and bring it down more than $100,000 in the first year.
In summary, break-ins, vandalism and similar claims are most often relatively minor compared to water, fire and liability claims. Taking a high deductible and only reporting claims that go above this amount will help to keep your loss record squeaky clean and your rates at rock bottom.
–David Gordon
Q. I was horrified by the stories that I read about Telegraph Hill property owners whose buildings were yellow tagged after a rockslide and their insurance policies did not cover the damage. What kind of insurance must I have to be sure that my apartment house is covered in the event of a rockslide?
A. A typical apartment building insurance policy is “all risk,” with the specific exclusions of flood, earthquake and earth movement/landslide. It is usually not difficult to “buy-back” via endorsement the perils of flood and/or earthquake (provided that your building has been earthquake retrofitted). Coverage for earth movement, however, is more of a challenge to come by and usually comes with a prohibitive price tag.
My office does sell one of the largest group purchasing insurance programs in California, CIBA, for apartment building/habitational risks. The program has over 4,000 members and has leveraged the strength of the purchasing group to offer the broadest coverage available to its members. Included in CIBA’s coverage form is a guaranteed replacement cost on buildings, $76 million in liability protection and the option to purchase earthquake insurance by endorsement. CIBA’s earthquake coverage form is referred to as a “Difference in Conditions” policy, which by definition has been broadened to include not only earthquake insurance but all forms of earth movement, including landslide. An earthquake event does not have to occur in order for CIBA’s policy to respond to the peril of a landslide. CIBA’s deductible is 10%, or $100,000—whichever is greater. CIBA’s earthquake and earth movement rates are among the lowest currently available in the California marketplace.
–David Costello
The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Consult the advice of an insurance agent for any specific problem. David Gordon is an independent insurance broker and is available at 866-430-7165. David Costello is with NorthStar Risk Management & Insurance Services, Inc., 925-975-5900 x 228. Copyright © 2007 by SF Apartment Magazine. All rights reserved.