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Buying Insurance What You Need To Know

Owning and managing real estate has many positives and negatives, requiring the performance of varied responsibilities and wearing of many different hats. Most of my clients typically view the insurance renewal process with a sense of dread. Navigating the minefield of carriers, coverages, exclusions, sub-limits, etc. Contracts can be time consuming and frustrating, filled with technical jargon and terminology that can leave you exhausted. After you manage to finalize your renewal, you may still lay awake at night wondering if there is an uncovered claim lurking out there waiting to strike.

What can you do to make the renewal process easier for you and your staff, while also reducing overall insurance costs and maximizing coverage?

Representation

Having a trusted, knowledgeable professional working to secure your interests can make this process much easier. Well trained, professional insurance brokers take their careers and their clients accounts very seriously. Focus on finding a broker that specializing in working with real estate accounts, and has appropriate designations, such as CPCU. You can learn more about insurance designations and find lists of qualified brokers at http://www.aicpcu.org. Asking colleagues and competitors for recommendations can also prove valuable. Most people are very willing to make an introduction if they are pleased with their broker. They will carefully review your schedules, limits, coverages and exclusions, making recommendations on the package of coverages that will most benefit your account. There are tools available that will confirm your buildings limits are adequate, such as www.marshall swift.com A good broker will also closely monitor what is happening in the insurance market, tracking trends and carrier appetites.

Alternate Proposals

After you have found a good broker, allow him to select the markets he would like to approach on your behalf. Your broker will work hard for you every year, but the market is fluid and can change quickly. Allowing a second broker to review your account every 3 to 5 years will ensure that your account is placed with the best carrier for your needs.

Keep clear records

Use Microsoft Excel or another spreadsheet program to keep clear and current details of your building(s). Keep records of when updates and repairs are performed, along with details of building basics such as total square footage, number of units, number of stories, sprinklers, elevators and construction type of the buildings. Retain clear and current records of contracts and certificates of insurance from all sub contractors and third parties you do business with in the event they cause any damage or claims. Ask your broker and attorney to review these documents for proper wording and limits. You should also keep details of past claims if you have any. This will make it easy for a potential carrier to assess your account quickly.

This item is very important. Most underwriters are overworked. They will eliminate some of their workload by taking all of the accounts that are lacking information or are poorly prepared and instantly declining them. Your broker will play a big role in making your submission as attractive as possible.

Housekeeping

Some carriers prefer to pre-inspect risks prior to offering a quote. This may seem like needless extra work, but these carriers will only offer proposals to the best accounts. If your loss history is good, and your buildings are clean and in good repair, be prepared to be very happy when you see the pricing offered by carriers that pre-inspect. The easiest way to clean up your properties is to take care of visible debris, make sure handrails are secure, and move items away from burners and boilers. Take a look at past carrier recommendations to see if there are any items suggested that you may not have completed. Typically these things are not expensive and can make a big difference in the way your buildings present to a carrier.

Master Policy

Consider getting pricing on a master policy. Many carriers are very happy to provide a single quote on a large pool of buildings that may all be under the care of one property manager. The main benefit is that as schedules grow larger, the carriers will provide more competitive rates.

You will only need to review the insurance once per year, instead of every few months for each building. The carriers are able to add and delete buildings as you buy and sell them, and your broker can help break out the costs for each building so each account can be credited debited accordingly.

There are some negatives, such as one building with claims making the whole schedule look bad, but these buildings can be carved out and placed separately to improve the price on the rest of the schedule.

Quote review

Once your broker produces all of the quotes you will be reviewing together, consider all the factors, not just the price. It is easy to produce quotes that are cheap, but you usually get what you pay for. Compare your coverage forms and exclusions; make sure the quotes are basically the same. If there are differences, confirm that they are reflected in the price.

Ask to see the AM Best rating for the quotes your broker provides. AM Best provides financial ratings of all insurance companies, and their indications can help offer some guidance on the strength and longevity of the carrier with whom you are doing business.

Check your deductibles. If you have some frequency in claims, you may want to take a lower deductible to reduce your annualized risk management costs. However, a risk-free insured may be willing to take a higher deductible to reduce insurance costs. This allows you to keep more cash on hand in the event the occasional claim comes along. Again, your broker can help you analyze your claim history and provide some claim scenarios to assist in determining which plan makes the most sense.

Throughout this article, you will note a recurring theme: the assistance provided by your broker. I cannot stress enough how important a knowledgeable broker is to your business, coverage and profitability. There are many insurance professionals who genuinely care about providing the best services to their client. If you don’t feel you have one of these professionals working for you, I urge you to find a new broker. They are out there and not hard to find.

Jonathan Carroll is a licensed insurance broker with Long Island-based National Insurance Brokerage of New York, who specializes in handling real estate and construction related risks.

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