5 Tips to Combat Rising Insurance Costs
As Congress considers reforms, sites may need to take action now to limit the financial strain.
As a site owner or manager, you understand the severe financial consequences that can result from things beyond your control, such as a loss due to fire, flood, weather, or other causes. In addition, whether it’s a legitimate claim or not, you could also face expensive legal difficulties from liability claims associated with on-site crime, common parking areas, and site amenities such as swimming pools and playground equipment.
While you may understand the importance of having appropriate insurance coverage to provide a safety net for your assets and protect you against liability, you may have noticed your insurance premiums creeping upwards. Rising insurance costs have been making the news as more insurers are raising premiums and moving out of hard-hit areas as the number of climate-related natural disasters increase.
Surging premiums. The National Leased Housing Association recently published a report, “Increased Insurance Costs for Affordable Housing Providers,” that analyzed the responses of 404 affordable housing providers regarding the magnitude and impact of increased insurance rates over the past three years. According to the report, for 2022–23 policy renewals, 29 percent of respondents saw premium increases of more than 25 percent. These increases were driven primarily by limited markets and capacity.
Congress investigates. Nationally, policymakers are increasingly aware of the problem. In September, the Senate Banking Committee held a hearing over the causes of rising insurance rates and deductibles and the trend of some insurance companies abandoning markets in states like California and Florida where these companies believe it’s no longer profitable to operate.
Douglas Heller, director of insurance at the Consumer Federation of America, testified and argued for legislation to help fund more resilient infrastructure and provide owners with incentives to improve their property in ways that mitigate the risks posed by national disasters. He also suggested the creation of a public reinsurance facility that direct insurers could access to provide a backstop in the case of “mega-catastrophes,” the fear of which is leading some insurers to leave areas prone to natural disasters.
On the other hand, Senate Republicans sought to examine the role of state-level laws and regulations in driving rising insurance costs and reducing competition.
Take action now. Because LIHTC sites already operate under tight budget constraints due to their limited revenue from restricted rents, increasing insurance premiums place additional strain on the financial feasibility of these sites. As policymakers look at new programs, tools, or reforms that may address the mounting concerns related to insurance costs and availability, owners may need to take some action now to limit the financial strain. With rising operating expenses, owners have an incentive to find ways to manage insurance cost increases and reduce risks. Here are five tips to help you do so.
Tip #1: Take Higher Deductible
One way to minimize an increase in your site’s insurance premiums is to ask your insurer for a higher deductible. Insurers will charge lower premiums if you’re willing to assume more risk of paying losses out of your own pocket before turning to your insurance. In the National Leased Housing Association survey, 67 percent of respondents reported increasing insurance deductibles to manage the insurance premium increases.
If your insurer offers you a lower premium in return for a higher deductible, take a look at the claims you’ve made over the past few years before you accept the offer. Compare how much money you would save now in premiums if you took the higher deductible with how much you could end up paying out as a result. It may well be that you will save money by taking the higher deductible, especially if you don’t have many claims.
Make sure you have enough cash flow to handle the new higher deductible so you can cover losses out-of-pocket until you reach the deductible. If your new deductible is, for example, $20,000, you’ll need enough cash each year to pay claims until you’ve met the $20,000 deductible.
Tip #2: Lower Unnecessarily High Coverage Limits
Check to make sure you’re not paying for too much insurance coverage. When it comes to liability insurance, many sites are over-insured. Umbrella liability coverage of $15 million or more makes no sense in most cases. Practically speaking, the higher your coverage, the more someone suing you may demand. People tend to be willing to settle lawsuits for less money when they know your insurance coverage is lower. So don’t over-insure your site.
If you want to reduce the amount of property insurance coverage you get, do so only after getting an “insurable replacement cost” valuation—that is, an estimate of how much it would cost to replace your site if it were destroyed. If you underestimate your site’s value and lower your coverage, you could end up leaving your site underinsured.
Tip #3: Show Insurer You Have Risk Management Program
You may be able to persuade an insurer to lower your premiums if you can show that you have taken steps to manage risks that contribute to insurance claims and lawsuits. The best way to do this is to start a risk management program that identifies, evaluates, eliminates, and/or controls potential hazards at your site. Here are three steps you should take:
Step #1. Conduct site inspections to identify potential hazards. Look for the types of conditions that could cause injury, such as heaves in sidewalks, electrical hazards, improperly stored flammable materials, gas leaks, lead paint problems, mold, and broken smoke detectors. Many of these conditions are also health and safety hazards that inspectors look for during inspections, so you should be inspecting for these when preparing for your inspections.
Step #2. Develop appropriate plans to eliminate or control any existing hazards—and then put those plans into action. For example, develop a mold remediation plan to eliminate moisture and mold problems, and regularly monitor fire alarm equipment and smoke detectors.
Step #3. Keep records of your inspections and other efforts to reduce risks so you can show your insurer that you’ve been diligent in managing your risks. These records can also help you later on if you’re sued for negligence.
Tip #4: Insure “High-Risk” Sites Separately
Insurers consider some sites riskier than others and charge accordingly. For example, insurers may treat sites for elderly and disabled residents as “high risk,” in part because of the frailty of residents and frequency of injuries from falling. Other examples of high-risk sites include sites in peril zones, such as hurricane or tornado zones, or even high-rise buildings in earthquake-prone areas.
If you’re insuring a number of sites together in a pool, consider separating out your high-risk sites from your low-risk ones. Depending on the rates for each type of site, it may be cheaper to pool sites this way. High-risk sites can inflate the premium for all your sites because your insurer may unnecessarily give your low-risk sites high-risk ratings based on their association with your high-risk sites.
For instance, say you own 15 sites—12 of them are family sites and three of them are sites for the elderly. Talk to your insurer about pooling the 12 family sites together and insuring them separately from the three sites designated for elderly or disabled residents. By doing this, you’ll very likely pay a much lower average cost for the family sites. Even though the cost of insuring the elderly sites separately may be a bit higher, the cost savings for the family sites might exceed any cost increase for the elderly sites if you pool them this way—resulting in an overall savings in your insurance premiums. Ask your insurance agent to run the numbers for you based on various types of risk pools to come up with the most cost-effective way to pool your sites.
Tip #5: Shop Around
For some types of business insurers may charge vastly different rates. So periodically it could be beneficial to do some comparison shopping for your insurance coverage. According to the National Leased Housing Association’s report, 58 percent of housing providers have had to change insurance providers at least once and over 35 percent changed due to price increases.
You can shop around by making sure that the agent you’re working with is getting quotes from multiple insurers. Contact a second agent to get quotes or contact an insurer directly if you have reason to believe it may have preferable rates for your business.