All Forum Posts by: Bo Bond

@Ryan Fox - It's pretty unpredictable in my opinion, but I'm sure there are people way smarter than me that can better see/predict what's coming down the pike.  I'm sure some can predict what's going to happen (much like the stock market), but no one really knows for sure.  

As it relates to habitation exposures, it appears that there may be a leveling off in premiums, rates, and deductibles here recently, but there's so many different variables that it's really hard to make a blanket prediction for 2025 (or the future).  One of the major driving factors for increased premiums is the carrier's requirement for higher replacement cost limits on file for buildings.  This alone is a significant factor in premiums going up (even when rates remain stable).  

In decades past, carriers were allowing people to carrier lower limits of insurance on their properties.  Due to inflation and the drastic increases in material, labor, and supplies, that's naturally caused carriers to rethink limits/values on file.  I know for sure that in my area of Texas (well outside of major metro areas), we've seen the cost to build new homes almost double in price.  So, a house that would typically cost $100 per sq. ft. to build 5 years ago, is now costing $200 per sq. ft.  A standard roof that use to cost $15,000 to replace, is now well over $30,000 to replace in many areas of the country.  This issue also naturally drives up deductibles.  So, if your property rate is $.30 cents for a 2,000 sq. ft. rental, .0030 x $100,000 vs .0030 x $200,000 is a difference of $300 per rental building.  Multiply that by 10 total rental buildings, and you can see the premium jump significantly for your overall portfolio ($3k in this scenario).  This is just an increase in premium due to values/limits increasing.  We haven't even discussed carriers raising their rates due to their reinsurance carriers increasing their rates, your building locations (CA, FL, NY, coastal counties/cities, etc.), how litigious is your state, your own loss history/ratio as an individual investor, the carrier's overall loss ratio in a certain state/area, the deductibles you've elected, etc.  These are just some of the additional items that will have a significant impact on carrier's rates, your premiums, and whether we start to see the insurance market soften anytime soon or not.

Either way, it's likely going to be different in every state or area of the country.  Some states are dealing with similar issues (wind, hail, fires, etc.), while others are working through some completely unique situations (like CA or FL).  Issues with multiple national carriers leaving the state completely due to state regulations, massive loss ratios, huge increases in replacement cost values/limits due to inflation, etc.  Until there's more stability in the marketplace, the insurance market likely won't stabilize or soften either.  If there were ever a time to shop multiple carriers and even multiple agents (if necessary), that time is now.  It's the only way you'll get a good idea of what the market is really doing in your area, and keeps everyone competing to find the best coverage, deductibles, and premiums for your specific account.

Hope this is helpful.  Good luck!

Brian,

We see a lot of "residential" investors taking on larger deductibles than they have in years past, and even more so as we see rates increasing in a hard insurance market.  Over the past 20 years, the insurance market has a whole has been pretty soft, with a few flashes of hardening (after 911, and after the sub-prime issues of 2008), but nothing like what we're experiencing right now.  In a soft insurance market, coverage is usually broader, lower deductibles are more accessible, underwriting is usually more flexible, and premiums are generally aggressive / lower.  In a hard insurance market, we typically see the complete opposite.  We see a tightening or restricting of coverage, higher deductibles, more tedious underwriting requirements, and increasing rates.

As far as deductibles specifically, it really depends where you are in the country.  From what I've seen, the days of the $1,000 and $2,500 deductibles for fire, lightening, water damage (not flood), etc. are becoming harder and harder to find.  Especially when it comes to investors with a sizeable portfolio of rental homes (10+).  The most common deductible I see countrywide is $5,000 for your standard deductible.  That said, if you only have a few "residential" rental buildings, most direct carriers can get you pretty low deductibles on their stand-alone policies (State Farm, Allstate, Farmers, Nationwide, etc.).  That said, I've seen many of these carriers are pulling away from habitation exposures (non-renewing a good portion of that business).  It's when you get a more significant portfolio of homes that you start to see these larger deductibles.

Wind/Hail is a completely different topic.  OUTSIDE of coastal counties/cities (within 60 miles of the Gulf & East Coast), wind/hail deductibles are typically 1% or 2% of the building limit on file, and can many times come with a minimum deductible as well (typically $5,000 or $10,000).  If you have any significant loss issues (frequency / severity) due to wind/hail in the recent past, you could see this minimum deductible set at $15,000 - $25,000 (per building).  You will certainly see this in the more wind/hail prone states.  Again, this is typically for those with larger portfolios of "residential" rental buildings.

MN is very much a wind/hail prone state (assuming that's where you mostly invest).  It may not get the number of wind/hail storms like TX does, but when the storms do hit in MN, they're usually very large systems, and produce awful hail damage.  I think for MN specifically, a standard deductible of $5k to $10k is normal, and the wind/hail at 2% or $10k (whichever is greater) is typical for your area/state as well.  Choosing a higher deductible MAY allow you to maximize cash flow, but as you know, every investor's situation is different.  Yes, jumping that wind/hail deductible up to $20k or $25k should impact your premiums even more.  However, if you elect to go this route, just make sure you've analyzed your portfolio with your insurance agent to make sure you can afford these deductibles when it becomes absolutely necessary to pay them.

I hope you find this useful.  Good luck.

Jordan,

The burden of proof will be on you (your attorney) if you sue your neighbor. Your attorney should be able to note all the details surrounding this event, and let you know if you have a good case/stance to sue or not.  However, when you sue, you also open yourself up to future issues with that neighbor. Certainly, something to strongly consider. 

If you sue, and have to "prove" that the neighbor was negligent, then that would likely need to consist of multiple “written” communications from you, the city, or an arborist to your neighbor stating that you/they feel the tree in question is diseased, appears to be dead/dying, is overgrown and posing a potential threat to your property, etc. If you (or others) don’t have any of that "written" proof, then good luck in court. Stating that you had a conversation with the neighbor about it won't go far in proving their negligence. That just becomes your word against theirs. You really need something in writing, and likely more than just one notice. Again, an attorney can help you determine if you have a strong stance/case against the neighbor or not.

You also need to consider your own carrier's response to this claim, and perhaps even visit with them about possible subrogation. If your insurance carrier feels that there was negligence by the neighbor, they "could" subrogate for the damages (go after your neighbor’s insurance carrier to recoup their money). However, this also depends on their ability to prove your neighbor negligent, and the overall cost of the claim. If the overall damages aren’t worth their time and effort in court costs and legal fees, then they likely won't subrogate against your neighbor's insurance policy.

If suing and subrogation aren’t viable options, then I like Jeff’s idea about speaking with your neighbor and splitting the cost of removal of the tree may be the best way forward. There also may be city/state requirements about removing the tree if you own it, so I would investigate that option as well. As the owner of the tree, it’s almost always your responsibility for clean-up and debris removal. However, splitting the cost as Jeff suggested may get things fixed up quickly and keep the peace between both parties. Good luck! Hope this helps!

Megan,

So sorry to hear this.  I truly hope you're finding help, and praying there's relief for you somewhere to be had.  I don't think the details below are what you want to hear, but hope it provides some insight.  As always, visit with your agent about your specific policy to determine possible coverage.  It appears some folks are confused about the way this coverage typically comes into play.  

With most insurance, it goes back to the peril that caused the damage, and whether you have protection for that specific peril or not.  If you don't have "flood" or "wind" coverage within your policy (or under a separate policy), then you very likely won't have loss of rents/income protection when your building is destroyed by the perils of flood or wind.  This is because loss of rents/income is almost always triggered by a "covered" peril (aka covered cause of loss).  For loss of rents/income to pay out, there typically has to be a covered cause of loss first, otherwise loss of rents/income never comes into play.  There "may" be a policy form out there that doesn't require this, but all the ones I've ever seen follow these standard insurance principals.   Also keep in mind that with some carriers, loss of rents/income is an "optional" coverage that must be elected, while others automatically provide this coverage within their policies.  In either case, it's up to you and your agent to ensure you have this coverage in place if you want it.

Now, if you don't have flood coverage, but you "do" have wind coverage, that changes things up.  While you wouldn't have any protection for the flood damage you incurred (sheetrock, trim, floors, insulation, electrical, contents, etc.), you would have coverage for the wind damage you incurred (roof, gutters, blown out windows, etc.).  Due to having that wind coverage in place, that would then open you up to collect for loss of rents/income.  Since a covered peril (wind) triggered coverage, loss or rents/income would then come into play.

Unfortunately, if you have neither flood or wind coverage under your policy, and that's what's caused all your damage, I think you'll be hard pressed to collect any loss of rents/income from your carrier.  That said, you should still visit with your agent directly about your specific policy in hopes that they're aware of some loopholes or coverage enhancements within your policy that may respond on your behalf.  

Good luck!  Wishing you all the best, and a quick recovery from this disaster.

I'm pretty sure you're correct in that you have to have a subscription to get an AM Best report.  Sometimes you can Google the actual carrier name along with AM Best rating, and find details without having a subscription.  I'm just not sure how much detail you'll find.  You could also request it from the agent who quoted that carrier on your behalf since they have access to those carriers / underwriters directly.  I bet those carrier representatives have access to their companies AM Best reports, and would be willing to share those details with you.  In fact, many formal quotes usually have these details listed within the proposal itself.

In my experience, this is much more "common" for direct writer carriers and admitted standard carriers (St. Farm, Farmers, Allstate, Nationwide, Travelers, Liberty Mutual, etc.).  It also seems to be more common in some areas of the country more than others (due to much older construction in the region, higher exposure to harsher climates, older electrical and plumbing running through the home, etc.).

However, there are some surplus lines carriers who write master policy programs for residential real estate portfolios who don't inspect homes in person at all, but just do a desktop inspection while underwriting.  That's it.  Those surplus lines carriers are also writing on commercial special forms and DP-3 forms (not on basic or broad forms).  This is a good thing for the buyer.  

I think what folks are trying to advise here is that you need to make sure you're dealing with an agent who knows policy language, has good experience in the industry, and knows how to help you and protect you at the same time.

Hope you find this helpful.  Good luck!

Matt,

I would never just write off a carrier because they're "non-admitted".  Lloyds of London is practically the originator of insurance, and only writes on non-admitted paper.  As a carrier recognized across the world, they're about as fortified as they come.  Some people think non-admitted means not licensed, and that's incorrect.  This term has nothing to do with being licensed to write insurance or not.  Non-admitted simply means that the carrier isn't backed by the state fund if they ever go insolvent.  

The state fund pulls a certain amount of premium from all "admitted" carriers and the policies they bind, and puts that little bit of money back in a state fund / pool.  So, if that "admitted" carrier ever goes insolvent, then the state will pull from the fund to pay any open claims.  However, there's no "guarantee" the state will pay all open claims left behind by that insolvent admitted carrier, nor how quickly they will pay those claims.    

Look at the carrier's financial strength, financial outlook, and longevity via AM Best ratings.  This helps if you're investigating any carrier, and looking for their financial stability or their ability to pay claims.  Most of the industry (as well as lending and banking world) will stand behind any carrier with an "A" rating or better.

Non-admitted carriers have some great advantages.  They have a greater flexibility when it comes to rates/premiums they can charge, and they also have more flexibility when it comes to the coverage forms/policy language they write.  

I personally wouldn't have any issues quoting or binding my own coverage with a non-admitted carrier as long as their financial stability and outlook rating was "A" or better.  I also wouldn't have any hesitation presenting my clients with the same non-admitted option.  A good agent should be able to present multiple options and describe the pros and cons of either option/policy (whether on admitted paper or non-admitted paper).

I hope you find this helpful.

Todd,

I can't speak as an investor, but can as an insurance agent.  

Most agents will do what "you" feel is best in your interests while working to give you all the necessary details and options to make the best decision.  You should be looking for an agent who can help you do that.  

If we're speaking of rentals in Houston, you'd certainly need to reach back and see what your wind exposure has been like over the past 10-20 years (if you can go back that far with good data) for this specific rental and area of the state.  There's always a risk, but I have to believe the further you get from the coast, the more sound this option might be for you.  The other thing to keep in mind is that windstorm coverage applies to wind damage to the entire building, and not just the roof in my experience.  Unless somethings changed, just keep that in mind.  If you remove this covered peril, you're removing wind damage coverage to the entire building, and not just the roof.

Your assessment of the deductible seems accurate, but I can't speak for the replacement cost of a new roof.  That would be one major concern for me if I were in your shoes looking to make this decision.  As you know, material, labor, and supplies for roofing can change a lot within a matter of weeks / months.  That said, if you've been a landlord for years and have niche relationships with contractors / roofers (or do the work yourself), then it would seem you're in the ideal position to make this decision.  There are plenty of investors who are in a financially strong position to self-insure their properties completely, take on much larger deductibles, or eliminate certain coverages from their policy in an effort to drive down their insurance costs.  Just weigh your options with an experienced agent, and choose what's best for you.

The only thing I might suggest before you pull the trigger on complete removal of windstorm coverage altogether, is to see if you can get quotes with 3% and 5% deductible options.  This may drive your premiums down enough to keep insurance in place just in case something unforeseen happens.  That way you at least have the coverage in place, just with a much higher deductible.  Based off your details, a 3% deductible would be $6k and a 5% deductible would be $10k.  Both of these options "should" drive your premiums down a good amount, and hopefully to a more acceptable level.  If not, then I don't see anything wrong with considering removing windstorm as long as you've weighed all the options.  

Hope you find this helpful.

Matthew,

Hopefully you have an agent willing to help you answer this question.  Certainly lowering deductibles should lower your rate/premiums, especially jumping from a $1k,m up to a $5k or $10k.  Most carriers are pushing for at least a $2,500 deductible in the current market, and more are even pushing $5k.  Carriers are more aggressive about this deductible increase when you're rental is located in a heavy wind/hail area (KS, TX, MN, CO, MO, AR, OK, etc.).  

You could also look at lowering / removing certain coverages that may impact premium like loss of rents limits/coverage, or sewer backup coverage.  For some carriers, additional premium is applied to these enhancements, but that may not be the case for all carriers.  You'd just have to ask if these influence the carriers premium, and by how much to see if they're even worth consideration.  I don't like to endorse anyone dropping coverage or enhancements from their policies, but sometimes you don't have a choice.  Weigh ALL your options.  

Some carriers will allow you to elect ACV (actual cash value) coverage, but you have to be aware of lender requirements and coverage concerns that come with this type of policy.  I always recommend RCV, but some aggressive and financially established investors may elect the ACV route.  There are plenty of investors who look to do all the work to their homes and pay out of their own pocket for most losses (with the exception of a total loss).  That total loss is really the only reason they're buying insurance at all.  These investors may strongly consider ACV.  These investors also typically take on much larger deductibles (usually $10k - $25k) and elect ACV, all to drive their premiums down as low as they can go.  I can't tell you all the coverage concerns with ACV, but ask your agent to help you analyze this option if it interests you.  In short, the carrier will factor in depreciation at the time of loss which would significantly reduce your payout on a claim.

Lastly, and always, review your limits with your agent.  Make sure you're not overinsuring a property.  In order to do this you need to know what's going on in the area of your rentals, consider your exclusive contractor relationships, and get someone to run a viable cost estimation on your property (specifically an "insurance" cost estimation).  This will ensure you have good values.  Again, consider the requirements of your lender (if applicable for that rental property).

These are just a few areas you can consider and visit with your agent about, and are likely the most common ways to reduce premium.  Hope this helps!  Good luck!

Contact Sue Savio - She's well known on the islands and has owned Insurance Associates in Honolulu since the 60's. If you reach out, please give her my regards.