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Shawn Woedl11 Posts
Shawn Woedl is the CEO & President of National Real Estate Insurance Group (NREIG), an independent insurance agency in Kansas City. He joined the company in 2014 and has been instrumental in growing NREIG’s Insurance Program for real estate investors into the largest in the country—insuring more than 90,000 locations today. Through his efforts, the Program has expanded to accommodate for investment properties up to 20 units, vacation rentals, and non-performing notes, as well as the addition of countless ancillary coverages. He is responsible for overseeing all aspects of the agency, specifically focused on building strong carrier and industry relationships, developing new and innovative product offerings, and managing internal sales and service processes. He is a nationally recognized speaker with an expertise in Commercial Property insurance.
Property Management & Insurance
What Coverages are Necessary? By Shawn Woedl If you have hired a property manager (PM) for your rental properties, they likely will (and should) carry Professional Liability or Errors & Omissions coverage. These insurance policies help protect them if their inadequate work or negligent actions while performing property management duties lead to a lawsuit. But what if you perform property management duties yourself? Did you know that if, while performing these responsibilities, your negligence results in a claim, your Premises Liability offers you little to no protection? What Activities are Considered Property Management? When comparing the activities of a landlord to a property manager, there is certainly some gray area. Essentially, the role of a landlord is to own the property and provide for its ability to function properly, for example, plumbing, gas, heat, water, etc. The property manager, who might be, but is not always a third party, handles most of the responsibility for maintaining the property and managing the relationship with the tenant. Specific activities may include: » Setting rent rates based on market standards and collecting rent from tenants » Advertising property vacancies to attract new tenants and showing the location to potential occupants » Performing background or credit checks and screening of potential tenants » Finalizing lease agreements with new tenants and coordinating placement » Paying bills and managing the budget or financial records for the property » Specific maintenance duties to ensure the property is safe and inhabitable — This may include responding to tenant requests, performing maintenance, or hiring contractors where necessary to fix issues and updating facilities when warranted. » Resolving tenant complaints and enforcing lease requirements — As part of this responsibility, the property manager should understand local landlord-tenant laws and ensure that both parties fulfill their requirements. Performing these tasks, or similar ones, could classify you as a property manager. As such, you may be at risk of liability claims due to inadequate work or negligent actions when acting in this capacity. However, as a property owner who performs these responsibilities (as opposed to a professional property manager), finding the right coverage can be challenging. What is Property Management Errors & Omissions (PME&O) Insurance? Errors & Omissions (E&O), also referred to as Professional Liability insurance, is coverage carried by businesses that provide specialized services or play advisory roles, such as professional property managers, financial service providers, lawyers, and consultants. These coverages insure against claims made when the work provided or advice given causes harm to the recipient of those services. Similarly, Property Management Errors & Omissions is for property owners who perform the duties listed above, or similar ones. This coverage protects you from tenant allegations that you were professionally negligent in these responsibilities or failed to perform duties as promised in your contract while acting as the property manager. What Does PME&O Typically Cover? Property Management Errors & Omissions (PME&O) insurance covers a range of issues that may arise while performing property management activities. This includes legal defense costs such as judgments, settlements, court costs, and attorney fees. Issues falling under this coverage may include, but are not limited to: Errors and Contract Performance Disputes If maintenance or upkeep is not as per the lease agreement or legal documentation has been misrepresented. Tenant Discrimination Fair housing laws protect all individuals seeking housing, including renters, homebuyers, and those obtaining a mortgage or homeowners insurance. The federal Fair Housing Act prohibits discrimination based on race, color, religion, national origin, gender (including sexual orientation and gender identity), disability, and familial status (presence of children under the age of 18 and pregnancy). Some states require you to rent to the first applicant for your listing, regardless of whether or not they can produce an acceptable rent history or are employed. If you do not adhere to these laws, overlooked applicants could sue you for tenant discrimination. Advertising Misrepresentation Examples include advertising that the property you are leasing is handicap accessible when it is not, unintentionally not disclosing mold, rental history, etc., or including incorrect property information in the listing. An Important Note for Hiring Professional Property Managers If you choose to utilize a professional property manager, it is very important that you require them to carry Errors and Omissions coverage, with you or your entity listed on the policy as an additional insured. The owning entity of the property, which should be the same entity that pays the property manager, must be the one listed as an additional insured. This ensures that you and/or your entity are protected from potential legal and financial liabilities arising from the hired property manager’s actions. In Summary Property Management Errors & Omissions (PME&O) insurance is essential for property owners who self-manage their rentals, protecting against legal and financial risks that may arise from claims of negligence, discrimination, or failure to fulfill contractual obligations. By understanding the importance of PME&O insurance and obtaining adequate coverage, you can safeguard your investments and manage your properties with greater confidence and security.
Insurance Coverages for Fix & Flip Properties
What Real Estate Investors Must Understand By Shawn Woedl Whether you are new to property flipping or a seasoned veteran, renovating a home to sell for profit comes with a unique set of risks. One of the most crucial aspects of protecting yourself and your business is insurance. The following coverages serve as the foundation for insuring any renovation property. Dwelling Coverage Dwelling coverage protects against sudden and accidental physical damage to your property. For instance, if severe weather were to cause a tree to fall on your roof, resulting in structural damage, your Dwelling insurance is what may cover the cost of repairs or replacement. Basic, Broad, and Special are the three coverage options available to investors. Below is an overview of each: Basic Form Basic Form coverage is a “Named Peril” policy, which means for a loss to be covered, the peril must be listed by name on the declarations page. In addition, the policyholder carries the burden of proving that a loss was caused by an included peril. Basic Form is typically the cheapest of the three coverage options. However, a Basic Form policy does not include coverage for the following perils: » Collapse » Falling Objects » Weight of Ice, Sleet, or Snow » Water Damage (Most known as coverage for frozen and burst pipes) » Theft (This includes things the policyholder owns, such as air conditioning units or copper pipes) Broad Form Coverage Broad Form is similar to Basic in that it is also a “Named Peril” policy. The coverage provided by Broad Form includes the same perils as Basic, and it also adds: » Collapse » Falling Objects » Weight of Ice, Sleet, or Snow » Water Damage Broad Form does not include Theft coverage. Many insurance companies choose not to offer Broad Form because the cost savings it provides are usually not enough to make sense to purchase over Special Form. Special Form Coverage Special Form is the most comprehensive and, in turn, the most expensive insurance coverage form you can purchase. It is considered “All-Risk” coverage, meaning unless there are specific exclusions listed within the policy, then coverage is afforded to you in the event of a loss. The burden of proof falls on the insurance company to prove that the policy specifically excludes the peril that caused the loss. There are standard exclusions that come in every Special Form policy. Some of these exclusions can be purchased as an endorsement or stand-alone policy, while others cannot. Standard exclusions include: » Mold & Fungus » Wear & Tear » Sewer & Drain Backup » Earth Movement (including earthquakes and sinkholes) » Flood » Intentional Tenant Damage When it comes to insuring a renovation property, we advise opting for Special Form, as it typically extends coverage to Theft and Water Damage, two perils that are more likely to occur at properties undergoing renovation. Note: you should always review your exclusions and endorsements pages as some insurers may exclude Theft, even on Special Form. Premises Liability When you own any property, it’s important to have coverage for more than just the physical structure. Premises Liability is insurance that protects the property owner. It covers events that occurred on the premises, including bodily injury and property damage to a third party or their property caused by hazardous conditions or negligence, provided that circumstance is not excluded. As the property owner, you are legally responsible for the safety of invited and even uninvited guests, such as trespassers. Hazardous conditions that may cause bodily injury can include uneven pavement, uncleared snow, icy walkways, etc. These types of lawsuits are not cheap, so it is extremely important that you protect yourself and your livelihood with a Premises Liability policy. Coverage for DIY Flippers Did you know that if you perform some or all of the renovation work yourself, you have added liability exposures? While Premises Liability is one of the most important coverages to have at any property you own, it does not fully address your unique liability risks as a DIY flipper. A Premises Liability policy will not provide coverage for incidents that occurred as a result of your renovations. To mitigate these risks, we recommend two crucial coverages: Products & Completed Operations (P&CO) Products & Completed Operations is liability insurance that protects you from lawsuits alleging property damage or bodily injury due to a defect in your product or completed work. For example, let’s say you built a deck as part of your flipping operations. The deck is considered a product or completed operation. If the deck fails and causes bodily injury, defense costs and awarded damages may be covered by P&CO. Personal & Advertising Injury (P&AI) Personal & Advertising Injury protects against non-physical injury claims involving libel, slander, and invasion of privacy. For example, if a person or entity alleges that your marketing materials caused them harm, leading to a legal dispute, this coverage can help with defense costs and awarded damages. Similar coverage may also be extended if someone claims you invaded their privacy through your advertising practices, such as using their image without consent. On a flip project, it is important to secure Products & Completed Operations and Personal & Advertising Injury coverages for work you complete yourself. However, it can be challenging to obtain these coverages if you are not a professional contractor or artisan/subcontractor. For this reason, NREIG developed FlipShield, a liability-only policy for do-it-yourself flippers. FlipShield includes coverage for P&CO and P&AI and is available to property owners who perform some or all of the renovation work themselves, as long as they are not professional contractors.
What Every Real Estate Investor Should Know About Insurance Claims
The Do’s, the Don’ts, and the Double-Checks By Shawn Woedl Experiencing a loss at one of your properties can be overwhelming, and dealing with insurance claims can be a complex process. By familiarizing yourself with the ins and outs of insurance claims before a loss occurs, you can proactively protect your business while minimizing potential setbacks. This general outline of do’s and don’ts can save you time, money, and potential headaches. Do » Thoroughly review your insurance policy // Before an incident occurs, take time to carefully review your insurance policy. While it may not be the most exciting read, this is your guide to what is covered and what is excluded. If you’re unsure about something, ask your insurance agent, and get everything in writing. » Promptly report ALL claims // Delays in reporting incidents could lead to prolonged processing or even a denial of your claim. As soon as a claim-worthy incident occurs, contact your insurance provider to initiate the claims process. » Document incidents // Take photos, videos and write detailed descriptions of what happened. Doing so will substantiate your claim and help the insurance carrier understand the extent of the damage. Don’t » Withhold relevant information // Failure to disclose relevant information about an incident can lead to claim denial. Provide accurate and complete details. » Exaggerate or provide false information // Fabricating or exaggerating details about an incident can lead to serious consequences. Insurance carriers investigate every claim and giving false information could result in denial or even legal action. » Make unnecessary claims // Minor incidents that you can afford to pay for out of pocket may not warrant a claim. Making frequent or unnecessary claims can lead to higher premiums. » Neglect necessary maintenance // After an incident has occurred, it is still important to maintain the property. Failure to do so could worsen the damage and may impact the outcome of your claim. The Balancing Act of Filing Claims Simply turning in claims should not directly affect your rates if they are not paid out. However, a pattern of filing unnecessary claims can affect your relationship with your insurance carrier. A string of loss frequency, even with no payout, makes carriers begin to wonder when the big loss (that they will have to pay) is going to hit. Maintaining a balanced claims history will help foster a positive and long-term relationship with your carrier. If one of your properties incurs damage that is not the result of a covered peril or not going to cost more than your deductible to repair, you’re better off paying for repairs out of pocket. What will affect your rates are frequent controllable loss claims. Controllable losses are incidents that could have been avoided or mitigated through proper precautions. In this respect, frequency is just as bad as severity. Insurance companies believe that if an investor manages their properties and businesses the right way, controllable losses are typically avoidable. Do your due diligence to prevent controllable property losses, such as: » Cooking and heating fires » Water damage from burst pipes » Theft » Tenant damage » Tree damage With that said, always inform your carrier of liability incidents, even if you’re unsure that a claim will be filed. If a claim does get filed, your carrier is in a better positionto help defend you because you made them aware of the incident when it occurred. Never try to negotiate a settlement for a liability incident on your own. Never Give an Insurance Company a Reason to Deny a Claim Ensuring that the information on your policy is accurate and up to date is extremely important. The last thing you want is to suffer a loss, file a claim, and be informed that coverage will not be afforded to you because of a clerical error. Below are a few key considerations that have a huge impact on the outcome of your insurance claims. Named Insured It is common for investors to utilize different business names, but if you’re not careful, this practice can leave you without coverage after a loss. Consider this: My insurance policy for an apartment complex is registered under my legal name, Shawn Woedl. My tenants pay rent to the business entity with which I bought the property, SW, LLC. If one of my tenants slips on the stairs and breaks their leg, they’re going to sue SW, LLC because that’s where they pay their rent. The issue is, if my LLC is not listed as “named insured” on my insurance policy, and a claim is filed, coverage may not be available. This is also a common issue when investors change their entity name but forget to update it on their insurance policy. The first named insured on the insurance policy must always be the entity that owns the property, whether that’s you or your business. Occupancy Status Reporting changes in occupancy status is the best way to ensure you always have the proper coverage. If your property is listed as “occupied” but is actually vacant, and a loss occurs, your insurance carrier may deny any claims. Insurable Interest Insurable interest is a legal concept stating you must have financial or other interest in the damaged property to be eligible for reimbursement. This basically means an entity that does not have interest in a property cannot insure said property. Let’s say you’ve inherited your aunt’s cabin in the Smoky Mountains. As soon as the deed is signed, your aunt’s homeowners policy no longer applies because she has no insurable interest. It is your responsibility to obtain insurance for the inherited cabin to be covered. Avoiding Claim Delays To avoid any discrepancies that may hinder the claims process, double-check that the following is listed correctly on your policy: » Property address » Mailing address » Listed mortgagee » The bank account for the “pay to” entity » Occupancy status Additionally, having a comprehensive understanding of the differences between Basic, Broad, and Special Form coverage
Hurricane Season Is Just Around the Corner
Are you Prepared? By Shawn Woedl AccuWeather recently released its 2023 Atlantic hurricane season forecast, and although predictions point towards a less active season, it will still bring certain dangers and the potential for property loss. Tropical weather forecasters at AccuWeather are projecting 11-15 named storms, with four to eight expected to reach hurricane strength. The Atlantic hurricane season begins June 1, so now is the time to prepare your properties and tenants in hurricane-prone areas. Catastrophic Losses Have Affected the Property Market The extreme weather events of 2022, Hurricanes Ian and Nicole especially, caused a significant shift in the insurance market. Many carriers in Florida have suspended writing new business to assess their financial situations and ability to stay afloat. Unfortunately, this also means that substantial rate increases are imminent as carriers attempt to keep pace with costly insurance losses. Although Hurricane Ian missed Louisiana, carriers are still feeling the impact of the 2020 and 2021 hurricanes. Properties in Louisiana have a high chance of incurring costly losses, making it difficult for carriers to maintain a healthy book of business. Many insurers have already canceled existing policies or announced they will not be renewed. Other parts of the country are also seeing changes in property insurance. Rates and losses are being evaluated across the board due to the increased severity of inclement weather. Stricter underwriting guidelines and higher standard deductibles will make it difficult to find coverage in states like Alabama, Florida, Louisiana, Mississippi, and Texas. Hurricane Mitigation Tips Natural disasters don’t wait on humans to be ready to respond. Preparing your properties and tenants well in advance of a hurricane risk can help save thousands of dollars and maybe even a life. Prepare your property » Trim trees and shrubs well in advance of a storm so they can withstand higher winds. » Secure loose gutters and clear debris to prevent water damage. » Reinforce security of the roof, windows, and doors. Brace garage doors. » Move exterior furniture, yard ornaments, or play equipment indoors. » Cover all windows — permanent storm shutters are best, or board windows with 5/8” marine plywood. Tape does not prevent windows from breaking. » Ensure that the sump pump’s backup battery is working. » Purchase a portable generator for use during outages. Store it outside, away from windows and doors, and protected from moisture. NEVER try to power the house wiring by plugging a generator into a wall outlet. Prepare your tenants Advise tenants to stay alert for updated emergency information and follow shelter-in-place guidelines: » Close and lock all windows, doors, and storm shutters. » If flood waters rise to dangerous levels, go to the highest level of the building, and call 911. Do not climb into a closed attic; individuals may become trapped. » In case of high winds, go to a small, interior, windowless room on the lowest level. » Have adequate supplies in an emergency go-bag; several days’ worth of water, non-perishable foods, medication, and pet supplies. » Follow instructions from local authorities. » If advised to evacuate, do so immediately. Do not drive around barricades. Do not walk, swim, or drive through flood waters. Stay off bridges over fast-moving water. Do not go back to the affected area until local authorities advise it is safe to return. The Differences Between Wind/Hail, Named Storm, and Flood Coverage Hurricanes and other severe storms may involve many causes of loss simultaneously, which might not all be covered by the same insurance policy. The following coverages, though not exhaustive, may kick in at various points during the hurricane season. Wind/Hail Most standard policies for investment properties include wind/hail coverage. Although, in some states, it may be excluded and needs to be purchased as an endorsement. Wind/hail primarily covers damage caused by heavy winds, tornadoes, and hailstorms. These weather phenomena can be common in coastal locations and Midwest areas and may lead to roof damage, broken windows, or damage to detached structures like garages or sheds. This cause of loss often carries a separate deductible from other perils, such as fire. This is typically a percentage of the insured value, which can differ based on the property’s distance to the coast. So, if your property deductible is $2,500 and you own a single-family insured to $200,000 with a 5% wind deductible, you are responsible for $10,000 before insurance payouts begin. Named Storm As soon as a storm is given a name by the National Weather Service, standard wind/hail coverage no longer applies. For damage caused by a named tropical storm or hurricane to be covered, your property policy must include Named Storm coverage. It is important to understand that damage caused by a rain or storm surge may or may not be covered depending on the situation. If a windstorm or hurricane is determined to have created a “storm-caused opening,” such as lifted roof shingles or a broken window allowing rainwater to enter the home and causing damage within the property, damage may be covered. However, if water enters the home due to a “storm surge” (an abnormal rise of water levels due to the presence of a storm) it would be considered a flood. Flood Flood coverage is almost always excluded from a property policy and must be purchased as a separate policy or endorsement to be covered. A flood occurs when two or more acres of dry land or two or more properties are overrun by water or mudflow. Flood coverage can be purchased through the National Flood Insurance Program (NFIP) offered by FEMA. Private options that typically waive the waiting period associated with NFIP are also available. A Flood policy will also come with its own deductible. Other Coverages to Consider If you own properties in a hurricane-prone area, you must discuss exposure with your agent to ensure you are comfortable with the coverage you have. Below are a few additional coverages you may want to consider. Other Structures Detached structures, such as a shed or garage, need
The State of Real Estate Insurance
Investors Need to be Pro-Active Entering 2023 By Shawn Woedl If I could sum up the property insurance market in one word, it would be chaos. If you have been an investor for the last couple of years, you have undoubtedly had a challenging property renewal for your portfolio. You may have dealt with required increases to insurance value or experiencedpremium increases (or both) regardless of your loss history or account profitability. The last couple of years have been challenging, and it does not look like the next 12 to 24 months will be any better. Before Hurricane Ian hit, Florida homeowners were already paying the highest premiums in the country — nearly three times the national average. The state is increasingly difficult and expensive to insure and claims from the recent hurricane will only continue this trend. The aftermath of COVID is still being felt in the United States: rising interest rates, rising inflation, rising material costs, and almost every industry is experiencing labor shortages. These higher material costs and labor shortages are affecting claims payouts for carriers. This may lead to rate increases and even canceled policies or carrier insolvency. Additionally, longer repair periods leave investors missing out on potential rental income. Climate Catastrophes Hurricanes Contrary to popular belief, hurricanes and tornadoes are not occurring more frequently. They are, however, more severe. NASA reports that global warming has caused seas to rise, leading to a higher storm surge and resulting in more intense rainfall and an increase in coastal floods. Tornadoes Even though the total number of tornadoes per year has remained relatively stable, recent years have shown changes in their patterns. Tornado events are becoming more clustered, and evidence suggests that tornado patterns have shifted geographically. The number of tornadoes in the states that make up Tornado Alley continue to fall, although tornado events are on the rise in Mississippi, Alabama, Arkansas, Missouri, Illinois, Indiana, Tennessee and Kentucky. Wildfires Wildfires have been occurring in new territories as well. These fire events are largely taking place in areas of the country that, historically, have been lower for insurers, and therefore were afforded lower insurance costs. Property rates in western states are a fraction of what they are in the Midwest or Southeast. Unfortunately, just one extreme event can drastically affect a carrier or program’s profitability, causing them to halt business in these areas. Catastrophes Drive Up Property Rates According to National Centers for Environmental Information, there were 20 individual billion-dollar weather and climate disasters. What stands out is the diversity of disasters: a winter storm across the deep South and Texas, a wildfire event impacting seven states, flood events in California and Louisiana, tornado outbreaks, etc. And let’s not forget Hurricane Ida, the most expensive hurricane to make landfall in Louisiana since Katrina in 2005. 2022 did not provide any relief for these property markets. The same triggers were seen across the globe again this year. And just when we thought we would make it through the hurricane season without significant landfall in the United States, Hurricane Ian hit Florida. Damage estimations range from $42 to $258 billion. The insurance trend we have seen in Florida over the last few years will continue as claims arise from the hurricane. Climate catastrophes have driven up property rates for everyone, regardless of geographic location or individual loss history. Why are we seeing this trend? Reinsurance carriers are increasing their reinsurance rates for primary insurers. Unfortunately, primary insurers (yourcarriers) then pass that cost on to the end buyer, which is all of us. Looking Forward The aforementioned factors all contribute to what is shaping up to be a chaotic 2023 property market. Although situations will differ, initial numbers for 2023 renewals show a 30-35% increase in property insurance costs on clean risks. “Clean” means your portfolio has had no property losses and is not located in a region prone to catastrophes such as wildfire, hurricane, or convective storm areas. If you have had losses and/or your property is in a catastrophe-prone area, you could potentially see a 60-70% increase on your property this upcoming term. We are experiencing a hard property market, and in times like these, you should always shop annually for your insurance. You will get much more out of shopping for benefits, policy structure, and included coverages than you will for price. There is not that much fluctuation between property carriers. The most you can save is pennies on the dollar. Insurance agents that are selling on cost alone are struggling right now. Those that can find benefits and comprehensive coverage for the same cost are of more value to you. A good insurance agent will work with you to find ways to keep your costs stable. If you are comfortable taking on a little bit of additional risk, you and your agent can look at increasing your property deductible, changing your policy form from Special to Basic, and switching to actual cash value coverage instead of replacement cost coverage. Remember, if any of your properties have a lender, you will be required to stay within their insurance lending guidelines. You must check with your lender and insurance agent before you make or request these changes and understand any added risk. Your insurance agent should be an expert and be able to guide you in the right direction while providing you with the positive and negative implications of any changes to your property policy. I also stress the importance of being as proactive as possible with your renewal. Do not wait until the last minute to aggressively shop your coverages and costs, as markets will be limited. Your agent should certainly be ahead of this, but if not, you need to make sure they start shopping your renewal 60 days out. Lenders start requesting renewal proof of coverage from your agent around this time as well. As an investor, you want the best terms, applicable benefits, and the broadest coverage form. In a hard market, this will be to
Understanding a Property’s Claims History
Evaluating the Potential Investment By Shawn Woedl Knowing a property’s claims history helps in evaluating a potential investment. Past claims can affect insurance rates, coverage availability, and can shed light on possible hidden damage and risk. Doing your due diligence provides you with crucial information that can help you understand what to expect moving forward, mitigate the risk of an investment, and make an informed decision about whether a certain property is right for you. Past claims and future insurance Before providing coverage, many insurance carriers require you to provide accurate loss information on a property for the past three to five years. If this information is not disclosed before coverage is obtained and a problematic claims history becomes known, the carrier can either cancel your policy, or agree to stay on but increase your premium. Having this information before you buy insurance can help you anticipate what coverage you will need to have based on the history of the property. How do you go about obtaining prior loss history? If purchasing a property from the current homeowner, you would obtain a C.L.U.E., Comprehensive Loss Underwriting Exchange report. Under the federal Fair Credit Reporting Act, anyone can pay a small fee to request a copy of a C.L.U.E. report on a potential new property through LexisNexis or a similar data company. The report will provide you with prior insurance claims filed at the property, the type of claim, and approximate total payout. If you are purchasing the property from another investor, you can ask the seller to obtain a Loss Run report from their insurance agent or carrier. This can take two to four days to receive and includes the same loss information as a C.L.U.E. report. What exactly should you be looking for on these reports? The frequency and severity of losses are looked at as the same by most insurance carriers. Multiple minor losses or one catastrophic loss could both be seen as high risk; frequency is just as bad as severity. Controllable losses are looked at very differently than “Acts of God.” Fires (specifically tenant-caused fires), theft, and water damage are seen as more negative than wind or hail loss or lightning strikes. Look for what payouts were used for, particularly when it comes to water damage, fire damage, and criminal activity. If liability losses are present, carefully look at the cause of loss and consider if a tenant who was negligent for the claim is living at the property. Also, consider if there are additional mitigation efforts that should be done in order to avoid future losses. How does this impact the insurance you are able to obtain going forward? Some insurance companies also review loss runs and make decisions based on patterns. Even if they are minor instances, but if they happened frequently enough, they are going to adjust the types of perils insured and how much they will cover. For example, if the property you are looking into has had three small fires in the last seven years, only totaling $5-$6,000 each, then an insurance carrier might decide to require you to carry a $5,000 deductible to prevent the carrier from paying out on these smaller losses moving forward. The best coverage for you Reviewing the loss history can aid in decisions on the type of coverage you may need on a potential new property. For example, if upon receiving the report you notice that there are multiple theft claims, you should consider a few things. First, is this going to be a good area for you to invest in? Second, if you decide to move forward with purchasing the property, it may be in your best interest to obtain Special Form coverage to cover potential theft losses. Third, identify opportunities to fortify the property against future theft losses. Reinforce doors and windows, keep trees and shrubs trimmed, install motion-sensor outdoor lighting, install an alarm system, etc. Another example is Flood coverage. If the report shows that the property has a history of flooding, you first need to determine if the risk is worth it. If you choose to move forward with the property, it will greatly benefit you to customize your insurance package with Flood coverage. This is a separate policy that is typically excluded on a standard property policy. Choosing the right property deductible Your deductible is the amount you are responsible for in the event of a loss before your insurance company starts to pay a claim. The deductible you carry on your policy will directly affect the premium you must pay for coverage. The higher your deductible, the lower your premium rate will be. There are multiple factors you should consider when choosing a deductible, including your cashflow and business strategies, but past property losses are also a factor. Consider this scenario: Investor 1 and Investor 2 both purchase properties that sit next to each other. On paper, they are identical risks. Investor 1 chooses a $10,000 deductible and Investor 2 chooses a $1,000 deductible. Investor 1 is probably paying 20% less per year for insurance than Investor 2. Investor 1 did not review the loss history, so they did not realize that both properties have had five small water damage claims in the last seven years in the winter due to burst pipes. Investor 2 did review loss history and knew they did not want to pay for that loss every other year. With each burst pipe, both properties required $5,000 in repairs. After 10 years, there have been four more incidents and investor 1 has paid $20,000 out of pocket because the $5,000 repairs were under their $10,000 deductible. Since investor 2 knew this was a risk ahead of time, so while they were paying a higher premium, they are only out $4,000 over the same four incidents (4 times their $1,000 deductible). However, they also know that if they take steps to reduce the risk, they might be able to avoid the burst pipes entirely. So,
