REI INK

Risk Management

Mitigating Loss with Smart Home Technology

Be Proactive and Avoid Costly Claims by Jason Jones As a property owner, you are likely familiar with the benefits of smart home technology. But beyond the convenience of remote controls and automation, these systems can also play a critical role in mitigating loss at your investment properties. The right technology can help you avoid costly incidents that could otherwise lead to major repairs or liability claims. Smart Water Leak Detectors Water damage is one of the most common and costly issues for property owners. A leaking pipe or appliance left unchecked can cause significant damage to walls, floors, and foundations. Fortunately, smart water leak detectors are available to help you catch these problems before they escalate. There are two main types of leak detection systems:  »            Sensor-based systems are affordable and easy to install. They use sensors placed near high-risk areas, like under sinks or next to appliances, and alert you if they detect moisture. Some models offer push notifications to your smartphone, while others make an audible alert.  »            Water main systems are more advanced and can detect changes in water pressure throughout the entire property. If something unusual is detected, these systems can automatically shut off the water supply, preventing further damage. Though more expensive, if you are concerned about things like frozen/burst pipes, these systems are a worthy investment compared to the potential cost of severe water damage. Smart Thermostats For investors with vacant properties or homes undergoing renovation, smart thermostats can be a game changer, especially in colder climates. One of the biggest risks for vacant properties is frozen pipes, which can burst and lead to costly water damage. A smart thermostat allows you to monitor and control the temperature from anywhere, ensuring your property stays warm enough to prevent freezing, even if you cannot be onsite. This way, you do not have to guess whether your home’s heating is holding up in sub-zero temperatures. Plus, you can save on energy costs by adjusting the temperature as needed, rather than keeping it unnecessarily high for extended periods. Smart Sump Pumps Flooding is a major concern for investment properties in high-risk zones. Smart sump pumps and backups can alert you to issues before they cause extensive damage. If your property already has a sump pump, you can upgrade the current setup by installing a smart primary sump pump. These systems can send a text or push notification to your smartphone if high water levels are detected, indicating that the pump has either failed or lost power. This early warning gives you time to take action and prevent the worst-case scenario from occurring. In addition to primary sump pumps, there are two options for smart backup sump pump systems:  »            Smart battery backup systems automatically kick on to handle incoming water if the primary pump fails, is overwhelmed, or loses power. A common issue with older models is that the batteries degrade over time, and you might not know there’s a problem until it’s too late. With smart battery backups, you can monitor the battery’s condition at any time. The battery charge on these systems can last anywhere from a few hours to several days depending on the model and conditions.  »            Smart water-powered backup systems use the main water supply to pump out floodwater in the event of a power outage. For property owners who are concerned about relying on battery life for lengthy periods, these are a great option as they do not require anything but pressure from the water main to operate. However, as these systems rely on the home’s water supply, they can be costly to operate for extended periods. Like battery backups, these are equipped with wireless smart alarm systems that alert you to issues such as pump failure or incoming water. Smart Carbon Monoxide Alarms Carbon monoxide (CO) is a silent killer, and as such, it is important to have a reliable detection system in place to keep occupants safe. Smart CO alarms can detect harmful gas and send real-time alerts to your smartphone, so you will know if there is a problem even if you are not physically present at the property. Some smart alarms can pinpoint the specific area where carbon monoxide is detected and even contact monitoring centers, which can then notify emergency services, if needed. Combination smart home sensors are also available on the market and can detect carbon monoxide, smoke, and fire. Both battery-powered and wired options are available. Smart Locks Whether you manage short-term rentals, vacant properties, or homes under renovation, smart locks are an effective way to keep your property secure. With smart locks, you can monitor access in real time, receive alerts when someone enters or exits, and even remotely lock and unlock doors. There are several types of smart locks on the market:  »            Deadbolt replacements that completely replace your existing lock.  »            Deadbolt adapters that modify part of the existing lock system.  »            Keypad locks, which are simple and allow access with a code. Some models provide backup keyholes in case of battery failure. For vacation homes or rental properties, smart locks can make guest access easier by allowing you to set temporary access codes for visitors such as contractors or cleaners. Just be sure not to reuse codes and deactivate them when necessary. Some smart locks also track who enters and when, providing helpful records in the event of a security incident. Smart Lighting Vacant properties can be a magnet for vandals or burglars. Smart lighting is an easy, low-cost way to make your property look occupied when it is not. By installing smart plugs or bulbs, you can remotely control lights or set schedules for them to turn on and off at random intervals, giving the impression that someone is home. Some systems can be integrated into existing smart home devices while others offer their own applications. In Conclusion While smart home technology provides convenience, it also allows you to take proactive measures to prevent loss and avoid

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Navigating the Evolving Insurance Landscape

A Guide for Real Estate Investors in 2024 By Jason Jones Property owners across the country are grappling with the aftermath of another intense year for the insurance market. Extreme weather events and large-scale natural disasters have caused the insurance landscape to evolve significantly over the last few years. But what does that mean for real estate investors? Let’s start with a look back at a few of 2023’s most impactful losses. Recap of 2023 Events From January through March, a staggering 466 tornadoes were reported, mainly affecting Southeastern states like Mississippi, Louisiana, Arkansas, and Alabama. The trend of severe weather continued in the spring, with more tornadoes, hailstorms, heavy rain, and high winds, collectively contributing to approximately $25 billion in damages. In late summer, wildfires on the island of Maui tragically claimed the lives of over 100 individuals and losses were an estimated $5.5 billion. Shortly after, Category 4 Hurricane Idalia made landfall in the Southeast, triggering severe flooding and losses totaling $2.5 billion. Insurance Market Response  In 2023, real estate investors faced significant price hikes with general rate increases and insurance to value (ITV) minimum increases. Rising building and material costs continued to be a major concern for insurance companies, mainly driven by large-scale natural disasters like wildfires, which impact material availability and the supply chain. Beginning in 2022, many insurance companies continued to pull out of areas such as Florida, Louisiana, and California. Unfortunately, some were forced to shut down operations altogether, not only because it was no longer profitable but because there was concern that one extreme weather event could cause irreparable financial harm to all parties involved. Other companies identified risks they are no longer willing to insure. For example, many carriers now limit or exclude coverage for more frequent and predictable risks, such as Aluminum or Knob & Tube Wiring — two electrical systems that are serious fire hazards. In addition to more exclusionary language, these methods also resulted in higher deductibles.   The good news? The market is beginning to stabilize. The dramatic changes experienced in 2023 were insurance carriers establishing acceptable rates, deductibles, and coverages for viable businesses moving forward. Although costs are expected to continue rising, the rate at which they do is predicted to slow in the coming year. However, significant weather events will always affect the landscape of the insurance market. Takeaways For Real Estate Investors Consult Your Insurance Provider Engaging in open discussions with your agent or broker is the best way to identify exposure, address concerns, and explore additional insurance products. Don’t hesitate to reach out if you have questions or need advice. Choose Appropriate Coverage As an investor, you must realize that protecting your property and your financial well-being are one and the same. Choosing the appropriate insurance agent/agency, policy coverage, ancillary products, and even coverage amounts can help save you money in the event of a loss. Evaluate Coverage Amounts Your insurance expenses don’t indicate how “good” the coverage is. Some high-end properties aren’t required to be insured at market value. They could be insured effectively at the rebuild value, an amount that is significantly less. Consider the following for each property you own to guide coverage decisions:  »          How much could you afford to pay out of pocket if there were a loss? »          Are there other structures on the property and are they insured? »          After a large loss, would you make repairs to the home or clear the lot and sell the land? »          Is the property in an area prone to certain types of losses?  Prioritize Maintenance Many people think purchasing adequate insurance policies creates a failproof risk management strategy. But the truth is, insurance can’t and won’t cover every exposure you have. While you can’t stop a hurricane from damaging your property, quite a few of the most common losses are preventable, such as cooking fires, tree damage, and burst pipes. Regular property inspections and maintenance are crucial in identifying risks and can significantly reduce the likelihood that you experience a severe loss. So, what should you include in your risk management plan? Winter Plumbing // Drain, disconnect, and store garden hoses. Install faucet covers to help prevent outdoor faucets and connected plumbing from freezing. Drain sprinkler systems and swimming pool pumps. Turn off the water and fully drain plumbing systems at all vacant properties. Walkways // The expansion/contraction caused by freezing/thawing can lead to significant damage to exterior walkways, driveways, and stairs. Repair cracked, broken, or uneven areas. Holiday Cooking // Cooking is the leading cause of house fires. Remind tenants to exercise caution in the kitchen and provide tenants with kitchen safety information upon move-in. Spring Roof & Gutters // Check roofs for damage — replace cracked, buckled, or loose shingles. Clean gutters and downspouts to debris from accumulating. Be sure downspouts drain away from the foundation. Trees // Trim healthy trees and bushes back from utility wires. Hire a licensed and insured professional to trim dead branches and cut down large trees. HVAC // Have a professional inspect air-conditioning systems and clean ducts. Check hoses for leaks and make sure everything is draining properly. Summer Decks // Replace broken or weak boards and handrails/grab bars. Sharp edges, splintered or rotting wood, rusted nails, or nail pops are liability hazards and must be remediated. Pools // Ensure swimming pools and spas are up to current municipal standards. Pools should have a fence around the perimeter with self-closing and self-latching gates, anti-entrapment drain covers, and water depths clearly marked on all sides of the pool deck. Fall Alarm Testing // Carbon monoxide and smoke detectors should be installed on each floor in bedrooms, main hallways, and kitchens. Units should be tested monthly and replaced every ten years.  Heating // Tune-up furnaces and inspect HVAC systems. Have ducts professionally cleaned to prevent fires that may result from dust buildup. Pests // Seal or caulk cracks, gaps, or holes near baseboards, windows, and doors to prevent bugs and rodents from entering

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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.

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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

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Getting Ahead of the Storm

Property Management Pre- and Post-Disaster By Nickalene Badalamenti-Kalas Weather extremes and severe storm events are occurring more frequently across the United States and around the world. These events have not only caused significant damage to properties but also impacted new regions that are not fully prepared to confront them. The increasing occurrence and intensity of natural disasters calls for proactive measures to mitigate potential property damage and expedite recovery efforts. The Need for Predictive Disaster Management The growing frequency and severity of weather-related disasters such as hurricanes, floods, tornadoes, and wildfires have wreaked havoc on communities and caused substantial financial losses. According to the NOAA Climate Disaster Report, the total cost of damages due to weather effects in 2022 exceeded $165 billion in the United States alone. There is little or nothing we can do to control these events, but predicting their occurrences and proactively mapping their potential paths are essential steps toward minimizing their impact on real estate assets and the people who occupy them. The CLADE™ Disaster Alert System Five Brothers, a leading field services company and provider of best-in-class asset management solutions, has developed a revolutionary technology called the CLADE Disaster Alert System. By leveraging advanced technology, CLADE enables servicers, investors, and property managers to take proactive measures to protect at-risk properties before a disaster strikes, and streamline the inspection, debris removal, and claims processes post-disaster. It presents a real-time visual presentation of affected areas, enabling a strategic approach to risk management. CLADE Key Features  >         Advanced Geo-Tagged Asset Locations: CLADE employs advanced geospatial technology to accurately pinpoint the location of assets, providing a comprehensive view of the properties within proximity to potential disaster zones.  >         Real-time Disaster Occurrence Notification: CLADE provides real-time alerts to clients whenever a potential disaster event occurs near their assets.  >         Layered Mapping for Disaster Zone Identification: The system utilizes layered mapping to quickly identify disaster zones, providing visual representations of the areas likely to be affected by various natural disasters.  >         Exportable Property Lists for Asset-Specific Analysis: CLADE generates exportable property lists that include an asset-specific analysis, enabling clients to prioritize their response and recovery efforts.  >         Storm Surge Mapping Layer: Recognizing the significance of storm water inundation and flooding accompanying hurricanes to coastal and inland regions, CLADE assists in identifying areas and assets most susceptible to flooding.  >         One-Click Access to Field Service Orders: CLADE offers a one-click access feature, allowing users to promptly place pre- and post-disaster field service orders for necessary property protection and stabilization measures. Implementation and Scalability CLADE is available both as a value-added component of the Five Brothers asset management technology suite, FiveOnline, and as a standalone application. Users can easily upload their portfolios using the intuitive CLADE interface. CLADE is scalable to accommodate portfolios of any size for default, REO, REI vacant and/or occupied properties. Pre- and Post-Disaster Field Services When at-risk properties have been identified, stakeholders can quickly engage Five Brothers’ nationwide network of field service professionals to prepare properties for the coming weather event. When the storm has passed, field service personnel are dispatched to conduct exterior and/or interior inspections with geo-tagged photos and complete documentation. Based on the report findings, bids are submitted for board removal, utility reconnection, debris removal and relocation, and tarp-over services to prevent further damage. The clear benefit CLADE brings to these services is reaction time. It provides a critical interval in which to prepare assets to minimize damage pre-disaster, and to order boots on the ground to quickly assess property conditions and accelerate the claims and remediation processes post-disaster. It represents a transformative asset management solution to the growing challenges posed by weather extremes and severe storm events. See the CLADE technology introductory video and explore Five Brothers asset management solutions at fivebrms.com.

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The Factors Driving Rental Property Insurance Underwriting Decisions

Creative Solutions are Needed to Serve Real Estate Investors By Scott Phillips It seems you cannot go a day without hearing about the ongoing economic inflation that has been ushered in on the heels of the global pandemic. There seems to be no aspect of life unaffected by inflation, including rental property insurance. But why? What are the factors that are truly driving rental property insurance underwriting decisions? Hopefully, the following will answer those questions in a concise and digestible format. Underwriting a rental property insurance policy can be boiled down to two core factors: The risk exposure of a given property or portfolio of properties and the cost to replace the property(s) in the event of a loss. The risk exposure of a property is the primary driver of both property and liability rates. But first, what is an insurance rate? An insurance rate is a simple metric of cost per $100 of insurance coverage.  »         Rate x per $100 of building coverage = Premium  »         $.50 (Rate) x 2,500 ($250,000 (building coverage)/$100) = $1,250 (Premium) Through the lens of an underwriter, determining the condition and inherent risk of insuring a property’s structure and liability exposure is an incredibly complex multi-faceted equation. The risk exposure of a rental property is determined by three factors:  »Geographical Location // Exposure to natural disasters, weather, and crime.  »Property Condition // Age, construction quality, type, and updates/upgrades.  »Property Management // Occupancy, tenant screening, maintenance, etc. With the amount of accessible data these days, it has rendered the exposure to CAT activity, i.e., catastrophic weather events in the area where the property is located, as the biggest variable risk factor to determine. According to a recent report released by AON, after adjusting for inflation, in 2011 the number of CAT events costing $1B+ was 10, in 2021 it had jumped to over 22. In 2022, the total economic impact of natural disasters was estimated to be $313B globally. It is important to note that most of the costs behind these large numbers are NOT for total losses but rather partial losses, such as when a part of a roof blows off during a major weather event and rain destroys a portion of the home but leaves the structure intact. Ultimately, the anticipated frequency, severity, and cost of claims within a given area drives the rate an underwriter needs to obtain to achieve a sustainable loss ratio. Since rental properties exist across the United States, the real estate investor insurance market is frequency driven vs. severity driven. Accordingly, the cost to repair a partially damaged home such as in the above example, is more expensive per square foot than it is to (re)build a new home. The data supporting this is widely accessible but anecdotally anyone who has remodeled their house can attest to this. This calculation is known as Insurance to Value (“ITV”). ITVs are based off either Replacement Cost Valuation (“RCV”) or Actual Cost Valuation (“ACV”). It is very important to distinguish between RCV and ACV. RCV is the cost to replace the damaged part of the home today while ACV is what the current value is less depreciation. For reference, to replace the roof in the above example could cost $10K, but if it was insured as ACV, it may only be worth $1k because it was near the end of its predetermined life expectancy of say 25 years, thus resulting in two very different outcomes for an investor and overall claims experience. Since ACV is more of a calculation determined by depreciation and not the actual cost of labor and materials in today’s prices, we will only focus on RCV factors and drivers. Claims data from the past nine months as of February 2023 from our data partners at Verisk 360Value®, reported a nationwide average replacement cost for a typical rental is $181/ft. The bands of the report were from $155/ft (AR) to $232/ft (AK/HI). Meaning, on average a rental property should be insured at: $181/ft (RCV) x 1,500 Sq Ft home = $271,500 Dwelling coverage (100% ITV) As you can see, pulling back on the RCV per square foot will lead to underinsuring the property. Historically and understandably, the REI industry has been widely underinsured, with estimates below 50% of the recommended ITV. However, the causes of the underinsured estimates are NOT a straight-line to investors trying to control costs and stabilize cashflows, but rather a combination of factors, most notably inflation that has driven up the cost of capital, labor, and materials. In addition, the rapidly increasing frequency and severity of catastrophic weather events throughout the US has profoundly impacted the entire insurance ecosystem – a topic that far exceeds the depth in which this article is intended to cover. The growing challenge of balancing the financial constraints for a rental property to be a viable investment with the need to properly insure the property has become exponentially more difficult. This challenge has forced underwriters and brokers to produce creative solutions to continue to serve their investor clients. Meanwhile, real estate investors of all sizes are feeling as though they need to take a crash course in risk management to better navigate these solutions. Investors navigating their own risk management strategies can look to do the following:  »         Be sure to work with a broker with expertise in this niche property insurance market, including access to specialty insurance markets solely focused on the REI industry.  »         Be diligent with the maintenance of the property to prevent avoidable losses in the future.  »         Consider working with/hiring a property manager that offers: •          Preventative maintenance programs – including 24/7 resident incident reporting. •          Thorough tenant screening protocols and regular property inspections. •          A property insurance program. There is no ‘silver bullet’ for real estate investors to thwart or eliminate the higher cost of property and liability insurance for their investment properties. However, there is some good news. Recent data shows the cost of materials is coming down as supply issues

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