Reimagining Risk Management for Residential Real Estate Investors
As the landscape of property insurance changes, real estate investors must rethink their risk management strategies. Bundling rental properties with personal lines policies may no longer be the most effective solution given the rental market’s scale and the frequency of claims.
The Rental Market Landscape
According to John Burns Research & Consulting, there are approximately 14 million SFR rental properties. Notably, 11.2 million (80%) are owned by ‘mom-and-pop’ landlords with 1-9 rentals. This prevalence of small-scale landlords potentially exposes them to unnecessary risk by bundling rental properties with personal policies.
The Bundling Savings Myth
For years, bundling has been promoted as a cost-saving measure. However, this approach often falls short for rental properties. The minimal savings achieved through bundling pale in comparison to potential risks and coverage gaps. Prioritizing comprehensive protection over marginal cost reductions is essential.
Frequency and Cost of Rental Property Claims
Understanding the frequency and cost of rental property claims emphasizes the need for proper coverage:
- Water damage claims are the most frequent, accounting for 45% of all rental property claims, with an average cost of $6,965.
- Fire and smoke damage, though less frequent, are the most expensive, averaging $30,000 per incident.
These statistics highlight the importance of robust coverage without sublimits, especially for water damage.
Safeguarding Personal Assets
A major risk of bundling rental properties with personal policies is the potential impact on personal lines coverage. A claim from a rental property could affect the eligibility and rates of your personal home and auto policies. By separating these risks, you can protect your personal assets and maintain favorable personal lines rates.
Enhanced Coverage with Specialized Landlord Policies
Dedicated landlord policies, like those offered by SES Risk Solutions, provide coverage limits more appropriate for rental properties. Unlike standard DP3 policies, our offerings include:
- $1M General Liability with a $2M aggregate limit.
- No sublimit for water damage.
- Ability to write policies under LLCs or Trusts.
- Option to include property managers as additional insureds.
These features ensure that your investments are fully protected with comprehensive coverage.
Adapting to Market Trends
Recent shifts in the insurance market have led large carriers to withdraw from states or become highly selective about risks. This trend highlights the importance of working with specialized insurers who understand the unique needs of real estate investors and can provide stable, reliable coverage.
The Advantages of Commercial Lines Policies
Writing rental properties on commercial lines policies offers several benefits:
- Better coverage limits tailored to investment properties.
- Flexibility to insure properties under business entities.
- Ability to include property managers on the policy.
- Clear separation of business and personal risks.
This approach not only offers superior protection but also aligns with the professional nature of real estate investing.
Modern Risk Management
Your primary responsibility as an investor is to ensure your assets are well-protected. Moving beyond the one-size-fits-all approach of bundling, specialized landlord policies offer:
- More appropriate coverage limits.
- Better protection for personal assets.
- Flexibility to structure investments professionally.
- Stability in an ever-changing insurance market.
The Future of Real Estate Investment Insurance
As the real estate investment landscape continues to evolve, so must our approach to insuring these assets. By unbundling rental properties from personal lines and embracing specialized landlord policies, you can secure comprehensive, flexible, and robust coverage to protect your investments and grow your portfolio with confidence.
At SES Risk Solutions, we’re dedicated to providing innovative insurance solutions tailored to real estate investors’ unique needs. We invite you to partner with us in educating yourself about the benefits of specialized landlord policies and implementing effective risk management strategies for your investment properties.
By reimagining our approach to insuring rental properties, we can add significant value to your investment strategies and position ourselves as true risk management partners in your real estate endeavors.
Scott Phillips
SVP, Strategic Partnerships
SES Risk Solutions
