This article discusses one strategy that has helped our real estate clients, regardless of their portfolio’s size, reduce their overall insurance spend while improving coverage terms.
By Andrew Schlaffer, President of ACO Insurance Group
This may sound all too familiar but many of the real estate investors we work with start off by buying one property and scale up from there. All of them work full-time jobs while pursuing property investments in their free time. This leaves even less time for learning about financial strategies that can protect their assets and reduce their costs. Without a proper strategy in place, many real estate investors wind up falling into a “bifurcated” insurance program.
A bifurcated insurance program, for example, is where an owner purchases and manages fifty rental properties with fifty separate insurance policies, renewal dates, and multiple insurance carrier/broker partners. There are several reasons this insurance strategy is not ideal for owners, especially as you scale your business. We’ve included a few of the pitfalls in a bifurcated program:
▪ Duplicated insurance fees and costs
▪ Administrative burden managing separate policies with separate insurance dates
▪ Insurance claims can impact coverage and pricing terms
▪ Coverage terms are less broad as compared to the alternative strategy we will discuss
▪ Scrupulous underwriting due to a lack of premium volume
You’re probably thinking, is there a way to avoid the negative aspects of a bifurcated program? The answer is yes. The solution is designing an insurance program that does the exact opposite of what we just described. Call it a “consolidated” insurance program. As a real estate owner/investor, you need to interview and select an insurance professional who understands how to design and build a consolidated insurance program. Finding the right insurance professional for the job can be difficult and time-consuming but is paramount to getting the best results. A consolidated program includes every asset in your portfolio on a single policy with shared coverages and limits along with one universal renewal date. Let us take a minute to highlight the benefits of consolidated insurance program:
▪ Creates economies of scale (more premium placed with fewer carriers)
▪ More favorable underwriting and claims forgiveness
▪ Decreased administrative burden (one insurance renewal, one policy, one insurance broker)
▪ Broadened coverage terms across all assets (blanket limits, higher coverages for flood, earthquake, and ordinance or law)
▪ Typical premium reduction between 10-25% (property, general liability, and umbrella liability)
This is an oversimplification of the process, but we wanted to provide the major advantages of transitioning from a bifurcated insurance program to a comprehensive yet simplified consolidated program. Feel free to contact us with questions, concerns, or inquiries about our insurance solutions. Our team welcomes the opportunity to share ideas and help in any way possible. We look forward to talking with you and please keep an eye out for our next article on interviewing and selecting the right insurance partnerships for you.