Looming Insurance Threat for Commercial Real Estate Owners

An Important Shift in the Commercial Real Estate Insurance Landscape

If you own a commercial apartment building, warehouse, or office building, your insurance will cover known, expected hazards. If there’s a fire in your building, it can kill or injure people inside. The risk factors, statistics, and probabilities around fire are well understood. Insurance companies understand fire liability and how to price and approach that insurance.

The same goes for hazardous maintenance problems. If someone slips and falls in your building, you need insurance to cover that liability. Again, insurance companies understand these risk factors well. They have excellent actuarial information on maintenance. This includes everything from the quality of lighting to the age of the building itself.

What insurance companies don’t understand well is crime, particularly in the form of firearms and sexual assault. Because these events are erratic and unpredictable, the insurance industry doesn’t know how to approach them. And, more importantly, it doesn’t want to be on the financial hook for covering these events anymore.

This emerging insurance threat applies to all commercial real estate owners, but it’s particularly acute for apartment owners.

Commercial Real Estate Owners: You Can Be Found Liable

If there’s an assault or murder in a building you own, plaintiffs can find ways to determine you’re at fault.

They can claim you should have:

• Had better lighting.
• Had better security.
• Known the offending tenant was dangerous.

In some instances, there’s a seed of legitimacy to those arguments. In those cases, you (as the real estate owner) could be found 1% or 2% at fault. In jurisdictions that practice joint and several liability, if you’re deemed to be at fault in any capacity, you could be liable for the entire amount of damages. If the perpetrator is deceased and there’s no other source of recovery, it doesn’t matter how small your fault percentage. You could be on the hook for the entire judgment.

Given these kinds of circumstances, it’s understandable that insurance companies are reluctant to continue taking on that risk.

Impact on Government-Sponsored Mortgage Enterprises

Nothing operates in a bubble. If insurance companies decide not to provide coverage, that sends ripples that affect other industries. This includes the government-sponsored enterprises of Freddie Mac and Fannie Mae.

Both these entities operate in the secondary mortgage market, and they require borrowers to have adequate insurance on the properties they wish to purchase. They hold this requirement regardless of what the insurance companies are doing or saying.

That puts current and potential commercial real estate owners in a difficult position. If they can’t secure appropriate, adequate insurance coverage, the financing won’t come through. If insurance stops, financing stops.

Protect Yourself by Partnering with a Commercial Insurance Consultant

These kinds of insurance issues are constantly evolving and emerging. If you don’t have an up-to-date, high-level understanding of the entire insurance landscape, you could have trouble securing the financing on your next purchase. You could even find yourself unexpectedly liable for a massive claim.

That’s where the protection of a commercial insurance consultant is invaluable.

They have:

• The industry knowledge to recommend what insurance programs will protect you best today.
• A pulse on industry trends, which can direct how you proactively protect yourself in the insurance landscape down the line.

Insurance consultants don’t sell insurance. They’re an impartial party that sells consultation services designed to secure you the best insurance for your circumstances.

If you’re looking to reduce insurance costs, control your risk, and improve your claims outcomes (now and in the future), reach out to MB Davis today.

We’re happy to discuss any questions or concerns you have in your commercial real estate insurance situation.