Real Estate Commercial Insurance Case Study

Despite this project taking several years and costing hundreds of thousands of dollars, that client couldn’t be happier now. Why?

By guiding them through a substantial capital expenditure undertaking, MB Davis Group demonstrated the value of proactive, strategic commercial insurance consulting services. After the project’s completion, the firm helped their client:

• bridge insurance coverage gaps,
• reduce premiums,
• warehousing,
• and minimize financial risk.

Get to Know the Client

This client of MB Davis Group is a multigenerational family who owns several older apartment buildings constructed in the 1960s and 1970s.

The grandfather immigrated from Europe and built the structures, and now his children are actively running the business and managing these commercial real estate properties.

The Commercial Insurance Woes of Aluminum Wiring

The apartment buildings the grandfather constructed, unfortunately, had a problem. At the time of building, aluminum wiring was common. This came down to several reasons:

• The nation was going through a copper shortage.
• Aluminum was a cost-effective material.
• While not quite as conductive as copper, aluminum functioned perfectly well in wiring.

Historically, builders would run aluminum wires from the fuse boxes, through the walls, and to the switch plates, where various electrical products could then be plugged in to access power. These switch plates were largely purchased off the shelf from an electrical supply store and were made of copper components.

As the electrical current ran through the aluminum trunk wires, the material heated up. When it heated, the wires expanded. As it cooled, they contracted. Eventually, this led to the wiring pulling apart from the switch plate components. This resulted in a gap, which created a short circuit and sparks.

While all the original testing of aluminum wiring showed no issues, over time it became clear this wiring posed a significant fire hazard.

This created a massive problem, as aluminum wiring had been used in buildings across the nation. Yes, builders could stop using it in new constructions, but they were left with the issue of what to do about the existing structures.

Over the years, several solutions were tested, including pigtailing the wiring and using AlumiConn wire connectors. Each solution eventually proved imperfect, and the insurance companies rejected them as viable ways of eliminating the fire hazard.

That left the MB Davis Group client with serious and significant insurance problems.

• Standard insurance companies weren’t prepared to write insurance on properties with aluminum wiring. The family was forced to work with a specialty insurance company that handles properties with this issue.
• The deductible on this policy was enormous, leaving the family financially vulnerable.
• The premiums on the policy were extremely high, stressing their out-of-pocket burden.
• The policy had many restrictions, leaving the family uncertain whether they had coverage gaps and would even be covered in the event of an incident.

Making the Tough Decision: Undertaking a Large Capital Budgeting Program

Under the recommendation and guidance of MB Davis Group, this family made the challenging and costly decision to convert all the aluminum wiring in their buildings to copper.

The family knew this capital expenditure program was going to:

• Take years to complete.
• Be incredibly disruptive, as improvements could only be done when there was turnover in an apartment.
• Represent a hefty investment to the tune of hundreds of thousands of dollars.

Although the decision was difficult, especially considering the expense, the family knew their current commercial insurance situation was worse. Coverage gaps. Extremely high premiums. Exorbitant deductible. All these factors were putting them at even greater financial risk.

The family agreed to the plan MB Davis Group outlined and began the multi-year property improvement campaign. By 2024, they had very nearly completed these plans.

Opening Up Commercial Insurance Options and Recouping the CapX Investment

In May of 2024, the family was facing the prospect of renewing with their specialty insurance program. However, the premiums, which were already exorbitantly high, were set to increase by at least 20 percent.

Fortunately for the family, they were far enough into their aluminum wiring removal project that MB Davis Group was able to persuade two different insurance companies to cover their buildings. (Navigating the deal remained complicated, though. One insurance company didn’t want to cover all buildings in question. That meant a second insurance company had to be brought in to cover the remaining gaps.)

Come insurance renewal season, as a result of the family’s willingness to undertake the sizable capital expenditure project, they:

• Had several insurance companies prepared to offer them insurance coverage.
• Saved hundreds of thousands of dollars compared to their previous specialty insurance coverage.
• Had more insurance options available to them, allowing them to compare package details and choose the most favorable coverage, premiums, deductibles, and terms.

The expertise and foresight of MB Davis Group enabled the client to navigate this complex insurance challenge and, ultimately, achieve substantial savings. This showcases the importance of partnering with knowledgeable consultants who prioritize long-term benefits and comprehensive solutions.

While it’s not always possible to know for certain what kind of a return you’re going to see on capital expenditure projects, one thing is clear.

“No, it’s not realistic to be able to forecast a return on capital expenditures for this kind of safety improvement,” said Mitch Davis, founder and lead commercial insurance and risk management consultant at MB Davis Group. “But it’s very realistic to know that, by doing these kinds of improvements, you expand the number of insurance companies prepared to offer you coverage.”

In the end, that fact resulted in a real dollars-and-cents impact for the family, both in the immediate (lower annual premiums) and in the long term (potential savings in deductibles and coverage gaps).

Get a Commercial Insurance Consultant Who’s Your Partner in Difficult Decisions

Navigating the commercial insurance landscape is difficult. Especially when it comes to decisions that result in out-of-pocket expenses, it’s not always easy knowing the best path forward.

And it’s all the harder today because it’s almost impossible to get a real live person to answer those insurance questions.

If you want to start untangling a difficult insurance issue your company is working through, reach out to MB Davis Group. You’ll speak to a real expert commercial insurance consultant about your business. No general advice or chat bots.

Book your no-cost consultation with MB Davis Group today.