Cancel Culture Strikes Again! This Time Habitational Properties

Are you feeling the impact of rising insurance rates and cancelled policies for Apartments, Condominiums or Single Family Houses?

You're not alone. This article is designed to shed light on the recent trends in the insurance industry that are affecting homeowners and property investors alike.

In recent years, many insurance companies have been forced to reassess their policies and adjust rates due to various factors, including increased natural disasters, rising construction costs, and a higher frequency of claims. These changes have led to cancelled policies and premium hikes for many insured individuals.

A recent article by PropertyCasualty360 states:

"Insurance costs are rising at an accelerated rate for commercial real estate, up 33% year-over-year, per apartment unit to $180, according to Marcus & Millichap’s new report.

Insurance now accounts for more than 8% of an owner’s quarterly per-unit operating expenses, nearly double the share from five years ago."

While the reasons behind these actions are understandable from an insurance company's perspective, they can cause significant financial strain for homeowners and property investors who have to bear the burden of higher insurance costs.

So, what can you do about it?

In this article, we will explore strategies and options to help you navigate through these challenging times. From understanding policy cancellations and rate increases to exploring alternative insurance solutions, we'll provide you with the information you need to make informed decisions and protect your assets.

Read on to learn more about the current state of habitational property insurance and discover how to safeguard your investments in these uncertain times.

Factors contributing to rate increases

The rising rates of habitational property insurance can be attributed to several factors that have put pressure on insurance companies to reassess their policies and adjust their rates accordingly. One of the primary factors is the increase in natural disasters. Over the past decade, we have witnessed a surge in extreme weather events such as hurricanes, wildfires, and floods. These catastrophic events have resulted in a higher frequency of insurance claims, leading to increased payouts for insurance companies.

Another factor contributing to rate increases is the rising cost of construction. In recent years, the cost of building materials and labor has been steadily increasing, making it more expensive to repair or rebuild damaged properties. Insurance companies have to take these increased costs into account when determining their rates, which ultimately leads to higher premiums for policyholders.

Furthermore, advancements in technology and the increasing prevalence of expensive gadgets and appliances in homes have also contributed to rate hikes. With more valuable items in households, the potential losses for insurance companies in the event of a claim have increased. To mitigate their risks, insurance companies have had to adjust their rates accordingly.

In summary, the combination of increased natural disasters, rising construction costs, and a higher value of personal property has forced insurance companies to increase their rates to maintain profitability and ensure they can cover potential losses. As a result, policyholders are experiencing the financial burden of these rate increases.

Reasons for policy cancellations

Policy cancellations have become more common in recent years, leaving homeowners and property investors vulnerable and in need of alternative insurance solutions. There are various reasons why insurance companies may choose to cancel a policy, and understanding these reasons is crucial for policyholders to protect themselves.

One of the primary reasons for policy cancellations is the failure to meet the insurance company's underwriting requirements. When applying for insurance, policyholders must provide accurate information about their property, including its condition, occupancy status, and any potential risks. If the insurance company discovers that the information provided is false or incomplete, they have the right to cancel the policy.

Additionally, insurance companies may cancel policies if they determine that the property poses a higher risk than initially assessed. For example, if a property is located in an area prone to frequent natural disasters or has a history of multiple claims, the insurance company may deem it too risky to continue coverage. In such cases, policyholders may find themselves without insurance if they fail to find an alternative provider.

Another reason for policy cancellations is non-payment of premiums. If a policyholder consistently fails to pay their premiums on time, the insurance company may choose to cancel the policy. It is essential for policyholders to prioritize premium payments to avoid the risk of policy cancellation.

In summary, policy cancellations can occur due to inaccuracies or omissions in the information provided, properties being assessed as high-risk, or non-payment of premiums. It is crucial for policyholders to understand these reasons and take appropriate measures to prevent policy cancellations.

Steps to take if your policy is cancelled or rates increase

Facing a policy cancellation or a significant rate increase can be daunting, but there are steps you can take to protect yourself and your property. Here are some essential steps to consider if you find yourself in this situation:

1. Review the cancellation or rate increase notice: Carefully review the notice you received from your insurance company. Understand the reasons behind the cancellation or rate increase and identify any specific actions required on your part.

2. Contact your insurance company: Reach out to your insurance company to discuss the situation further. Ask for clarification on the reasons behind the cancellation or rate increase and inquire about any potential options or alternatives available to you.

3. Consider hiring an insurance broker: An insurance broker can be a valuable resource in navigating the insurance market and finding alternative coverage options. They have access to a wide range of insurance providers and can help you find a policy that suits your needs at a competitive rate.

4. Shop around for alternative insurance: Don't settle for the first insurance company you come across. Take the time to research and compare different insurance providers to find the best coverage and rates available. Be sure to consider the reputation and financial stability of the insurance company before making a decision.

5. Improve property risk factors: If your property is deemed high-risk by insurance companies, taking steps to mitigate those risks can help you secure coverage or lower your premiums. Measures such as installing security systems, fire alarms, or improving the property's structural integrity can make it more attractive to insurers.

6. Consider increasing deductibles: Increasing your deductible can lower your insurance premiums. However, be sure to assess the financial impact of a higher deductible in the event of a claim and ensure you can comfortably afford it.

7. Explore bundling insurance policies: Many insurance companies offer discounts for bundling multiple policies, such as home and auto insurance. Consider consolidating your insurance needs with a single provider to potentially reduce your overall premiums.

Remember, it's essential to take prompt action when facing a policy cancellation or significant rate increase. By being proactive and exploring your options, you can find alternative coverage or negotiate better rates to protect your investments.

Have you considered alternatives?

If you have a large amount of property spread out over a large area, have you considered self insuring the property? If you are new to this concept, click here to read our blog on Self Insurance.  That might sound scary but hear me out.  If you have 50-100 single family houses or smaller apartments and you keep up with the maintenance on a regular basis and they are all in good shape, you might find that it would be worth your while to take the risk on yourself.

Let me give you an example.  I worked with an individual who had about 65 single family houses and small apartments all around Johnson City, Kingsport, and Jonesborough Tennessee.  The premium he was going to pay in Johnson City Landlord Insurance was going to be about $50,000 per year.

The most expensive building that he had would only cost about $150,000 to rebuild.  So if he were to just get a General Liability Insurance policy, it would cost about $10,000 per year so he would save about $40,000 a year in insurance premiums.  The would mean that he could have a total loss every 4 years and still come out ahead of the game.  

Reasons why self insuring makes sense

1. If you take better care of your properties than the average person, you should be able to "beat" the insurance companies.  Insurance companies have to underwrite to their average risk and charge accordingly.  Since you do better than average, you will save money.
2. If you are disciplined enough to put the savings into a slush fund, you will have money when the time comes.
3. If your properties are spread out, you probably will not be hurt too bad in any one storm. This is what insurance companies call spread of risk.  No one event will cause a significant loss.  If you are spread out around Johnson City, Kingsport, Elizabethton, and Jonesborough, you should not have a significant impact from any one storm.  If everything is right by ETSU or next to Eastman, one storm could damage 10 or 15 properties at one time.

Reasons why self insuring does not make sense

1. You have loans.  If you have loans, the bank will not let you do this.  Well at least on the properties they have as collateral.
2. You don't have access to money in the event that you have a total loss the first year.  If you do not have access to a line of credit at a bank like TruPoint or HomeTrust, then you do not want to do this.

Understanding coverage options in habitational property insurance

When it comes to habitational property insurance, it's crucial to understand the different coverage options available to ensure you have adequate protection for your property. Here are some common coverage options you should be aware of:

1. Dwelling coverage: This coverage protects the physical structure of your property, including the walls, roof, and foundation. It typically covers damages caused by fire, storms, vandalism, and other covered perils.

2. Personal property coverage: Personal property coverage protects your belongings inside the property, such as furniture, appliances, and electronics. It typically covers damages or losses caused by covered perils, including theft and fire.  Generally, Landlords will not have much if any of this covered unless they are renting fully furnished.

3. Liability coverage: Liability coverage protects you in the event that someone is injured on your property and holds you responsible. It can cover medical expenses, legal fees, and damages awarded in a lawsuit.

4. Loss of use coverage: If your property becomes uninhabitable due to a covered peril, loss of use coverage can help cover the additional living expenses you incur while your property is being repaired or rebuilt.

5. Additional coverage options: Depending on your needs, you may also opt for additional coverage options such as flood insurance, earthquake insurance, or umbrella liability coverage. These additional coverages can provide added protection for specific risks that may not be included in standard policies.

Understanding the coverage options available to you is essential in determining the level of protection you need for your property. Be sure to review your policy carefully and consider any additional coverages that may be necessary based on your property's location and risk factors.

How to mitigate risks and reduce premiums

While insurance rates may be on the rise, there are steps you can take to mitigate risks and potentially reduce your premiums. Here are some strategies to consider:

1. Improve property security: Installing security systems, surveillance cameras, and burglar alarms can help deter theft and reduce the risk of property damage. Insurance companies often offer discounts for properties with enhanced security measures in place.

2. Maintain a good claims history: Minimize the number of insurance claims you file by taking proactive measures to prevent accidents or damages. Insurance companies often consider your claims history when determining premiums, so keeping a clean record can help keep your rates lower.

3. Increase your deductibles: As mentioned earlier, increasing your deductibles can lower your insurance premiums. However, be sure to assess the financial impact of a higher deductible and ensure you can comfortably afford it in the event of a claim.

4. Bundle your policies: Consider bundling your home and auto insurance policies with a single provider. Many insurance companies offer discounts for bundling multiple policies, which can result in significant savings.

5. Maintain good credit: Insurance companies often consider your credit score when determining premiums. Maintaining a good credit score can help you secure lower rates, so it's essential to practice good financial habits.

6. Regularly review and update your policy: As your property and circumstances change, it's crucial to review and update your policy accordingly. Keeping your insurance company informed of any renovations, upgrades, or changes can help ensure you have adequate coverage and potentially lower your premiums.

By implementing these risk mitigation strategies and practicing responsible insurance habits, you can potentially reduce your premiums and protect your investments.

The role of insurance brokers in navigating the market

Navigating the insurance market can be overwhelming, especially when faced with policy cancellations or significant rate increases. This is where insurance brokers play a vital role in helping policyholders find alternative coverage options and secure the best rates available.

Insurance brokers act as intermediaries between insurance companies and policyholders. They have access to a wide range of insurance providers and can shop around on your behalf to find the most suitable coverage at competitive rates. Insurance brokers can also provide valuable advice and guidance based on their expertise and knowledge of the insurance market.

When working with an insurance broker, it's essential to provide them with accurate information about your property and insurance needs. This will enable them to find the best options that align with your requirements. Additionally, be sure to inquire about the broker's fees, as they may charge a commission or service fee for their services.

By partnering with an insurance broker, you can benefit from their industry knowledge and connections, ultimately helping you navigate the insurance market with confidence.

Alternative insurance options for habitational properties

If you're struggling to find affordable habitational property insurance or have been faced with multiple policy cancellations, alternative insurance options might be worth considering. Here are a few alternatives to explore:

1. State-sponsored insurance programs: Some states offer insurance programs specifically designed for high-risk properties or areas prone to natural disasters. These programs often provide coverage when traditional insurance companies are unable to offer it.

2. Surplus lines insurance: Surplus lines insurance refers to coverage provided by non-admitted insurance companies that are not subject to state regulations. These companies often specialize in high-risk properties and can provide coverage when traditional insurance companies cannot.

3. Self-insurance: For property investors with a substantial portfolio, self-insurance can be a viable option. This involves setting aside funds to cover potential losses instead of relying on traditional insurance policies. Self-insurance requires careful financial planning and risk assessment to ensure adequate protection.

4. Risk-sharing or group captive insurance: Joining a risk-sharing or group captive insurance program allows property owners to pool their resources and share the risks associated with insuring habitational properties. These programs can provide coverage at more affordable rates compared to traditional insurance policies.

Before exploring alternative insurance options, it's crucial to thoroughly research and assess their suitability for your specific needs. Consulting with an insurance broker can also provide valuable insights and guidance in identifying the best alternatives available.

Conclusion: Taking proactive steps to navigate the changing landscape of habitational property insurance

In the face of rising rates and policy cancellations in habitational property insurance, it's essential to take proactive steps to protect yourself and your investments. By understanding the factors contributing to rate increases, the reasons for policy cancellations, and the various coverage options available, you can make informed decisions to navigate these challenging times.

If faced with a policy cancellation or significant rate increase, remember to review the notice carefully, contact your insurance company, consider hiring an insurance broker, shop around for alternative coverage, and explore risk mitigation strategies to potentially reduce your premiums.

Insurance brokers play a crucial role in helping policyholders navigate the market and find the best coverage options at competitive rates. Their expertise and connections can be invaluable in securing alternative insurance solutions.

Lastly, exploring alternative insurance options such as state-sponsored programs, surplus lines insurance, self-insurance, or risk-sharing programs can provide viable alternatives for those struggling to find affordable coverage.

By taking these proactive steps and staying informed about the changing landscape of habitational property insurance, you can protect your assets and secure the coverage you need in these uncertain times.

Veritas Risk Management, Inc. offers proactive risk management services covering a wide variety of topics. Veritas Risk Management, Inc. does not engage in the practice of law, accounting, or tax consulting.  We encourage everyone to consult with his or her own professional advisor for details concerning his or her specific facts, situations, and circumstances.