By: Chris Bennett
CEO of National Insurance SolutionsResidential landlords across California are facing a significant spike in insurance premiums. Recent rate filings with the Department of Insurance indicate increases between 10% and 50% for carriers who specialize in underwriting apartment buildings.
As carriers lose money underwriting residential landlords, they are greatly restricting their appetite for underwriting these exposures, or they are withdrawing completely. With the supply of willing carriers decreasing, rates are rising for those who choose to stay in the market.
The financial burden on participating carriers has increased exponentially in recent years. Habitability is a recurring issue, with many tenants complaining of bedbugs, rodent infestations, unsafe living conditions and hazards such as unsafe staircases. Many of these complaints lead to large claims with significant payouts, and if litigation occurs, unpredictable judgments can lead to multi‐million dollar losses. As a result, carriers are unable to adequately price their products.
The recent rise in these claims is due to the fact that many large cities, including Los Angeles and San Francisco, now have websites open to the public with all tenant complaints available for review. Law firms scour these sites looking for landlords who have a high volume of complaints. Each tenant in a building is a separate claimant, and thus one building can generate massive losses for a carrier. While some of these suits have merit, many do not; since the largest part of the settlement is attorney’s fees, carriers are eager to settle quickly.
Landlords should exercise the following practices in order to avoid this hike in premiums:
- Maintain the building properly. A well maintained building has a much lower chance of generating tenant complaints to the city, and thus keeps the owner off the radar of law firms who specialize in these suits.
- Respond quickly to tenant complaints. Tenants typically only escalate to the city after they have exhausted all other efforts.
- Listen to an insurance provider when they recommend repairs. Virtually all insurance carriers inspect the properties they insure. They may reach out to the owner to make repairs that will help all parties avoid costly lawsuits. Those owners that resist making repairs are setting themselves up for much higher premiums.
- If a tenant does complain to the city, work with the city to respond in a timely fashion. Many carriers now look at the city website when underwriting a risk, and a large volume of complaints with delayed responses will likely result in a rejected application. Conversely, a track record of timely responses makes a case against the landlord difficult to win.
- Many insurance carriers are now excluding coverage for habitability claims. Make sure to find a policy that includes this coverage.
- Choose an insurance carrier that has a consistent track record for underwriting apartments. A carrier that has limited experience in this field (and there are many) will be less likely to know how to manage these issues.
- Pick an agent who specializes in underwriting residential landlords. An experienced agent will know which carriers are eager for which type business, and can make recommendations as to how to keep exposures to a minimum and reduce costly claims.
A cooperative and experienced building owner coupled with a knowledgeable insurance agent should be able to manage this hardening market and keep costs to a minimum.
“The author, Chris Bennett, is CEO of National Insurance Solutions, an agency that specializes in Residential Landlord Insurance.”