Commercial property insurance cost increases

[Orale 1,087]

We have a few commercial buildings in San Antonio with a mix of office/retail/medical tenants. Premiums have quadrupled in the last few years, apparently due to climate events around the nation. We set our deductibles at 5% of replacement cost value and agreed to forego roof coverage this year just to afford the 400% premium increases. This effectively renders the coverage useless short of a catastrophic event like a fire or earthquake as the deductible is near a half million on one building and several hundred thousand on the others. The buildings are old school 1940s concrete block buildings (slab, walls, and roof) that are fully sprinklered, fire walled, outside of flood zones, etc..., so the risk of catastrophic events is infinitesimally small as far as I can surmise. 

The largest concern is liability from an injury, which is a fairly small portion of the premium cost. Our tenants are required to carry liability coverage on top of our building wide liability coverage, so even that exposure is minimal. We're a small mom and pop self-managing commercial property operation, so dealing with these changes in the property insurance industry has created real challenges for us and our tenants who pay for these increases as a triple net expense. Not to mention for customers who face higher service/product costs as a result. We only carry the property coverage portion at all because our lenders understandably require it. Anyhow, I'm curious if anyone else in the commercial property world is dealing with this and how. 

[Spaulding Smails 1,552]

8 minutes ago, Orale said:

We have a few commercial buildings in San Antonio with a mix of office/retail/medical tenants. Premiums have quadrupled in the last few years, apparently due to climate events around the nation. We set our deductibles at 5% of replacement cost value and agreed to forego roof coverage this year just to afford the 400% premium increases. This effectively renders the coverage useless short of a catastrophic event like a fire or earthquake as the deductible is near a half million on one building and several hundred thousand on the others. The buildings are old school 1940s concrete block buildings (slab, walls, and roof) that are fully sprinklered, fire walled, outside of flood zones, etc..., so the risk of catastrophic events is infinitesimally small as far as I can surmise. 

The largest concern is liability from an injury, which is a fairly small portion of the premium cost. Our tenants are required to carry liability coverage on top of our building wide liability coverage, so even that exposure is minimal. We're a small mom and pop self-managing commercial property operation, so dealing with these changes in the property insurance industry has created real challenges for us and our tenants who pay for these increases as a triple net expense. Not to mention for customers who face higher service/product costs as a result. We only carry the property coverage portion at all because our lenders understandably require it. Anyhow, I'm curious if anyone else in the commercial property world is dealing with this and how. 

I only have one commercial property, and we saw a 45% YOY increase in commercial insurance when we renewed in February.  Shopped it around some and couldn't find anything better.  It's a NNN lease, so ultimately it gets passed onto the tenant, but it still sucks, and it definitely will cause conversation when their renewal comes up in a few years.  

Don't get me started on commercial vehicle insurance.  Just got our renewal proposal there.  35% YOY increase on an already ridiculously inflated rate.  To the point, I'm restructuring my fleet allocation and potentially moving lots of folks to vehicle allowances. 

I'm not sure what the best way to tackle the property insurance conundrum is, but I really thing commercial vehicle insurance is going to eventually have to go through some sort of tort reform like workers comp went through.  

[Incredulity 11,643]

It’s not just “climate events” causing renewal rates to skyrocket it’s the cost to replace losses.  Meaning a lag effect of inflation and a key source of inflation stickiness.  The only options are work with a good broker to shop the coverage, increase prices to cover the cost, and take on more self-insurance risk.

 

It’s been largely ignored that multiple nationwide carriers have been withdrawing coverage from areas with the largest recent claims. Those state will be forced to backstop the issue, which will of course trickle up to the federal government.  It’s going to get worse before it gets better.

[Incredulity 11,643]

Another issue that is going to continue to fuck commercial property rates is office vacancies.  Insuring the same pool of risk with significantly less policies means rates go up.

[NoRagrets 1,125]

We had two properties get put on the surplus market last year at 9x the cost. Brutal. 

[Orale 1,087]

12 hours ago, NoRagrets said:

We had two properties get put on the surplus market last year at 9x the cost. Brutal. 

Fucking hell. I'm sorry to hear that. We'd probably just end up selling if it came to that. I can't imagine our tenants accepting that pass through expense, and I wouldn't blame them. 

[Incredulity 11,643]

48 minutes ago, Orale said:

Fucking hell. I'm sorry to hear that. We'd probably just end up selling if it came to that. I can't imagine our tenants accepting that pass through expense, and I wouldn't blame them. 

Problem is they are going to eat the expense(and by that pass on to customers or go out of business) no matter who the landlord is. 

[Orale 1,087]

That's true. 

[CleverNickname 1,308]

is there liability only commercial or surplus lines?

[Orale 1,087]

12 hours ago, CleverNickname said:

is there liability only commercial or surplus lines?

I'd like to know that too. I'll be talking to a broker later this week and will let you know what I learn. 

[HotSauce 106]

Are yalls properties, commercial MF or office? 

[troph 24,781]

On 4/10/2024 at 10:25 AM, Orale said:

Fucking hell. I'm sorry to hear that. We'd probably just end up selling if it came to that. I can't imagine our tenants accepting that pass through expense, and I wouldn't blame them. 

My wife has a commercial office building she’s selling. It’s leased NNN but taxes and insurance still are crazy. Add rate resets and it’s time to pivot. We likely won’t be immune from the same issues but we are migrating to warehouse space in another market. 

[UTPhil2006 3,801]

29 minutes ago, troph said:

My wife has a commercial office building she’s selling. It’s leased NNN but taxes and insurance still are crazy. Add rate resets and it’s time to pivot. We likely won’t be immune from the same issues but we are migrating to warehouse space in another market. 

Yeah we have a client that is selling on an acre in Cedar Park as well. He’s just getting out in general though. 

[troph 24,781]

On 4/23/2024 at 10:40 AM, HotSauce said:

Are yalls properties, commercial MF or office? 

MF?

[T’Boo Ted Marshall 2,730]

On 4/22/2024 at 7:28 PM, CleverNickname said:

is there liability only commercial or surplus lines?

Depends on if you have a lender or not.  Liability is a minimal part of the premium makeup.  

[Sbbruin 21,825]

On 4/23/2024 at 8:40 AM, HotSauce said:

Are yalls properties, commercial MF or office? 

We do office, and we're seeing huge increases.  But not only that, my homeowners carrier won't renew my policy, and a lot of carriers are ditching CA coverage.  I'm going to have to pay at least triple what I was paying.  

[CowboyFred 1,151]

Insurance companies don’t give no fucks. They still have to make a fuck ton of profit and if they’re paying out, they don’t make as much.

 

They also lobby like crazy so the government doesn’t fuck with them or even helps them fuck over the consumer (hi Florida!).

[gmr548 16,575]

On 4/23/2024 at 10:40 AM, HotSauce said:

Are yalls properties, commercial MF or office? 

It's an across the board phenomenon. Anecdotally, multifamily kinda sorta maybe seems to be moderating but it's too early to say with any confidence, and I wouldn't apply that claim nationally - sorry Gulf Coast, CA, etc.

[Incredulity 11,643]

https://www.10news.com/news/local-news/state-farm-seeks-30-rate-hike-for-california-homeowners

 

Not commercial insurance, but seemed like the most appropriate thread.

State Farm says they will pull out of CA if they don't get 30% increase.