Mention rates in a room of commercial real estate professionals and their first thought likely goes to interest rates. As crucial as the actions of the Fed are to development, there’s another rate property owners need to keep tabs on: insurance rates.
“Insurance companies had to raise their rates due to losses over the past few years,” explained Ryan Nolen, an independent agency owner with Goosehead Insurance in Richmond, Texas, citing Hurricanes Ian and Ida in recent years.
Navigating the complex landscape of commercial property insurance has become increasingly challenging in the face of those rising risks and costs. According to Joe Minden, Producer at Swain & Baldwin Insurance in the Dallas area, the trends observed in 2023 reflected a consistent theme in risk management.
“Rates had increased. Markets had hardened on their coverages. Capacity had shrunk in certain areas, particularly coastal exposures,” noted Minden.
The challenges faced by CRE owners were notable, particularly in managing higher insurance costs that impacted their bottom line more than anticipated in their financing models. These elevated insurance costs posed a challenge to their net operating income and became a factor complicating the feasibility of penciling profitable deals in 2023. It’s a scenario in which a competent and trusted insurance partner is critical.
“I was extra proactive during this time, reaching out to my clients and going over their coverage and ensuring I’m doing my job,” Nolen shared.
This proactive approach underscores the importance of constant communication and reassessment to adapt to the evolving landscape of commercial property insurance.
“It is important to work with owners well ahead of time to prepare precise data for underwriters to assess and price habitational risks as accurately as possible,” he explained.
Additionally, having strategic conversations with owners about structuring insurance coverages and deductibles plays a crucial role in aligning with their risk tolerance while meeting loan compliance requirements.
Nolen also offered a crucial piece of advice, emphasizing the importance of comprehensive coverage tailored to specific needs: “Just because it’s cheaper doesn’t mean it’s better. Ensure you’re fully covered!”
As businesses look ahead to 2024, Minden advised a cautious approach.
“News sources seem to be pointing towards a moderate year for insurance in 2024. It is advisable to still be conservative on budgeting given how volatile the markets have been over the recent years,” he suggested, highlighting the need for continued vigilance and strategic planning.
In light of these challenges, Minden highlighted the proactive role that Swain & Baldwin Insurance has played.
“Our agency has helped owners place their risk with unique programs that we operate tailored for their asset type,” he shares.
Furthermore, Swain & Baldwin Insurance has implemented captive strategy programs for owners with sufficient size, offering a financially feasible solution that provides owners with more control in their risk management.
Nolen also extended his commitment to assisting businesses with their insurance needs.
“I’d love to help them out. At Goosehead Insurance – The Ryan Nolen Agency, I can shop more than 70 companies in the State of Texas to help protect your personal or commercial risk,” he offered.
As businesses grapple with the uncertainties of the commercial property insurance market, insights from Minden and Nolen highlight the significance of proactive engagement, strategic planning and a nuanced understanding of economic trends to make informed decisions in an ever-changing environment.