by Ron Glasser
After many consecutive years of declining business insurance premiums, 2001-2002 saw the start of increased Apartment Building Insurance costs. By now, most apartment building owners have become familiar with the many reasons things changed; steadily increasing claim costs, the Sept. 11 catastrophe & ensuing record losses, rising expenses for insurance companies such as increased re-insurance costs, the dramatic reduction in investment income, and growing underwriting losses, etc.
For 2003, rate increases of 20-30 percent have been normal for most business owners including apartment buildings with good claims records and relatively innocuous liability exposures. Companies with previous losses, high liability, etc. often face much higher increases. The marketplace may level out somewhat in 2004 (barring any major catastrophes) but the general opinion is that we will still continue to experience some ongoing premium increases, albeit somewhat lower than 2003.
With these facts in mind, prudent apartment building owners look for ways to mitigate their increased costs. There are many alternatives to explore in doing this and they should all be examined to find the proper balance between costs & benefits. While some insurance coverages for minor exposure may even be eliminated, depending on the individual owner’s tolerance for self-insuring, one coverage that definitely should not be deleted is Rental Income protection.
A tenant is cooking French fries on the stove with a pot of oil. While the oil is heating up, the tenant leaves the kitchen. The pot of oil bursts into flames and quickly spreads to the cupboards over the stove. The tenant returns to see smoke and fire in the kitchen and quickly calls the fire department. While the physical damage is covered under the building coverages, the loss of income for this unit and possibly other units that would be affected due to water damage and smoke damage would not. This is where rental income or loss of rents coverage would pay for the loss of income.
Yes, there are many options & alternatives to consider that can mitigate rising business insurance costs, but think very seriously before deleting your Rental Income safety net.
As always, to avoid unpleasant surprises, it’s important to work with a professional in this area.