Good foresight and relationships are among the most important things in the world of business. This is especially true in the case of commercial real estate, given the large revenues and costs associated with the market. For any commercial real estate owner, it’s essential to have a broker who can not only tailor an insurance and risk management solution to their portfolio of properties, but also advocate for them in times of need.
We had the pleasure of chatting with Chip Stuart, Real Estate Practice Leader of HUB International, a leading real estate insurance brokerage. He has been working with the company since 2009. To find out more about the ins and outs of commercial real estate insurance, we asked him to share his experience and opinions. Here’s what he told us.
Q: Tell our readers a little bit about your business: what industry are you in and what services do you provide?
HUB is a national insurance brokerage and advisor to real estate clients. We provide all lines of insurance with ease of administration. We have specialized in real estate to bring our clients specific customized service, tools, resources, and options for insurance and other risk management services. We represent our clients to over 400 insurers and competitively market their insurance programs annually.
Q: What’s the most important thing to consider when looking for an insurance broker?
Its starts with finding the best broker who specializes in what you do, and has the experience and clout with the insurers. Underwriters respond more favorably when they know the insurance broker is in control. Additionally, the broker you pick has to have had experience in claims. You will need your broker at your side to advocate for you during a claim.
Q: What are the challenges of the industry you work in?
While a broker tries to develop relationships between real estate and insurance underwriters, insurance companies’ appetites change, claims happen, and people change. The challenge in the insurance industry is about staying informed and abreast of changes and developments with insurers that will affect clients. Before any renewal, a broker must have a plan B and the ability to move the business from one insurer to another. Staying current on market conditions of price and coverage and communicating changes to the client is imperative.
Q: What is essential to know about CRE insurance?
Clients need to know details about their properties such as replacement cost valuation, fire protection, rents, occupancies, and the construction aspects. CRE clients deal with a lot of numbers. For instance, if you give your broker the sales price of the building to insure, you are paying too much premium. Weak or absence of information usually translates into an underwriter guessing, in turn rating to the worst case scenario price.
Q: Are there any challenges you’ve encountered in the process of creating insurance solutions for a commercial property?
- Properties associated with windstorm, brush, earthquake, and flood are challenging and require an understanding between the broker and client, and their lenders and owners. Solutions include layered multi insurer and quota shared programs replacing a single insurer.
- Habitational properties that are not best in class have fewer options for insurance companies to insure with which means less competition and higher prices. Some brokers have formed client purchasing groups for some coverages which gives the client more clout in a group. Bigger is better.
- CRE schedules with losses will need to restructure their insurance program with options that will relieve pressure on pricing.
Q: In your opinion, as a commercial property owner, what would be a must-have thing on your insurance policy?
Blanket limits for CRE provides peace of mind that you are well covered in the event your replacement cost or rent roll estimates were off. Blanket limits provide one policy limit for all locations that is usually higher than the largest location.
Q: How do you help customers with claims?
HUB has claims advocates that do not work for the insurer, but rather work for you. They are influential with the adjuster, often having a relationship you can lean on. In some cases your advocate will advise you how to prepare a claim for the adjuster to maximize your recovery.
Q: What is usually NOT covered in a CRE insurance that people should be aware of?
Watch for city building ordinance laws. They change without much notice. You may have some coverage for building ordinance law which requires the insured to pay extra above the replacement cost for improvements they mandate. However, for instance, if the city limits the rebuilding of your property to four stories when it used to be six, there is no solution to recover the lost rents for years to come for the lost two stories. Some policies allow the insured to rebuild at another site, but it’s not optimal.
Q: Any other insights you would like to share?
We tend to look at CRE as investors, not real estate. We know how to read leases to maximize CAMs with the premium distribution, and advocate with your lender when they ask for too much. Knowing what is “market” is key. We look at what coverages can you pass on to your tenants once we know your appetite for risk and business philosophies.