Growth in retail shopping centers a boon for insurance brokers

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When the going gets tough, the tough go … shopping! Judging by the 18 percent increase in the development of retail shopping centers in the United States in 2005 over 2004, that tongue-in-cheek adage has more than a little bit of truth to it.

CoStar Group Inc., a company that provides information services to the commercial real estate industry, estimates sales at U.S. shopping centers topped $1.5 trillion in 2005. The gross leasing area (GLA) of shopping centers across the nation grew last year to 6,059,674,054 square feet, compared with 5,953,124,123 square feet in 2004. While the category of centers with less than 100,001 square feet is the largest in terms of numbers of locations, categories that showed the largest percentage increase in 2005 were those with more than 400,000 square feet, according to the 2005CoStar/NRB Shopping Center Census, which is prepared yearly by the National Research Bureau, a CoStar subsidiary.

Shopping centers “are such a growing part of the economy; it’s unbelievable how many shopping centers there are in the U.S.,” commented David Edison, senior vice president of sales and distribution at Grocers Insurance, a subsidiary of the Argonaut Group. He added that currently there are about 45,000 to 50,000 shopping centers nationwide and they are “expanding tremendously.”

California, Florida and Texas lead the nation in shopping center GLA, according to the International Council of Shopping Centers. Illinois, New York, Ohio and Pennsylvania follow with next largest percentage of shopping center GLA concentrations.

The environment for insuring these properties is competitive, noted Neal Schmidt, commercial lines vice president of underwriting for Philadelphia Insurance Companies. Schmidt said except for in Florida and coastal areas, rates, especially on the property side, are trending downward as insurers have a lot of interest in this market, particularly for newer structures.

Grocers Insurance, a member of Argonaut Select Markets, and Philadelphia Insurance are among the companies competing for retail shopping center program business, especially in the small-to-medium sized property market.

General categories

Schmidt explained that shopping centers fall more or less into four general categories: neighborhood centers with about six to 10 stores; community centers, which are slightly larger and generally have an anchor store, such as a grocery store; regional centers, like a mall with two or three anchor stores, such as J.C. Penny, Sears or Macy’s, and around 100 stores total; and super large mega-malls, such as the Mall of America, that not only have retail stores and restaurants, but may have movie theaters and entertainment venues, and possibly even an amusement park.

The smaller, neighborhood and community centers are a target for Philadelphia’s program, and the regional malls will be considered, although the company is more selective with those risks, Schmidt said.

He added that in addition to size, age and condition of the property, his company looks at occupancy rates when considering an exposure and prefers centers with 80 percent occupancy and above. In addition, total insured value (TIV) is part of the equation when it comes to underwriting the risk. For instance, Schmidt said, a location with more than $100 million TIV would not be a target property for his company.

Grocers, which recently announced an expansion of its national retail shopping center program, is interested in the smaller sized centers—limiting exposures to properties with less than $20 million TIV. Risks targeted by the program are “strip”-type centers with individual exterior entrances for each tenant. Grocery stores, which are a large market for the insurer, often anchor the shopping centers targeted by the company.

Edison said Grocers would use sales figures from the centers in its rating methodology and to help determine the size of the exposure being considered. Structures built after 1975 and those with sprinkler systems are preferred, and if restaurants are situated on the property, which they often are, Edison said, Grocers looks for proper fire resistance systems.

Both Grocers and Philadelphia offer a variety of property and liability coverages through their programs, including some terrorism coverage—offering it as an option but selectively underwriting the risk.

Resources for shopping center information in the U.S. and worldwide include CoStar Group Inc., www.costar.com, and the International Council of Shopping Centers, www.icsc.org/.

2005 CoStar/NRB Shopping Center Census

Top 10 states in new centers

1 Texas: 112

2 Florida: 88

3 California: 84

4 Georgia: 49

5 Illinois: 47

6 Arizona: 46

7 North Carolina: 43

8 Ohio: 31

9 Missouri: 31

10 Tennessee: 29