Brokers See No Change in Sight for Apartment Market

Rates Remain Competitive Despite Fewer Carriers, More Catastrophe Losses

For apartment owners, the insurance market remains as competitive as it gets. Despite the sometimes heavy exposures that encompass the habitational risk, the vast majority of apartment owners see the cost of coverage declining year-after-year. And some agents and brokers say pricing in the apartment insurance market will remain soft, at least for now.

“What I’m seeing is it’s still very soft,” says Frank Giarratano, a broker for MarketScout Wholesale based in Dallas. “The pricing, coverages, rates, deductibles, etc., really haven’t changed outside of the coastal areas.”

L. Donald Nagy, executive vice president of McGowan Insurance Group, an independent agency located in Indianapolis, Ind., and Lexington, Ky., agrees the insurance market for apartments remains competitive, especially in the Midwest. But Nagy predicts the market may see some changes, at least on the property side, thanks to a series of natural disasters to hit many U.S. states this year.

Even without recent catastrophe losses, the apartment insurance market hasn’t been terribly profitable for many carriers and some have decided to flee.

The overall apartment market is very soft, and has been that way for some time, Giarratano says. Profitability for carriers in this segment has suffered but even with fewer carriers willing to write apartments today, prices still remain competitive.

“The odd thing is a lot of the general carriers out there, even the E&S (excess and surplus) carriers, have started to pull out of the marketplace. But it hasn’t changed pricing in the marketplace. It hasn’t changed terms and conditions. It’s almost an odd combination,” Giarratano says.

Jim Tesoriero, of The Distinguished Program Group, a New York-based national real estate program manager, agrees the market remains highly competitive but he also sees some carriers writing in this segment reevaluating their exposures and considering changes.

“We are starting to see carriers in certain parts of the country take a look at their books and see if it’s priced correctly,” Tesoriero says. He says carriers tend to not like habitational risks, and when tightening up, these risks are usually the first thing to go.

“I think what the carriers get frustrated with is the fact that this business moves so much,” he says. “Apartment owners like to shop their insurance, a lot. And it’s very competitive; every year the prices goes down the exposures stay the same.”

Availability

Rates continue to dive to a point where the apartment sector hasn’t been incredibly profitable for carriers, and so many have decided to either pull out of the market, or they just decide to write it hand-over-fist, Giarratano says. “There’s really no one meddling in the middle anymore. You either write a ton of it or you write none of it. This is what we’re really seeing from the carrier side.”

But one area of the apartment market that has seen some success is the program market, according to Giarratano . He still sees a number of newer master programs available today, with some success.

He also sees more traditional apartment carriers sticking it out as well. “You do see some of the traditional markets sticking around and holding their rates. But they tend to be a little bit higher. They tend to only write the accounts at the level that they’re comfortable with. They won’t come down and play where a lot of the new upstart markets are.”

But over the last two years, start-ups or program facilities have been winning the bulk of the apartment market, Giarratano says. “The master programs are still very aggressive and winning a lot of the business. … These days it seems like everyone’s got an apartment program.”

Giarratano says apartment programs are popular not only in the wholesale market, but also in the retail market, where agencies have built their own master policies. “It’s widespread these days, and I think that’s part of what’s keeping the rates so soft is the large number of options out there that are being created, outside of the general marketplace.”

Claims

Nagy says in his experience many general market carriers avoid writing in the apartment sector because of the high risk nature of claims in this segment. Common apartment claims range from traditional fire claims, to slip and fall incidents, and even assault, he says.

Giarratano says claims are a concern for underwriters because of the number of exposures contained in one commercial property.

“Imagine a 350 unit apartment complex; that means you’ve got to try to regulate 350 different tenants and make sure they all obey the fire safety guidelines,” he says. On the property side, he sees fires and then hail as the two biggest claims occurrences.

On the general liability side, claims range from general slips and falls, to potentially catastrophic incidents such as a child drowning in the complex pool.

“It’s a tough class. Profitable loss ratios are tough to maintain. It seems like there’s a lawsuit every other day, whether someone falls down a staircase and alleges there was a loose step, or a child gets into a pool and the parents allege that the gate wasn’t properly locked,” Giarratano says.

Changes to Come

MarketScout’s Giarratano doesn’t see many changes to come in the soft insurance market, for apartments or any other risk with the exception of coastal properties.

“I’ve heard people say the market is changing for the last five years, and I’ve yet to really see anything that indicates a movement in that direction,” he says.

“You’re seeing a big change on the coast because of the RMS 11 release, you’re seeing the coastal property carriers on every class, not just habitational starting to ask for a much higher rate and retention, especially on wind.

But as far as a real change occurring in the marketplace anytime soon, across the board, Giarratano doesn’t see big indications that change is around the corner.

McGowan’s Nagy expects some change. “We’re still experiencing the soft market at this point, but really I feel that that’s going to change significantly in the next year or so,” he says. Carriers writing apartment business stand to lose a lot of money from losses related to recent storm damage, tornadoes and hail. “So the market could change from a soft market to a hard market within a year or so,” Nagy predicts. “The companies are definitely losing money in the property business.”

Only time will tell.

Topics Carriers Agencies Claims Property Market