Habitational multifamily real estate is an appealing investment because of its potential to create steady rental income and the increasing need for multifamily properties. According to research by the National Multifamily Housing Council, the U.S. needs to add 4.3 million apartments by 2035 to keep pace with the growing demand.

However, alongside the increasing need, property and casualty insurance premiums for habitational real estate properties continue to rise, creating a challenging risk environment for owners and investors. Average insurance costs are up 26% over 2022, with the increases in Southern and coastal states, such as California, Florida and Texas, trending even higher.

Here, Jeremy Perlman, Vice President of CBIZ Borden Perlman, shares insights on habitational real estate insurance trends, challenges and best practices.

Q: What factors make insuring multifamily properties challenging?

A: Multifamily properties inherently present challenges that make them more difficult to insure compared to commercial office space or warehouses. Property owners face a range of risks, including cooking fires, water damage, and slips and falls. When you factor in risks like extreme weather events and rising construction costs, insurance carriers have significantly tightened their underwriting parameters in recent years. As a result, rates and deductibles are increasing across the board, and some carriers are limiting coverage or leaving the market altogether.

Q: What can property owners do to reduce their insurance risks and manage costs?

A: In today’s market, it’s imperative for property owners and investors to take a proactive risk management approach. For example, at CBIZ, we have in-house safety and loss-control professionals who work closely with clients and insurance carriers to assess and address potential risks. Recommendations can include addressing existing hazards that could lead to injury or implementing best practices from a safety and maintenance perspective.

Overall, fires and water damage account for the bulk of property insurance claims for multifamily properties. One best practice to help mitigate these risks is to conduct regular property inspections, assessing potential hazards and testing safety equipment. Inspecting a property on a monthly or bi-monthly basis can provide early identification of issues. Beyond inspections, property owners can leverage technology to assist with prevention. For example, the installation of sensors can detect water leaks at early stages or provide alerts when pipes are in danger of freezing. Many insurance companies will even provide discounts for properties with these types of sensors. Property owners can work with their brokers to identify such offerings.

Liability is another area where property owners can take proactive measures to help reduce their insurance costs. Simple actions like documenting weekly lighting inspections or the installation of security cameras can make a difference for insurers. It’s also important for property owners to carefully review their insurance policies to ensure they understand any limitations or exclusions related to liability. With winter right around the corner, property owners should be working closely with their snow removal vendor to implement a contract that transfers liability away from the owner and to the vendor. Snow and ice are leading causes of slips and falls at multifamily properties, so owners need to be diligent in their vendor selection and contract negotiation to make sure they are properly protected.

Q: What should multifamily real estate investors and property owners look for when partnering with an insurance advisor?

A: Partnering with the right insurance advisor is essential for managing risks and costs. For these types of properties and portfolios, work with an advisor that has access to a broad range of insurance carriers without geographic limitations. Larger brokerage firms also have internal resources that can help investors and property owners turn over every stone when assessing risk and managing costs. When firms have in-house loss-control experts, it’s easier for clients to take a proactive approach to identifying and mitigating insurance risks.

The use of data analytics is also a key capability to look for when selecting an insurance advisor. We do extensive analysis for our clients to help them understand their claims history and how profitable, or not, they’ve been to their insurance companies. With this type of data, we’re able to build a detailed risk analysis that we then share with carriers to help tell the client’s story and ultimately maximize both insurance protection and savings.

Multifamily property owners are facing major insurance-related headwinds in the current market. CBIZ has a team of insurance experts specializing in the real estate industry that can help navigate these rough seas. Connect with Jeremy to learn more, or get access to additional resources here.

This article includes input from Jeremy Perlman, Vice President of CBIZ Borden Perlman. Jeremy and his team focus on providing CBIZ clients with a lower total cost of risk, improved operational and financial performance, and a culture of safety and risk management.

	With a potential recession on the horizon, we know you want resources to help your business master the moment. We've put together our Agility & Excellence Resource Center to bring you strategies and solutions with a finger on the pulse of what's ahead.