10 Pillars of Property Insurance for Commercial Real Estate Owners

Given the current realities of the CRE insurance industry, it is challenging for commercial property owners to ensure optimal insurance outcomes.

On the road to reaching ideal premiums, it is a crucial step for owners to understand the roles of key players in the renewal process, the roadblocks in their way, and the actions owners themselves can take to better control their property data. We’ve gathered 10 key concepts – or, rather, pillars – of property insurance for CRE owners to keep in mind about insurance.

Here are the 10 Pillars of Property Insurance:

1. The properties you own are at risk of unforeseen events, like fire or extreme weather, that may lead to damage and financial loss. Some events, like fire, may damage a single building; others, like a hurricane, could impact many.
   
   
2. In any year, you may be fortunate enough for nothing to happen to your properties. But that does not mean it never will, and if it does, the degree of loss could be devastating for your business. Insurance exists to protect you against this scenario.
   
   
3. Brokers and insurers populate the insurance industry. Brokers provide advice and facilitate your insurance purchase. Insurance carriers provide that insurance in return for payment of an agreed premium.
   
   
4. Insurance renewals tend to be annual. Each renewal involves assembling a package of information known as a submission that describes your buildings, loss history, and the insurance you require.
   
   
5. You decide how much risk you want to retain and then purchase insurance for losses beyond that retention up to a maximum value known as the limit. This limit should be sufficient to cover potential losses in a worst-case scenario.
   
   
6. Large limit insurance is typically syndicated across many insurers, with each taking a share of the risk. This stems from the reality that large CRE firms may have limits over $100M, with a single insurer unlikely to take on a significant potential loss.
   
   
7. On renewal, selected insurers are invited to tender. They each review the submission to assess your risk through a process known as underwriting. They then either decline to participate or make an offer.
   
   
8. Accurate pricing requires accurate data. Insurers apply analytic tools to your data for risk assessment, and missing data often leads to false assumptions with uncertainty reflected in higher prices and harder terms.
   
   
9. Insurance pricing and terms are also driven by supply vs. demand. When demand exceeds the market’s appetite, prices rise. Over the last five years, this has led to annual price increases of 20-30%+.
   
   
10. To achieve desired insurance results, it is critical for your submission to stand out in a market like this. Differentiation requires accurate property data, delivered in a way that’s easy for insurers to digest, backed by trusted evidence.

When purchasing commercial property insurance, the marketplace can seem opaque and difficult to control. However, by understanding the process, the players, the variables, and the motivations, Archipelago can empower you to increase your control in a complex commercial real estate insurance market.

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