Property ownership can be a great and sizeable investment. Whether a commercial building or development, the capital investment is large and many people choose to protect their property with insurance products. Working with a trusted advisor to protect your asset is important and needed for these type of investments. As an agency we have noticed a couple of trends affecting our clients that we would like to share.
Increasing Property Rates
Regionally, insurance carriers are increasing their property rates as well as tightening their appetite for acceptable buildings. We have seen this greatly affect buildings with frame construction and older structures. Many of the larger carriers will only make offers on building built after 1970 and ones that are not frame construction. This is due to the fire hazard that frame construction offers compared to a non-combustible construction. Older buildings are also, requiring more rehabilitation to meet current building codes compared to newer buildings. Another factor is the rise of catastrophic losses that have happened locally as well as nationally. Locally, we have seen a number of large building fires occur in the last 18 months. These losses are fueling the above increases in rates. Also, with the increase of wildfires in the region and most notably in California, we believe many carriers will be offsetting their billion dollar losses in other regions like ours.
Loss of Rents
Driving around the area you can see a number of construction cranes and new building in both Portland and Clark County. This has put a tight squeeze on both the construction industry and local governments. We have received feedback that building permits are taking upwards of 18 months to be granted, this obviously doesn’t include the shortage in skilled labor to complete the construction. This raises a large issue for building owners who have tenants. Most insurance policies “loss of rents” endorsement is capped at 12 months. This means relief from the insurance carrier for protection of rental income from the building after a loss has occurred ends at day 365. So, if building permits take 18 months and construction takes six months, the building owner will be without rental income relief for a year. This as you can imagine can create a very stressful situation for the building owner and hurt their return on investment. There is good news, however, rental income protection can be extended and we highly recommend building owners work with a trusted insurance advisor to look at where their limit is and find the level they are comfortable with.
Mike Connelly is a licensed business insurance agent and can be reached at Davidson & Associates Insurance, 360-514-9550 or firstname.lastname@example.org.