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Home » Renters in America » A New View of Risk in Real Estate

Hoping for a return to “normal” in the real estate markets is a losing strategy. Instead, understand your risk and how to mitigate it.

Just about every aspect of modern life has been affected by our tumultuous recent history, from how we socialize to how we go to work in the morning. The world of real estate is no exception — pandemic-driven shifts in evictions and renewals, damage from natural disasters (Hurricane Ida is predicted to cost more than $25 billion), the risk of civil unrest, and the ticking time bomb of aging high-rise condominium stock are factors contributing to uncertainty. The only thing we can be sure of is that there’s no “return to normal” coming any time soon.

If you own or manage real estate, the secret to a successful year is knowing what to expect — and making plans. Here’s what you need to know.

The future

Insurance rates for real estate are going to rise across the board in 2022. An analysis performed by HUB International, a leading North American insurance brokerage, predicts rate increases of 10-20 percent for both commercial and residential properties. There are several reasons for this:

Increased weather-related damage. Almost one-third of Americans experienced a weather-related disaster in just a three-month period in 2021. Flood zones have expanded, wildfires range more widely, and hurricanes are becoming more frequent and more devastating.

Increased pressure on multi-family dwellings. Disasters like the Champlain Towers collapse in Florida have put a spotlight on aging multi-family building stock and deferred maintenance. Insurers will be very careful with coverage, which will likely require layered policies to ensure complete coverage. On top of that, rates will likely rise 20 percent — or more.

Repurposing acceleration. Commercial real estate is recovering slowly from the impact of the global pandemic. Adaptive use (aka, the repurposing of retail and other commercial space) is on the rise as a strategy to maintain profitability in these properties, driven in part by low-interest rates that are expected to remain stable for the immediate future.

Risk mitigation

Considering all the challenges facing property owners and managers, knowing how to manage risk and making sure you’re an ideal candidate for coverage is crucial. A broker like HUB International that acts as a partner to support their clients is a good first step, but there are some specific considerations to take into account:

Unoccupied vs. vacant. If you foresee that your property might be empty for some time, keep in mind that classifying it as “unoccupied” (i.e., between tenants) will garner better rates than “vacant.”

Maintenance. For properties that have been renovated or updated, being able to demonstrate maintenance protocols will make you more attractive to carriers.

Plan for water damage. Increasingly, no property is entirely safe from water damage — even properties safe from ground flooding can be damaged when local sewers back up due to water volumes. Properties that have a flood mitigation strategy will find more favorable terms and rates.

Have a security plan. The damage suffered during civil unrest is a growing problem, especially in our cities. Make a plan to protect your property by installing cameras, hiring guards, and reviewing your fire response plans.

Catastrophe (CAT) modeling. As damage from natural disasters continues to rise, implementing robust CAT modeling tools to understand the extent of your risk and the precise coverage your properties need will be necessary.

HUB Tenant Liability Captive Insurance. Liability insurance is crucial for both residents and property owners. Simplifying the process of acquiring coverage and shifting the work of tracking and servicing policies away from the property managers is the ideal way to protect your investment and support your tenants.

HUB International offers downloadable resources for property owners and managers to help them understand the risks and deal with increasing insurance rates.

Real estate as an investment has always carried a certain degree of risk. Dealing with that risk will require taking some common-sense steps as well as securing the coverage you need.

For more information, visit HUB International’s 2022 Outlook on the real estate industry.

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