Hikes On The Horizon
inflation, says Terry Anderson, president and CEO of Phoenix-based Tenant Prop- erty Protection and chairman of its Toy Story Nation subsidiary, which offers the RV Park ‘n’ Protect storage product.
Cyber insurance has grown almost
78 percent since March 2020, Ander- son adds, causing higher premiums, losses, and other costs associated with cyberattacks.
Commercial insurance showed the
first hit, and then tenant prices also started rising. “Inflation started hitting a stride” in early 2021, he says. Rates have risen as high as 50 percent in Florida, for example, though less in some other parts of the U.S.
Mike Schofield, chief revenue officer
for Phoenix-based MiniCo Insurance Agency LLC, pegs the start of the uptick in rates to the first quarter of 2022. That uptick increased its pace in the first quar- ter of this year.
“In most cases, it was mainly from
reinsurance rates rising, which impacted primary carriers’ rates, and they had to react to those rates going up,” Schofield says.
Impact On Insurers And Insureds Per Lee, commercial rates have been rising while tenant insurance is generally staying flat.
“Tenant insurance is what I call
program business,” she says. “Most oper- ators generally offer just one program and don’t touch it. Program administra- tors keep rates the same for tenants month to month, and most are capped at $5,000. It’s not like homeowners’ or auto insurance. It has a low coverage limit. It’s for the convenience of the tenant; a lot of them are in transition.”
No underwriting is required on indi-
vidual tenant insurance, Lee says. It’s automatic issuance. But when a facility operator gets insurance for a facility, that operator must get underwriting, a credit check, and answer a lot of questions
In Florida, for example, some insur-
ance companies became insolvent, Lee says. Florida formerly had no surcharge for property and casualty insurance. Then it required a 0.7 percent surcharge for every policy written. Now the state has increased the surcharge to 2 percent.
Anderson notes that because of this
harsh climate, “some have gotten out of the game.”
“I’m seeing more boomers selling
businesses than ever before,” he says. “It’s the largest transfer of wealth we’ve ever seen. The idea is some people are either
about the property. That’s absent with tenant insurance. Credit history is also scrutinized on the commercial side, as it is for homeowners’ and auto policies, unlike tenant insurance.
Insurers are still making money
because people still need insurance, Lee says. Insureds have fewer options, though. Many times, they use a broker to fill out an application. It goes to market and comes back with only three of 20 companies providing a quote, for example.
Padgett says self-storage facility operators can do things to mitigate risk,
such as improving security to combat theft. Schofield says increasing wind and hail deductibles
can counter rising costs. “Sometimes it means you’re going
with a non-admitted carrier versus an admitted carrier,” says Lee. “A non-admit- ted carrier, if it goes insolvent, you’re out of luck if you have a claim. An admitted carrier pays into the state’s guarantee fund, so if the company goes insolvent, the fund helps to pay claims. Every state’s department of insurance has such a fund.”
selling out or shutting down. Also, more people are looking at deductibles and the size of the properties, asking where they can cut costs. And then there’s a lot of shopping. A lot of B-rated companies are getting more business because of cheaper rates, though it’s not the same coverage and it has higher deductibles.”
Schofield says one of the most key
effects on the industry, especially in coastal areas, is limited aggregate capac- ity. This results mainly from reinsurance easing off their capacity to offer insur- ance in these geographic areas.
He uses a hypothetical example of
$100 million of aggregate capacity to insure in coastal areas in 2022. That dollar amount this year would have decreased, yielding less capacity to insure, in addi- tion to rising rates.
Mitigating Effects Are there ways to mitigate the negative effects in this climate?
“I don’t think there is,” Lee says,
“because you could have a really good loss history and a great credit history, and I think you’re kind of lumped in because of all the stuff going on in the insurance market. You might have a couple more options. It could be an insurer decides they don’t want this type of risk anymore, like for example self-storage. They’re like, ‘We’ve done this before and we’ve gotten hit too many times, so we’re not going to do it.’ I think across the board there’s not much you can do, because the insurers’ underwriting guidelines are probably stricter even if you have a really good credit or loss history. Insurers sometimes don’t want to take the risk.”
Padgett says self-storage facility oper-
ators can do things to mitigate risk, such as improving security to combat theft. Schofield says increasing wind and hail deductibles can counter rising costs.
“There are ways to present your
company to the carrier in a better light,” Tiebout says. “You’ve got to make sure they want to insure you. They have
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