If you’re a property manager, chances are you speak insurance like a second language. It’s something that you’re used to dealing with, so you know the coverages and you understand the risks you need to be protected from. But what might need some clarity is how insurance companies – particularly standard insurance carriers – determine whether they want to insure your building. Here are seven details that can help you stay in the standard insurance market.
7 factors standard insurance carriers look for when insuring a property
1. The right wiring and plumbing.
No aluminum wiring.
Standard insurance carriers do not like to see aluminum wiring in apartment buildings. Aluminum wiring is a fire hazard, so it can prevent you from getting insured by a standard carrier. (Copper wiring, which is not a fire hazard, is what is used now.) Your insurance options can be determined by the risk of fire that you face. Remediation is an option if your building still has aluminum wiring, but you have to understand how to properly do this to make your building acceptable to insurance carriers. You may be able to get yourself back into the standard insurance market if you go through remediation for your aluminum wiring.
No polybutylene piping.
Polybutylene piping (or PB piping) was commonly used from the late 70’s up until the mid 90’s, but it was discovered that the material PB piping is made of is likely to expand and burst. If your building has PB piping, standard carriers will not want to insure your building. They see that you have a higher chance of a claim, so they don’t want to take on the risk. (If you have an apartment building, water damage can affect more than one unit, which is a real headache.) As with updating aluminum wiring, it’s in your best interest to explore remediation methods from a plumber familiar with PB piping.
2. The right occupancy rate.
You need to do what you can to maintain an acceptable occupancy rate because standard carriers have a percentage threshold where they will consider the building as “occupied” as opposed to “vacant”. Standard carriers do not like vacant buildings because, again, this increases the risk of a claim – are you sensing a theme? Vandalism is more likely to occur on vacant properties since there isn’t anyone around to deter trespassers. Plus, there wouldn’t be anyone there to raise the alarm about a fire, for instance. That’s why you need to make sure that you do everything you can to maintain the proper percentage of occupancy for your building. It’s normal (and fair) to assume that tenants can come with liability of their own, but in this case, not only can just the presence of your tenants keep you in the standard market, they can also be your saving grace in preventing possible claims!
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3. Well-maintained grounds and roof.
A standard carrier wants to see that you’ve kept up with your roof because roofs have somewhat limited lifespans. Since the roof protects the building from threats like bad weather and critters, a standard carrier wants to see that you’ve taken care of the roof. The better-maintained or the newer your roof, the less chance that the carrier will have to pay out a claim. And that means that there’s a higher chance that a standard carrier will want to insure your building.
It’s also really important to maintain the grounds of your building to make sure there is no undue liability risk. Standard insurance carriers want to see that you’ve taken steps to reduce the possibility of someone getting hurt on your premises. (For example, make sure there are no tripping hazards on the property and take care of all walkways, stairs, and so on.) If you’ve maintained your grounds and lowered your risk – both property risks like fire and liability risk like tripping – you look better to standard insurance carriers.
PRO TIP – This always comes up on inspection reports: Don’t let your landscapers push pine straw against the exterior of the building. Dry pine straw is very flammable!
4. No wood-burning fireplaces.
Your building may not have any wood-burning fireplaces or stoves, but if you do, be prepared for standard carriers to be leery of insuring your building. Whether or not your tenants are actually allowed to use them, standard carriers don’t like the mere existance of wood-burning fireplaces. (They even have fire in the name – you can see why an insurance company would hesitate about insuring a building with this kind of fire risk.) As you’ve probably noticed, fire is a big deal to insurance companies. You need to lower your fire risk to be in the standard insurance market.
5. Only having grills in common areas.
Mostly everyone enjoys a dinner that’s been cooked on a barbeque, but insurance companies only see the risk. Fire is not your friend – especially if you own a multifamily property with frame construction. While tenants are not restricted from using grills that are in common areas where they are located far away from wood-frame walls, grills on their patios or balconies should be absolutely prohibited.
6. No indoor smoking.
This is a fairly obvious point, but cigarettes are also significant fire hazards. All it takes is one improperly extinguished cigarette butt or sparks flicked from a balcony onto a pile of pine straw below, and that fire could spread quickly enough to cause serious damage. For the safety of the residents in your building and for the sake of your insurance situation, do not allow indoor smoking, and place proper smoking receptacles around your community to entice tenants to properly dispose of their tiny fire hazards.
7. A safe pool area.
Your pool area also needs to be properly maintained and monitored regularly. Standard carriers want to see that your pool adheres to the Virginia Graeme Baker Pool and Spa Safety Act, set forth in 2007. Your pool should have fences, and access should be restricted to those with a key fob or card. Post rules for the pool – no running, no swimming after hours, no glass or alcohol, and so on. Limit pool hours to daylight hours only, and make sure depth markers are clearly visible around the pool. Lastly (but most importantly), don’t forget to have safety equipment in an easily accessible spot where people will see it in case there is an emergency. Putting safety measures in practice will reduce some of the liability you face from having a pool on your premises, and that makes standard insurance carriers happy. And when they are happy, they offer better premiums!
Being in the standard insurance market is obviously really beneficial for property managers and building owners. Remember, the goal is to reduce risk, whether that’s property risk (i.e. fires) or liability risk (i.e. someone tripping and falling). We can’t see the future and we can’t always head off disaster, but we can take steps to lessen the chance of one striking.