The general property insurance might be experiencing a hard market right now, but there’s one segment on the commercial side that’s still booming. The residential real estate investor space is burgeoning and, in turn, specialty underwriters are seeing more demand for insurance solutions to protect these properties from a myriad of risks.
“It really is growing,” said Michael G. Marks, senior vice president at Blue River Underwriters, a division of Breckenridge Insurance Group. “We see submissions daily in this space and they come in various sizes. The average account size [ranges between] $5 million and $8 million in total insurable values, but we’ve seen them upwards of $50 million and $60 million.”
Many investors are active right now in the real estate arena, and are eagerly buying up single family dwellings, duplexes, fourplexes, and a variety of other one- to four-unit family units. Residential real estate entities and investors are a diverse and innovative group, from fix and flip independent investors and the vacation rental by owner (VRBO) market, to small- and mid-sized investor operations and property management firms, as well as larger real estate investment firms and real estate investment trusts (REITs).
Today, one of these entities might buy a dozen houses, put a new coat of paint on them and fix them up before renting them out to tenants, thereby bringing in a steady stream of income. Usually, investors are buying these properties from banks, and are often also merging with other investor groups to combine their financial strength and build even bigger portfolios. Other firms are, meanwhile, managing these schedules of properties, where they collect the rent, vet the tenants, keep up with the maintenance of the buildings, and ensuring any necessary repairs are made, taking this work out of the hands of investors.
Within this dynamic marketplace, real estate investors’ insurance needs depend on the size of their portfolios. Their properties’ exposures to natural catastrophes, whether they be hurricanes in the south, fires on the west coast or tornadoes in the Midwest, also need to be taken into consideration.
On this front, Blue River Underwriters models wind storm exposures to get a sense of loss potential in a given area following a major event, in addition to using other tracking and location information to determine the extent to which properties are exposed to these risks, based on their proximity to a particular flood zone, an earthquake fault, or a region prone to wildfires.
“We have to be very careful as to aggregation, and how much we have exposed in those areas and what we can write there,” said Marks. “With the wildfires of late, it has been more challenging for us, but that doesn’t mean we can’t write – and we have written – in those areas. We’re just very focused and we track it closely, and same thing goes for our flood mapping. We try and stay out of critical flood zones, but that doesn’t mean that at times if we have a large schedule, we may have some [properties] in those zones, in which case we apply a different deductible and we use aggregate limits for the particular locations.”
He continued: “There are multiple options we can consider, so we try not to just decline because they’re in a certain area. We’re definitely trying to look at still writing the business, and maybe being a little more restrictive, but we’re still offering coverage, rate, and different deductibles.”
Catastrophes aren’t the only risks facing real estate portfolios. The number of tenants living in a property is likewise important.
“Are we dealing with a schedule of just single-family homes where we have one tenant, or do we have all fourplex properties where we have four individual tenants, which equates to four different exposures?” explained Marks. “We have different rates for a single-family dwelling as opposed to rates for a fourplex or a duplex.”
To address these and other insurance needs of real estate investors and entities, Blue River Underwriters offers a package program called Insuredge to mid- and large-size property managers, family offices and trusts, fix-and-flippers, and individual and corporate real estate investors. The team is experienced in many property coverages, and can craft the right solution for diverse portfolios. The program includes one policy for both property and general liability, one surplus lines tax filing, monthly reporting, responsive claims handling, and, for select accounts, a technology portal for property coverage changes for bigger schedules.
With the growth in the real estate investor market, there are plenty of opportunities for agents and brokers to get a piece of the pie – and working with the right underwriting partner can help. Those professionals that understand driving business and sound risk management equally are a competitive advantage in this evolving space.
“Our brokers are finding out more and more about it, and they’re coming to us. We get comments and questions about this business [from brokers and agents] almost daily, wanting to know where we are in it and what we can do in the space,” said Marks. “We have the capability to write both property coverage and liability coverage – meaning we can deliver a monoline property policy if needed or we can write a package policy including both the property and the general liability.”
