What’s Impacting Your Real Estate Investor Clients’ Coverage in 2022?

This post is part of a series sponsored by SWBC.

As a trusted insurance broker for your clients, it’s critically important to stay up to date on industry challenges impacting their businesses so you can provide the most valuable support when they come to you with questions or for referrals.

I’ve spent the last 16 years working with real estate investors. Like many of us in the last two years, they’ve developed new pain points and opportunities through the COVID-19 pandemic. Many have struggled to keep up with supply chain and labor shortage challenges. Meanwhile, their insurance costs are rising.

In this blog post, we’ll take a deep dive into the choppy waters of the real estate investment (REI) industry and give you tips to share with your clients for navigating a hardening insurance market.

Challenges in Construction Leading to Increased Vacancies for Investors

In 2020, the COVID-19 pandemic disrupted the global supply of basically everything needed for construction operations just as the housing and rental markets were heating up to historic levels.

More than two years later, over 75% of construction firms are reporting project delays due to longer lead times or shortage of materials and 57% are experiencing delivery delays, indicating that the industry has difficulty predicting arrival times for needed materials.

In addition to supply chain issues, there is a critical labor shortage in the construction industry. According to Deloitte, 52% of construction executives said their organization is currently facing a severe labor and talent shortage on the job site.

How Construction Challenges Are Impacting Real Estate Investors in 2022

For your real estate investor clients, this means minor updates to rental properties that previously had one- to two-week project timelines are now taking one to three months to complete.

Let’s say your client has a duplex that’s supposed to go on the rental market in two weeks, but the unit needs new floors. Two years ago, the install could have easily been completed in that two-week window. Today, the lead time on the same project might stretch to 60 days.

Thanks to a historically hot rental housing market, your client likely has lease applications piling up for this rental unit, but the property will have to remain vacant until repairs can be tended to. That means they’re missing out on two months’ worth of income.

The Cost to Insure Real Estate Investment Properties Is Rising

Unfortunately, the cost to insure these properties is rising in response to intermittent vacancies caused by construction bottlenecks. At renewal time or when a business is applying for a new insurance policy, those vacancies stand out as increased risk to underwriters.

To top it off, this all is taking place at a time when the insurance market is hardening across virtually every industry. A hard insurance market is characterized by higher premiums, more limited terms, and a decreased appetite for underwriting. Coverage can be more difficult to obtain in this environment, which means prices are not as buyer friendly as they were pre-pandemic.

Tips to Share with Your REI Clients for Navigating a Hard Insurance Market

Even your most financially stable and well-prepared business clients will need to adapt to a hardening insurance marketplace. In light of increasing premiums, more complex and heavily scrutinized underwriting processes, and additional coverage restrictions, here are some tips to share with your REI clients to help them navigate the changing environment:

1. Have Clients Review Their Current Insurance Program

Often times, changes in your clients’ operations (like construction challenges leading to increased vacancies) will dictate just how much insurance protection they require. Ultimately, they need to ensure their policies match the current state of their business. Since the last time they reviewed coverage:

Have they had to restructure their business operations or employee base due to pandemic or supply chain challenges?
Has their business recently expanded (or scaled back) its operations in response to changing housing market conditions?
Have they added a product line or service?

2. Encourage Clients to Increase Risk Management Efforts

Encourage your REI clients to evaluate unconventional financial risks that your business may face, such as a security data breach or supply chain hack. Remind them not to underestimate the potential effect on their company’s reputation. Other financial risks include breach of contract, mistakes or oversights made by their company or its partners, and lawsuits against their organization or employees.

3. Remind Clients to Take Preventive Measures

Have your clients done everything they can to minimize their business’ exposure to potential risks? For instance, do they have smoke detectors and sprinklers installed to avert potential fire damage, or have they installed a security system?

Do your clients have a disaster plan in place to protect its employees and customers? According to the Insurance Information Institute, you may be able to reduce your premium for certain coverages by following your insurer’s recommendations for stepping up risk management.

4. Compare Prices and Services for Savings

Though the insurance marketplace is hardening for all industries, coverage prices vary from company to company, so it’s in your clients’ best interest to shop around. You can work with them to get names of companies or brokers who specialize in finding insurance solutions specifically for real estate investors. When shopping around, compare prices and services of several companies so you can get a feel for the types of services they would provide.

When your clients partner with SWBC for their Real Estate Investor Insurance needs, they’ll gain premier service from a company that has been serving this market for nearly 30 years. We stand by our reputation in providing a consultative approach to address your REI clients’ needs and recognize any gaps in existing insurance coverage they may already have while keeping cost top of mind. Visit our website to learn more.

The most important insurance news,in your inbox every business day.

Get the insurance industry’s trusted newsletter