Published July 2002

With terrorism risk, expect insurance rate hikes

Finding insurance for income properties — particularly apartment, or “habitational” properties, as the insurance industry refers to them — was difficult enough before Sept. 11. Hurricanes and earthquakes in the ’90s forced insurance underwriters to adjust premiums to cover these losses.

Today, the insurance industry is moving premiums up even further and more rapidly in response to the new terrorism risk.

Insurance rates for some of the largest underwriters plan to move premiums up anywhere from 20 percent to 100 percent over the next year on their liability and property/casualty package, the most common type of insurance purchased by property owners.

Of course, this isn’t just bad news for the property owners. Increases in their costs will be passed on in some form to their tenants.

Many insurance agents and representatives are reaching out to their customers in reaction to the proposed increases. Sometimes, looking more closely at specific risk factors on a particular property can prove fruitful. Property owners can also present a positive loss history rating or increase their deductible amount to offset some of the impact of the increased costs.

In addition to premium increases, many underwriters are rapidly rewriting language to exclude direct or consequential damage from “acts of terror” so that they are treated in a similar way as “acts of war.”

Since today’s war on terror does not necessarily fit the traditional “nation vs. nation” declared type of war, insurers can be caught in the middle until language in their renewals can more clearly identify terrorist acts within the definition of war.

This leaves property owners with higher premiums and, often, no coverage if they are directly or even indirectly impacted by a terrorist act.

It pays to look closely at your coverage at any time, but especially today given these rather aggressive proposed increases in costs.

Making sure you’re insuring smart in the first place might uncover loss limits or other issues that you would be willing to adjust in light of the increases in insurance costs.

But be prepared. It’s unlikely you’ll be able to renew this year without some level of an increase no matter how hard you try.

Tom Hoban is CEO of Everett-based Coast Real Estate Services, a property management and real estate advisory company specializing in multi-family and commercial investment properties. He can be contacted by phone at 425-339-3638 or send e-mail to tomhoban@coastmgt.com.

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