Real estate Insurers have historically treated and responded to real estate risks very methodically with fire damage being the main source of loss. This made insuring against property damage easier and more predictable.
That's all changed in recent years since water replaced fire as the key source of loss -- making it increasingly difficult for insurers to write policies that effectively mitigate risk.
Because of water's fluid nature, insuring against water damage becomes particularly challenging when properties are multi-story. What can start as a burst water pipe on the fifth floor quickly becomes a significant loss on the fourth, third, second and ground floors. Water always finds a way to move to the lowest point and leaves significant damage in its wake.
The consequences of water damage, if not addressed in a timely manner, are many. Once water begins wicking into drywall and other absorbing materials, it can quickly lead to mold damage. This can impact the respiratory health of those occupying the building.
What factors make water damage insurance so difficult?
When considering what properties to insure, insurers evaluate the potential cost of loss, and realty portfolios in 2021 have not been target classes. These exposures coupled with the current hard market, exacerbates the problem. In hard market cycles, insurers become hyper conservative on the classes of business they will entertain; rates rise, deductible rise and insurers' capacity decreases.
Older properties - buildings over 30 years of age -- are no longer considered attractive risks for insurers. Despite many property owners' diligence for maintenance and upkeep of properties in their portfolio, insurers are reluctant to provide terms. Property owners of buildings built post 1991 will many times be required to fully upgrade their roof, HVAC, plumbing and electrical systems.
Aging city and urban infrastructure, combined with climate change, have created a dangerous situation. Increasingly dangerous torrential rain events can quickly overcome sewer drainage systems, which causes water to quickly flood properties, or backup into properties, through their own sewer systems.
Owner occupied properties are more favourable than tenant occupied, as moral hazard comes into play. Property owners generally appreciate and value their assets, which translates to care in their properties. Tenants may not maintain the property to the same standard of care that an owner would.
NFP and insuring against water damage
At NFP, we partner with experts in the risk management, working with you to identify potential exposures and offering solutions to mitigate the exposure to loss. Having a sound loss control strategy may make your realty portfolio attractive to our select insuring partners.
You’ve worked hard for everything you’ve earned. We have what it takes to protect everything you’ve worked for. We start by talking to you with the goal of viewing the world through your eyes. From there, we gain insight into the solutions you’re looking for and design a protection plan specifically for you, your assets and your individual situation. The result is coverage tailored to meet your needs. Request an online quote or contact us 1-844-811-1118