Category Archives: Commercial Property

Commercial Property, General Liability Insurance, Marketplace News, New York, Real Estate Practice Group, Risk Management

Why Property & Liability Insurance Cost So Much for Apartment Buildings , Co-Ops , Condos

Are you wondering why the renewal for your apartment building insurance for your rental building, Co-op or Condo has gone up by north of 20% ? This little primer might help explain why. The Chinese have a proverb, “may you live in interesting times”. If you’re an owner of commercial or residential real estate, especially in New York or New Jersey this proverb is an understatement. Faced with the double jeopardy challenge of escalating costs up & down your P&L in tandem with local laws capping your ability to raise rents if your units are subject to rent guidelines , finding new strategies to maintain your margins and investment yield is an imperative heading into 1st quarter to 2023. This is meant to be a primer for buyers or commercial insurance in the Metropolitan New York region. We have taken care to organize our executive summary into lines of insurance which makes the most sense.

Commercial Property Insurance :

For rental real estate , co-op’s or condominium buildings located in the metro NY region It’s all about C.O.P.E. ( Construction , Occupancy, Protection Class, Environment). When an underwriter looks at an account these are the buckets they use to organize how they will price your account. Buildings that have invested in their properties in terms of not just aesthetics ,(tenant) upgrades, but building safety & infrastructure enjoy the most competitive pricing & coverage terms. These are the items that carriers look for in the properties they underwrite.

  • Sprinkler Systems ( Common Areas Good; Fully Sprinklered Best)   
  • Standpipe Systems
  • 2nd Means of Egress .
  • Twin Parks Fire

    Self Closing Fire Doors.

    • Auditing of Fire Doors
  • Emergency Lighting / Exit Signs
  • Hard Wired Smoke Detectors
  • System to document repairs, maintenance, upgrades.
  • Upgraded Electrical systems
  • Water Sensors & Monitors
  • Boiler Sensors & Monitors
  • Upgrade Schedule communicating the installation of some of the features noted above.

At Metropolitan Risk we encourage building owners to use our infra-red scanning technology to scan your building for electrical hot spots. This is a smart pro-active initiative that can save the property owner much blood & treasure by preventing an electrical fire loss up front by identifying areas of your building where the electrical system may be failing before a fire results.

The insurance carriers we see that give the owners the most credit for these features are Travelers, GNY, FM Global, CNA, AmRisk. If your building lacks many of these features they still may quote the account contingent on how well the portfolio has performed in relation to it’s COPE.

As you read this and say to yourself, jeez we have most of this stuff, yet our insurance is still increasing;  or we are getting cancelled which is puzzling.

Remember when you purchase insurance through an insurance carrier, you are pooling your risk. This means you are getting lumped in with all the other buildings they are insuring. Each year the carriers, through their actuaries set the insurance companies rates based upon the losses the portfolio is incurring AND the cost of re-insurance. For some carriers it’s a double hit as their losses and re-insurance costs increase.

In the last 5 years , property losses are out passing the previous 10. Climate induced impacts are having significant cost impacts on re-insurance costs which get passed down to you the end user buyer. Remember the pooling of risk applies to the insurance carriers, not just the buyer. It’s all part of the cost food chain to transfer risk.

Many insured’s solely think about their buildings and their account performance, however the macros on the economy, portfolio loss performance , and the cost of their re-insurance contracts really dictate the cost of their property insurance. When you purchase insurance you are deeply impacted in a positive and negative way ; the “pooling of the risk”.

COMMERCIAL LIABILITY INSURANCE :

For your rental apartment building , Co-Op Building or Condominium building ,unlike Property Insurance,  which is increasing nationwide due to the cost of re-insurance driven mostly by the macros detailed above; liability insurance has much larger disparities market to market, state to state, locality to locality. New York State & New York City is case in point.

On January 9th, 2022 the Twin Parks Fire sent shock waves through out the New York City Habitational Insurance market; specifically as it relates to liability. In that fire 17 people dies due to smoke inhalation. The 19 story building was rated masonry non-combust which meant it was built primarily with steel and concrete. It had multiple means of egress (ways in & out) , with fire doors protecting the egress. The challenge for the owners and the insurers was the alleged malfunction of the fire door hinges which are self-closing. Due to their alleged malfunction smoke infiltrated the building killing 17 people from smoke inhalation.

What does that have to do with me? Great question; everything. When ever the carriers see a large loss like that come into view they look inward. How many buildings are we insuring that fit that risk profile. The answer was a lot. The determination was made that because the building was NOT fully sprinklered, which would have suppressed the smoke, this type of loss could be inevitable. Thus, the takeaway away for you is that if your building is NOT 100% sprinklered, your rates are going up, by a lot, and many carriers are refusing to insure you as they don’t want a repeat of the TWIN PARKS FIRE.

Sadly, that is only one component of the increase. Due to NY’s Labor Law or the Scaffold Law which imposes strict liability on property owners for workers who fall from a height, payouts on liability claims are significantly higher in New York than almost any other state in the country.

Gallo, Vitucci& Klar who specializes in Labor Law defense. “One of the labor law hotbeds in New York is Lackawanna County in upstate NY, think Buffalo. The Labor Law affects the entire state, not just NYC. That said NYC has a concentration of taller buildings which is why there is more activity there.”

At Metropolitan Risk we wrote an E-Book to help school property owners on the risks inherent in the labor law CLICK HERE to download. For purposes of this article , just understand that the Scaffold Law continues to push insurance costs for property owners much higher in this region than in any other region in the county. Which is a large component as to why your liability insurance costs continue to rise.

EXCESS  LIABILITY INSURANCE :

Similar to liability for essentially the same reasons excess liability insurance costs continue to rise with one notable exception.

The DEMISE OF THE “PROGRAM UMBRELLA” : Program Umbrella’s where essentially products where by an MGA “Managing General Agent” would purchase large limits of excess liability coverage , and then turn to retail agents and brokers and give them access to the program for their clients. For a “Premium” the agent or brokers customers could gain access to that particular Umbrella policy purchased by the MGA. Essentially giving real estate owners the ability to purchase at a discount excess liability insurance in “BULK”, getting the “BULK” discount.

As of this time last year there were north of 10 Program Umbrella’s you could bolt into , enjoying liability limits as high a $100 million dollars for your portfolio , or building. Those days are gone. While there are still a few left, the underwriting to get in is uncompromisingly  strict, and the pricing discount for buying in bulk is gone.

In over 25 years of serving building owners and developers I cannot recall a more challenging market for this cohort of insurance buyers. There simply is not enough insurance carriers writing this class of risk to drive pricing back down. It’s classic supply & demand. The carriers putting out paper on the street are calling the shots as they don’t have much competition. They are getting their number because the property owners MUST purchase coverage to comply with their lenders requirements. Lender in turn need to understand the dynamics of this current market and work with their property owners to find a balance.

On top of ALL of this are the new unfunded mandates from the City of New York, New York State and the Federal Government for all types of businesses. It’s a very challenging environment to be a landlord in New York City as the income is capped, but the costs continue to escalate higher than the other side of the P&L.

There are strategies building owners can take to mitigate some of these escalations. That is fertile ground for our next article in the series.

We hope you found this piece informative. Feel free to reach out to a Risk Advisor by calling (914) 357-8444 or simply CLICK HERE.

 

Commercial Property, Other

Having The CORRECT Business Interruption Insurance Determines If Your Business Survives

Business Income Insurance or Business Interruption Coverage is not only the most often overlooked insurance coverage, but the error rate in how it’s calculated is over 90%, and I am being generous here. Skeptical, pull your policy. My guess is your current agent or broker just applied your gross sales to arrive at the Business Interruption limit, or worse if it’s actual incurred loss it’s only for 12 months. I love actual incurred loss, what it should state is “Actual Incurred Loss As Calculated By The Insurance Company”. Yes, there is a HUGE difference.

 

Imbedded in most insurance policies are provisions for “business interruption insurance” or “business income” . It’s these provisions that provide coverage for loss of critical business income that provide the financial sustenance for a business to survive. Simply because your business suffers a loss, your bills don’t stop. I know my landlord at Bridge Street in Irvington NY wants his check on the 1st of each month, regardless of any business or personal tragedy. He knows his bills keep coming as well, it’s a vicious cycle. Thus quite often you have insurance to help bridge the financial gap between the revenue that your business would have enjoyed except for a covered event. How the loss is calculated and ultimately reimbursed is an article all by itself, and it differs depending on what type of business you are in, (i.e. manufacturer, restaurant, retail wine merchant, hotel).

 

If NY Business Interruption Insurance is deemed critical to the survival of your business we suggest performing a Business Income Stress Test. Quite simply what we do is offer up two or three likely claim scenarios that would potentially keep most C.F.O.’s up at night. We overlay your companies current financial’s, ( P&L , Balance Sheet), and apply the insurance carriers formula for calculating the business interruption portion of the loss which is contained in your insurance policy. In each claim scenario, we show you what your potential shortfall is BEFORE the loss occurs which is a critical point. To perform this calculation after the event is called a CLAIM, which at that point is simply P&L triage to get you through the month.

 

It’s absolutely essential that this stress test be performed on every business. In our business we can pick up and move to a temp facility provided there is power, and be operational in a matter of hours. A NY Wine Merchant, or Westchester NY Restaurant cannot. Understanding your cost structure, what is and is not reimbursable, and planning for it upfront quite often is the difference between life and death for many small businesses because they don’t have the financial cushion or the credit lines to make up the difference. The insurance proceeds from business interruption, or business income claim is the only financial lifeline.

 

If you are interested in seeing how your business would fare in our proprietary Business Income Stress Test, please speak with one of our Risk Advisors or call 914-357-8444.

Claims Management, Commercial Property, Risk Management

The Time to Find Flood Insurance at a Great Price is Now

Flood Danger

The need for flood insurance at a great price has become a critical necessity for most property owners. A new report from independent researchers shows nearly double the properties across America are in danger of major flood damage. According to First Street Foundation, a NYC based academic group, over 14.5 million properties are highly susceptible to large flooding. This is almost double the 8.7 million figure FEMA came out with. The main reason for the large gap in results is the difference in flooding mapped. FEMA primarily researched properties at risk of flooding primarily through river/ocean overflow, which accounted for the low number. First Street however, mapped properties at risk through not only river flooding, but flooding caused by rainfalls and smaller bodies of water.

These numbers are not necessarily that the next time it rains, your building is in severe risk of floating away. It means 14.6 million properties are susceptible to damages from a 100-year flood – a flood with the probability of happening 1% annually. The reason for concern? These 100-year floods may come sooner as intense rainfall will continue to grow due to global warming.

Who’s Affected?

The new data saw poor communities along coasts affected most, as their buildings may not sustain such harsh weather conditions. Large cities such as New York City and Chicago also see growth in the new study due to the outdated sewage/drainage systems currently in-place. With the new data that includes rainfall and smaller, locally-known creeks, more inland communities are now on the list as well.

What Should I Do?

While our generation may never witness such a catastrophe, every year average global temperature increases the chances become even likelier. With this information, it is wise to review your flood insurance. You may not be covered with the thought you were not susceptible to damages you now realize may be reality. However, you now can take a closer look and find out if flood insurance is something worth investing in.

Still have questions on finding flood insurance at a great price? Contact a risk advisor at 914-357-8444.

Commercial Property, Construction Practice Group Content, Food & Beverage Practice Group Content, Human Services Practice Group Content, Risk Management, Transportation Practice Group Content

Business Interruption Insurance Coverage For Business Continuity

Most business owners view the whole insurance purchase and claims process as a black art, which this writer completely understands. After 25 years in the business, I too scratch my head at some of the “spells” insurance carriers concoct.

Let me try and be as succinct as possible as I will focus on three main considerations:

  1. Purpose of business income coverage
  2. Coverage triggers
  3. A brief paragraph on valuations

Purpose of Business Income Coverage:

The main purpose of business interruption insurance coverage is for business continuity. It provides funds to pay for continuing expenses that remain even though the business is not operational at the moment. These necessary expenses keep the business viable for its eventual return. One example would be key staff, such as an executive chef. You wouldn’t want to lose their talents which are intrinsic to the success of your business, thus their compensation remains even though the kitchen is inoperable. There are very specific loss formulas and calculation variables that are used by insurance carriers contained in your policy that determines the amounts. See Item 3 for more information on valuations.

There are essentially three levels of business interruption coverage:

Standard Business Interruption Insurance coverage –

Intended to compensate the insured for income lost during the period of restoration. Continue until owner bring the operations and or facilities back online and fully functioning.

Extended Business Interruption –

Provides additional coverage augmenting the standard business interruption coverage for a specific period of time once the facility or operation has been brought back online. An example of which might be a restaurant that re-opens after 6 months of restoration. It may take time for the public to return, which means their sales will be off until word gets out. Extended Business Interruption would help bridge that sales gap for 30, 60, or 90 days contingent on how much you purchase at the outset.

Contingent Business Interruption –

Provides coverage above and beyond the standard business interruption insurance for damage or loss of income due to a loss for a key supplier, or a key tenant. I’ll give an example. Years ago Corning had a fire at their factory which supplied the majority of the screens for Samsung’s flat panels. Samsung had a significant drop in sales as they could not fill orders. Those customers bought from other manufacturers resulting in a net income loss for Samsung.

These are the three many levels of business interruption coverage. Most businesses have the Standard level. If your business might suffer losses from a time perspective, contingent supplier, or an anchor tenant, consider these enhancements.


What Triggers Business Interruption Insurance?

Great question, glad I asked. Coverage triggers are one of the most important features or mechanisms contained in all insurance policies. When a claim is presented insurance carriers ask two questions: what clause in the insurance contract “triggers” coverage, and what exclusions or limitations contained in the insurance contract “trigger” a claim denial. It’s either one or the other; guess which one they focus on most?

Essentially it comes down to a few critical answers:

  1. Is the event that caused the loss, a “covered peril” as defined in the insurance policy? Hint, fire is a covered peril, flood is typically not.
  2.  Did the business suffer a loss of business income as a result of suspension of operations resulting from that loss?
  3. Did the business suffer property damage from a covered location on the policy?
  4. Is the business being made whole for continuity purposes or is there an economic gain resulting from the coverage?

Examples

These are the main coverage triggers we look at from the outset. There are other more nuanced considerations in certain cases however I didn’t want this to turn into a doctoral thesis.

During Hurricane Sandy, many businesses suffered the loss of business income because their business had shut down for a period of time resulting in a potential net income loss. We fielded hundreds of questions in this vein. Sadly most of the losses were a result of flooding which was not a “covered peril” thus business income was NOT triggered.

In other situations, we made a case that a pre-emptive utility shut down by civil authority or landlord to protect their electrical infrastructure resulted in the loss, and not the flood. This argument only works if you also have the proper utility interruption coverage endorsement on the policy which triggers coverage. In absence of that endorsement, coverage would not apply to business income as losses didn’t result from a covered peril.  Some folks call this confusing, I call it job security. If you are unsure if coverage is triggered or not we suggest you speak to a Risk Advisor for a second opinion on your specific situation.

Business Interruption Valuations:

Here’s where the weeds get really deep. In the vast majority of policies that include business interruption coverage there usually is contained deep in the policy pages a standard formula or calculation that brings certain income and expenses in, and carves certain expenses and income out. An example of such might be utilities or rent that ceases during the period of restoration. Since the expense no longer occurs while the business is dormant the carriers pull this item out of their calculation. Within the methodology, both income and expenses brought in and out contingent on how necessary they are to continue business.

Another example is key staff versus line staff. It’s critical for certain businesses to maintain payroll for key management or staff, but not for everyone. Thus the calculation for payroll reimbursement usually only contemplates critical staff. The rest are furloughed thus the expense does not perpetuate and is not in the calculation.

One of the most valuable services we provide clients is a Pre Loss Analysis whereby we do the business interruption calculation prior to a loss to test the coverage limits and triggers to ascertain how accurate it is if a sizable loss truly occurred. We have found that 98% of businesses are vastly underinsured for business interruption when we actually did the pre-loss calculations.

Why MetRisk

Industries that are susceptible to being underinsured for business interruption are Real Estate (Commercial & Residential), Manufacturing, Hospitality (Restaurants, Hotels), Retail & Wholesale Operations, and Healthcare.

We suggest you contact a Risk Advisor to do a Business Interruption Pre Loss Calculation, or simply order our free worksheet to do the calculation yourself. We believe it’s an enormously important exercise to do preemptively before a loss occurs. The survival of your business may depend on simple math.

 

Commercial Auto, Commercial Property, Construction Practice Group Content, Directors & Officers, Food & Beverage Practice Group Content, General Liability Insurance, Human Services Practice Group Content, Line of Insurance, Transportation Practice Group Content, Vlogs, Workers Compensation Insurance, Workers Compensation Premium Audits

Commercial Insurance 101: An Introduction to Insurance

Commercial Insurance is one of those things that every company has but not every company understands. In some cases, a person is chosen to be put in charge of the insurance buying process and this person is usually an HR person who has a very little understanding of what goes into the insurance buying process.

 

To recap the video, commercial insurance is essentially when a person, business, or group of people transfer a risk that could cost money in damages to an insurance carrier. To transfer the risk, the business will pay a flat fee – a premium – that changes in cost every year based on the previous year’s claims. There are also difference types of insurance as well, including workers compensation for worker injuries on the job. There is also auto liability, general liability, property damages, and others.

 

The one part of insurance many do not understand is: Why do carriers agree to this? The damages may be 10x the insurance premium. It turns out that out of the hundreds of millions of premium policies carriers write every year, they will lose money on only a very small fraction of them. When insureds (those buying insurance) pool their risk into a small group of carriers, many of them pay for a premium. However, much of the time it turns out that their were no damages or claims to need compensation. That does not mean they should not pay for insurance the next year. Insurance is for the protection against the unpredictable. A driver with a perfectly clean record can skid on ice one day. Those damages can cost tens of thousands of dollars.

Learn about the different types of commercial insurance and the role it plays inside of your business. This is just a starting point to learn some of the basics of commercial insurance.

 

Still have questions? Call one of our risk advisors today at 914-357-8444. Or, visit our website here.

 

Commercial Property, Construction Practice Group Content

Builders Risk Policies Do Not End at the Expiration Date

Very few purchasers of Builder’s Risk insurance are aware that coverage ceases in two ways and not just at policy expiration.   At expiration as everyone is aware , coverage  also ceases  when a project, recently completed is awarded it’s Certificate of
Occupancy by the municipality it is located in. Rather than write the article again here, I just thought I would provide the link.

 

Do You Know When Your Builders Risk Policy Expires??

 

Hopefully you are reading this prior to your loss!