What you talkin bout Willis?

gary-coleman-as-arnold-diffrent-strokes-18022862-640-480Back in the depths of the 2010 recession, I received a call from a recruiter who was looking for a well-connected Commercial Real Estate professional to head up business development for one of the world’s leading insurers – Willis.  I had never heard of Willis but I was looking for a new challenge so I said yes.

The proposition was this:  I introduce Willis to all the commercial property owners in South Florida and they would bring in the experts to evaluate their insurance programs and provide better solutions.

I started making calls to my clients and heard a recurring theme:

  • The Insurance Business is not competitive
  • I don’t really know what my policy covers
  • I have the same broker for over 10 years

I found this curious as the first statements seemed to contradict the last.  If you have had the same broker for 10 years and you don’t think that the market is competitive and aren’t sure what your policy covers then something is wrong.

So let me give you my perspective of the Commercial Property Insurance Market from the real estate perspective and respond to some of the questions above.

First, let me make a bold statement.  Most Insurance brokers you meet in South Florida do not know anything about Real Estate.  Why is this important?  Well, if you don’t know what you are trying to insure or the language of that industry then you cannot possibly provide the best coverage or premiums to your clients.  Here is an example, the insurance industry quotes premiums as a function of value and not square foot so when a broker quotes a 39 cent rate it leads to some confusion.  Then you have the issue of completing the submissions to the insurance carriers.  However, many brokers don’t know a twin-T roof from a Metal Truss Roof or ESFR sprinklers from Control ones.  These “secondary Characteristics”  are critical in the Insurance Carriers Probable Maximum Loss (PML) model and can significantly reduce premiums if done right.  On the flip side, I saw many policies stating incorrect information which are grounds for the carrier to cancel the policy mid-term or even worse; deny claims.

Now let’s deal with competitive markets.  How does a property owner know that he is getting the best price year after year?  Some rely on their trusted broker to market their insurance to each carrier every year.  I am sure that very few do.  Other owners use the strategy of allowing another broker to bid against the incumbent broker to see if they can get a better deal.  Here’s where it gets tricky.  The incumbent broker can “Block” the markets thereby ensuring that no other quotes can be received.  Even if the second broker gets a letter of representation from the owner to release the market, the underwriter for the insurance carrier is now on alert that there is something amiss.  Here’s what most owners don’t understand:  An underwriter can spend up to a day running models and determining rates and if they don’t feel as if they have a fair shot then they will either decline or just send back an inflated premium.  An insurance carrier makes a profit from keeping the same insured on the books for multiple years so if the owner has a history of switching carriers each year then that will also increase his overall premiums.  So to the owner who continually shops his premiums it looks like they are getting a good deal when in fact, this may be working against them.

The next big issue is what the policy covers.  I never forget sitting across from an owner of over 5 million square feet of Industrial and Office who spends in excess of $2 Million a year in premiums confiding that he really doesn’t know what’s in his policies and that he trusts his broker.  The irony is that a few months later I met with that owners’ broker to talk about joining his firm and he confided that he didn’t know exactly what was in the policies either.  “After all, that’s what lawyers are for”, he joked.  It is mind-boggling that owners will enter into contracts with Insurance carriers without reading them when they won’t enter into a lease for 2,000 SF with a tenant without having the attorney review it.  After reviewing over 100 insurance programs, I found that 90% of them have glaring holes in them that in many cases could be fixed at no additional cost.  In one instant, we found a policy where the owner was paying almost half a million in premium where it stated that he would get full replacement cost for any loss less deductibles but there was an endorsement that changed that to Actual Cash Value (ACV).  Now since ACV is the value less depreciation and the property was over 20 years old the insurance carrier would have been obligated to pay a fraction of the property value.  In short, you better know what is in your policies!

Now back to the Willis story.  After meeting with many clients I came to the realization that Willis had no magic sauce.  The company was only interested in owners who had values over $50 Million and was non-responsive to most of my clients who need insurance for a single property or for an impending closing.  I decided that to best support my client’s needs and in reality, 95% of the South Florida Real Estate community, I needed to partner with a large regional firm with a strong back office support team.  After interviewing almost 20 firms, I decided to make NSI Insurance my home.

Our first few accounts together have been promising, we have saved a downtown owner almost 25% off off his premiums and made sure his coverage were accurate.  We worked with a condo association to help them reduce their premiums by utilizing wind mitigation credits and we have performed a PML study to help an owner negotiate with their lender for reduced wind limits thereby reducing premium.

I will be reaching out to you over the next few weeks to see how we can help.  If you have a renewal that is fast approaching, you can call me at 786.877.0544 or paul@corepropertyadvisors.net

Insurance

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