Should disaster strike, the major form
of insurance on most real estate managers’ minds is property insurance.
Standard property insurance protects against risks to a property,
such as fires, some weather damage and theft. Coverage for floods,
earthquakes and windstorms is often
available via an endorsement to a
property policy or as an entirely separate policy.
Property insurance can come in
the form of an all-risk policy, also
called an open peril policy, whereby
all the causes of loss are covered
unless they are specifically excluded;
or a named peril policy, which covers
only specifically listed risks.
All-risk policies are the most
broad and comprehensive, said
David Mistick, CPM, president of
Circumspex LLC, a company that provides a web-based disaster planning
and recovery application for property
managers. He said the only reason
companies would select a named peril
policy is if a risk is expressly excluded
in their all-risk policy.
“If the all-risk policy excluded
flood or earthquake, the property
owner would want to buy a named
peril policy to cover these if he was
exposed to those risks and the likeli-
hood of occurrence was significant,
Named perils like flood or earth-
quake are limited in sales and coverage.
For example, flood is all underwritten
by FEMA but distributed by private
insurance companies. Earthquake is
often underwritten by risk pools of
companies to spread the exposure.
As far as limits go, wind, earthquake and flood limits are based on
models that analyze a location’s sus-
ask is, ‘How
—MIKE HALVEY, REAL
ESTATE PRACTICE LEADER
FOR ZURICH NORTH
ceptibility to particular disasters and estimate a probable
timeframe for the next occurrence. Clients usually buy to
the 250-year event level for earthquake and wind, based on
the probability, according to Al Tobin, managing director
and national property practice leader for Aon Risk Services
in New York.
He shared that fire limits are set against values in the
simplest way: For example, if your largest building has
replacement cost and rents of $100 million, $100 million
may be your limit. Lenders might also require a certain
limit based on any building debt.
“A property manager, with a broker’s assistance, should
be able to acquire the right combination of coverage,”
Mistick said. “The key will be getting them at a price that
fits the budget.”
Deductibles are of course a big part in deciding what
fits the budget. Different deductibles apply to different
disaster perils, said Ann Butterworth, director of property underwriting in Weston, Mass., for Liberty Mutual
Property. Some are percentage based, where one pays a
percent of the loss, and others are a flat amount that must
be paid upon a loss.
Regardless, Butterworth said owners and managers
need to take into account the deductible when budgeting and determine if they could afford to be financially
responsible at that level if a loss was to occur.
Acquiring adequate property insurance at the right
price hinges on a thorough assessment of portfolios, the
appropriate valuation of properties, and owners’ and
managers’ appetite for risk.
“There is no right or wrong,” Nimkoff said. “It’s a prop-
erty by property and owner by owner strategy.”
Owners and managers should assess a multitude of vari-
ables when determining risks to a property, such as the
proximity of a building to a chemical plant that could have
a spill, the possibility of a property being targeted by ter-
rorism, the use of their buildings and the associated risks
with those uses, and the geography of their properties and
whether they are in areas prone to natural disasters.
“The insured should know where their exposures are
and what perils they are subject to,” Butterworth said.
Aside from an owner’s or manager’s analysis of a property and its risk, insurance companies have modeling
tools that will help determine a property’s risk profile.