“Why are property insurance rates so high?”
A little insight into general industry factors will help answer that question. One very impactful reality is that companies offering Property coverage to Assisted Living Facilities are limited. Those offering coverage tend to have higher rates; the lack of competition allows them to keep those rates - at least for now.
Driving Factors
On a high level, overall reinsurance rates lead to premium trends in the market. Reinsurers can be thought of as insurance company insurers. Insurance carriers and their reinsurers negotiate contracts annually; the rates you pay are directly affected by the reinsurance rates your company is paying. These treaties are sometimes part of what sets a company’s underwriting guidelines - if a risk is prohibited by their reinsurer a company must prohibit it as well, which ties back to market availability – or lack thereof.
Insurance - like most businesses - has various cycles, swinging between “hard” and “soft”. The current hard (higher pricing, stricter underwriting) cycle has lasted longer than typical. Indicators suggest Reinsurance rates are stabilizing, which should stabilize the industry in general. This could help expand underwriting appetites, perhaps bringing more carriers into this space, creating badly needed competition.
There are geographic considerations - Texas in general has higher property rates than most. Intuition tells us Coastal areas have higher rates however hail-prone areas such as North Texas/DFW have experienced considerable rate increases due to extensive claim payouts. Wildfire scores also affect rates or eligibility even in the presence of specific protective measures.
Risk Breakdown
A quick review of a basic property underwriting tool “C-O-P-E” provides insight into factors a bit more risk-specific that go into developing rates.
Construction: Along with general types of construction impacting rates, many markets will not offer coverage to residential conversions, only those built commercially as ALF. The year of original construction is a significant factor as well, even with DTS renovations.
Occupancy: Aside from the general eligibility of the occupancy, some of our most competitive markets will not offer coverage to tenant-occupied Assisted Livings, only owner-occupied facilities.
Protection: Proximity to full-time fire departments and fire hydrants or creditable water sources are important components of “Protection Class” determination, which tie into rates and eligibility. Some carriers offer credits for Protective Safeguards (sprinklers, etc.) but others require these measures for eligibility, with no discounts available.
Exposure: Location considerations such as natural factors (coastal, hail-prone areas, etc.) as well as man-made factors (i.e. local infrastructure; high-crime areas) have an impact as well.
The Bottom Line
It is essential to bear in mind a main function of insurance is “spread of risk” so no single party must absorb a loss. Catastrophic losses will impact rates in general, as carriers must collect adequate premiums to maintain proper reserves to pay claims. Remember too - although your facility may look like a residence, it is a commercial exposure. Homeowner’s insurance is not appropriate coverage and should not be used as a comparison.