Insurance premiums are rising—here’s how operators can protect their bottom line

Insurance has become a costly challenge for the multifamily sector. Premiums have risen to the point where they are driving down property values and even stopping deals going through. Since the fourth quarter of 2019, insurance costs caused a decrease in property values of 3.6% nationwide.

Value suppression is particularly acute in certain areas of the country. The South Central and Florida regions recorded value drops of 7.8% and 6.8%, respectively, a cost that is causing significant challenges for multifamily operators, said Jennifer Nau, TheGuarantors Senior Director of Sales for the Southeast region.

To mitigate the impact of this value destruction, multifamily owners need to look at solutions available to reduce costs.

The increase in insurance premiums can be attributed to several factors, including the rise in natural catastrophes and the high cost of repairing the damages caused by accidents and tenants. The cost of construction across the U.S. has increased by 25% to 40% since 2020, escalating the impact of damage from wildfires or hurricane floods, for example.

The challenge of higher insurance premiums is compounded by the fact that operators may not want to file a claim, as this drives costs up even further, Nau said.

“There may be a high deductible, which makes it less appealing to make a claim rather than pay to resolve the problem directly,” she said. “If a fire causes $120K of damage, you have to decide whether it’s better to make a claim or just pay for the repair, and the inevitable even higher premium. So the insurance coverage many operators have isn’t enough, but it’s costing them more.”

An increased likelihood of claims due to renter fraud further adds to the challenge of high insurance premiums, Nau said. In 2023, 93.3% of members of the National Multifamily Housing Council experienced renter fraud, which is putting apartments at risk of damage.

“If fraudsters slip through the cracks by forging paychecks or letters of employment, our data shows that these renters can cause losses that are 3.5 times higher than those without that risk,” Nau said. “Operators ultimately end up having to spend more money rectifying problems than any deposit they might have received.”

This is becoming an acute challenge in areas where renter fraud is at its highest. While the growing population in areas such as Florida, where Nau is based, is good for rental values, renter fraud is driving up the costs of running multifamily properties.

One way for multifamily operators to mitigate high insurance premiums and their impact on the bottom line is to consider solutions such as those from TheGuarantors. Rent and Deposit Coverage, combined with Zero-Gap Renters Insurance, provide an additional layer of protection against renter fraud and mitigate losses from default, damages, vacancies, holdovers, skips and more.

Rent and Deposit Coverage allow operators to approve and requalify more renters while minimizing bad debt and increasing net operating income, all at zero extra cost, Nau said. Zero-Gap Renters Insurance, a more recent innovation from TheGuarantors, balances the need for resident-friendly solutions with the peace of mind that a master tenant liability policy affords. It provides a protective layer against liability before tapping into a property’s broader property and casualty policy.

By transferring risk to the renters insurance provider first, operators can contain losses that would otherwise elevate their exposure and spark premium increases.

“With automated compliance and up to $500K-per-unit liability coverage, Zero-Gap directly tackles the unique challenges multifamily operators face today,” Nau said. “We're a one-stop shop to minimize multifamily bad debt. Other companies aren’t able to offer this level of coverage.”

With a Zero-Gap policy, operators can ensure every unit has the appropriate liability coverage in place. Operators have been able to show this policy to an insurance company and negotiate a better premium, which extends the benefit even further, Nau said.

“With our suite of risk mitigation products, we can help an operator decrease bad debt by up to 70%,” she said. “In contrast, a debt agency can generally only recoup about 13% of unpaid rent. Our coverage goes a long way to easing the burden for multifamily operators.”