Navigating the storm of rising insurance costs: Protecting your rent roll, profits, and property value

For multifamily owners, the fallout from weather events like Hurricanes Helene and Milton doesn’t end when the debris is cleared.

The increasing pace and unpredictability of natural disasters, in addition to renter fraud and increases in repair costs, are driving up insurance premiums across the industry, with some owner operators seeing increases of 35% in just the last year. We sat down with TheGuarantors’ Mitch Towbin to learn how these premium hikes are affecting the industry as a whole and what owners/operators can do to secure their rent rolls, increase profitability, and preserve property values in spite of them.

Why premiums continue to climb

According to Bloomberg, nationwide multifamily insurance rates climbed an average of 12.5% annually between 2020 and 2023, with more vulnerable regions being hit by even greater increases. In some markets, like hurricane-prone Florida, some insurers have pulled out altogether. The effects ripple across the entire real estate industry, and owners/operators aren’t the only ones with skin in the game.

“It’s a topic that is definitely buzzing,” says Towbin, Vice President of Strategic Partnerships at TheGuarantors. “It's not only something that affects our owner operator partners’ bottom lines, but it also impacts the overall health of the industry, and can trickle down to renters as well.”

Towbin laid out the many factors contributing to the premium increases. While climate uncertainty is certainly a major factor, insurers are still paying the higher replacement costs that became the industry standard during COVID.

“This pricing has persisted longer than anticipated,” he explains. “It’s a bit of a perfect storm.”

When insurance companies raise premiums to protect themselves against rising replacement costs and more frequent natural disasters, owners/operators are forced to get creative in order to make ends meet. Whether that means absorbing the rising cost or passing those costs onto renters in the form of rent increases, “it’s something that is naturally going to affect occupancy rates,” says Towbin, “and could potentially negatively impact tenant satisfaction.”

Rising premiums also affect overall property value, which represents a larger-scale threat to owners. There’s a direct correlation between rising premiums and falling property value, making properties less attractive to investors. 

“Investors heavily consider insurance costs when assessing property values,” says Towbin. “As those premiums rise, the property valuations will be negatively impacted.”

Protecting your property from premium increases

If increasing premiums are out of the owners/operators’ control, the question becomes, what can they do to protect their properties and bolster valuations? Towbin outlined a few strategies aimed at mitigating the risks that rising premiums pose to both rent rolls and property values.

To best protect their assets, owners should focus on fortifying their buildings and encouraging insurers to offer the most competitive premiums available.

TheGuarantors offers a variety of services aimed at helping owner operators protect their properties’ financial health, insulating them from risks such as the pain caused by insurance premium increases. The company’s Rent Coverage, which is “effectively a lease guarantee,” provides owners/operators with financial assurance in the face of missed rent or vacancy loss, strengthening their bottom line, and making their properties more attractive to potential investors — all at no extra cost to owner/operators.

“In cases where multiple tenants miss their rent, having our Rent Coverage in place ensures that owners will be compensated and made whole, which is vital in the face of escalating insurance premiums,” Towbin explains. “This is a critical defensive strategy for those facing bad debt. And for asset managers preparing to sell, imagine the advantage of having 25%-50% of your rent roll secured when establishing property value.”

Another innovative service designed to give owners/operators peace of mind when it comes to their properties is TheGuarantors’ Zero-Gap Renters Insurance. This industry-first program offers always-on compliance monitoring of each resident’s renters insurance policy and alerts the owner should their coverage fall out of compliance.

“Zero-Gap acts as a tenant liability master policy,” Towbin describes. “It’s designed to ensure comprehensive liability coverage before owners have to think about tapping into their traditional P&C or general liability policy. So it helps a property achieve 100% liability coverage in case renters do not have an active renters insurance policy due to lapses, cancellations, or expirations.”

If a policy lapses or a tenant’s renters insurance coverage falls below the minimum requirement for the property, Zero-Gap automatically places that renter onto the master tenant liability policy which can help lower other traditional liability premiums. Zero-Gap is just the latest addition to TheGuarantors’ holistic package of services aimed at giving both renters and owners/operators access to worry-free renting and leasing. It’s a high-tech solution to the challenges facing a growing, ever-changing industry.

“Our platform has taken into account not only all of our professional experience, but also proprietary datasets that we’ve established throughout the years, a lot of machine learning that drives efficiencies for our underwriting, as well as our ability to weed out fraud, which does help to keep pricing and premiums lower,” says Towbin. “We’ve really taken a holistic approach to risk mitigation, and it serves our partners incredibly well by safeguarding their most valuable assets.”