Real estate lenders are not keeping pace with the changing property insurance market, hampering efforts by some commercial property owners to restructure their insurance programs and to get some premium relief, brokers say.
They were speaking during an Arthur J. Gallagher & Co. real estate and hospitality webinar Thursday.
Lenders are not evolving with the market and clients need more flexibility to make their insurance programs viable, said Justin Dove, San Francisco-based area vice president at Gallagher.
Insurance requirements in loan documents are often outdated in terms of the limits and deductibles that are required, Mr. Dove said.
A physical damage deductible historically may have been $25,000 or $100,000, he said. “Clients in today’s market need flexibility. They need $250,000, they may need a plus aggregate structure, they may need a million-dollar deductible,” he said.
The same is true for catastrophe deductibles for wind, hail and named storms and earthquakes, he said.
Lenders and insurers historically were hyper-focused on the traditional model perils of earthquake and hurricane, but that has changed, said Martha Bane, Glendale, California-based senior managing director of the North America property practice at Gallagher.
“When you see the global catastrophe losses last year, 70% of that $123 billion came from what are considered as either lightly modeled or nonmodeled perils,” Ms. Bane said.
Events like severe convective storms, winter weather, flooding in areas that never flooded before, wildfire and droughts are now driving insurer results, she said.
“The lending community has not caught up with how the rest of the market is looking at these emerging perils,” Ms. Bane said.
It’s important that clients get out in front of renewals and “talk with whomever they can find to socialize the whole idea of alternatives,” said Alex Glickman, Los Angeles-based senior managing director, global practice leader, real estate and hospitality at Gallagher.
“That’s also inclusive of using captives which are really becoming much more prevalent for real estate operating companies,” Ms. Glickman said.
