Reducing Insurance Premiums – A Key to Improving Property Cash Flow

Nationally, insurance premiums for multifamily housing make up about 4% of the total operating expenses owners face in the operation of these properties, well behind the big-ticket items like taxes (32%) and salaries/personnel (25%). Despite being a low percentage of overall operating expenses, insurance premiums are one of the costs most susceptible to owner decisions. While initial property design can play a key role in controlling the rising cost of insurance, there are affirmative steps that owners of existing properties can take to lower current premiums.

In terms of frequency, the leading risk exposure that owners of affordable rental housing face is from slips, trips, and falls. In cold climates, radiant heating options for exterior walking surfaces are an excellent way to limit ice formation on stairways and walking areas. Radiant heating can be used virtually anywhere – concrete, patio stones, pavers, dirt, and grass.

Restaurants with open-air dining were among the first to install radiant heating systems in outdoor areas. The heating system melts snow as it lands and keeps ice from forming. This technology can be used to keep walkways, steps, and even driveways snow and ice-free all winter long. It is clearly preferable to install such systems when a property is being built, but in cold climates, where concrete and other surfaces are repaired or replaced often, scheduling installation during capital improvements is feasible and can reduce the frequency of future repair needs.

Also, in cold areas of the country, infrared cameras are great tools for identifying freeze-prone areas and water infiltration.

Window control opening devices are being built into newer windows and can prevent falls from windows by children. HUD has indicated that REAC inspectors will not take a hard position relating to ease of egress when these devices are in place to protect children. These devices limit the window opening to 4 inches or less when the sash is opened, but may be disengaged, allowing the window to open fully for egress or cleaning.

Uses of Infrared Technology

Regular inspections of walls and ceilings with infrared cameras can detect moisture and deal with any leaks before they cause major damage. In cold weather, these cameras can locate drafty areas of buildings or potential locations of missing insulation which could lead to frozen pipes.

Site security can be enhanced with access control, lighting, CCTV cameras, and burglar alarms. Insurance professionals also say that suspicious activity hotlines and mass notification systems can also reduce premiums.

Waterflow monitoring and shutoff devices provide alerts to toilet and bathtub overflows, as will leak detection devices.

While slips and falls are the biggest risks by frequency, the heaviest liability burden comes from fires. Cooking, electrical, and smoking are the primary causes of fires in apartments, with cooking fires presenting the most problems. Smart burners that are used as replacements for regular heating elements on electric stovetops can limit the temperature of the heating element, so cooking oil will not heat enough to cause flames. Knob controls can also limit temperatures and prevent child activation. Automatic shutoff devices can regulate time and temperature and even have motion-sensing capabilities.

Auto-out fire stop cans are an excellent tool that can be easily installed above cooking surfaces. They are activated when a fire ignites a wick on the cans.

With regard to electrical fires, the biggest red flags are Federal Pacific Electric (FPE) breakers and aluminum wiring. Some insurance companies will not ensure apartment communities built before the mid-1970s unless they prove that they do not have aluminum wiring.

As for smoking, the easiest (and best) policy is just to ban smoking at the property. Residue testing kits are available and will dissuade tenants from smoking.

Fire Stops – Excellent Tool But Easy to Steal

Fire stops above stoves are an excellent fire extinguishing device but they are easy to remove and have expiration dates. Management companies that conduct regular inspections of units (quarterly is recommended) can check the expiration dates and replace the devices as needed. Since the expiration dates are known, this type of equipment is easy to budget for.

Property Security

There are a number of ways to impact insurance premiums by improving property security, but care should be taken because advertising the presence of security can have a negative impact on marketing and occupancy.

Two common security measures are electronic surveillance and security guards. 24/7 electronic surveillance can be a good deterrent to crime and is preferable to security guards, which are a visible reminder that the property may be dangerous.

The best onsite security measure is lighting, and insurance underwriters may well inspect a property’s lighting plan when assessing risk.

Ultimately, risk mitigation and the resulting reduction in insurance premiums is an ongoing process. A comprehensive incident reporting system with a root cause analysis is a must. Every casualty event, no matter how minor, must be reported and followed up on. Part of that follow-up should be the implementation of a plan that will prevent the recurrence of the event in the future. When combined with an ongoing inspection program to catch problems before they occur, this process will reduce casualty events to the lowest possible level and provide the greatest opportunity for reducing the cost of insurance premiums.