How to Succeed in Today’s Tough Market – Real Estate Strategy

How to Come Out on Top in Today's Competitive Market

The real estate insurance industry is undergoing change. The real estate property market has been negatively impacted by the increased frequency and severity of natural catastrophe losses. According to Ryan Flanagan, senior vice president at Heffernan Insurance Brokers, based in Los Angeles, the market expects even harder conditions in the future when you include in losses resulting from civil upheaval experienced in 2020 and add inflation and other economic difficulties on top of that.

According to him, carriers in this market are currently making sizable claim payments, which is causing a decline in carriers and a reduction in market capacity.

A few of the more recent markets that entered the real estate industry just two or three years ago are now leaving, and the markets that are still active are now being even pickier.

He claimed that “they only want class A assets in class A locations.” He added that they wanted to only include brand-new residential complexes in Beverly Hills or Santa Monica, California, and not that 1970s structure in Miami without sprinklers.

Flanagan has experience advising the real estate sector on how to navigate challenging market situations. He worked as a Southern California real estate developer and then as a real estate lawyer for a major grocery chain before entering the insurance business. Throughout his career, he has frequently used strategy to address issues involving real estate deals, he added. But after working as an insurance broker for over seven years, Flanagan claims that real estate clients are now very concerned about the situation of the insurance market.

In this market, when insurance rates have surged in the previous 30 to 60 days, he added, “they have to put their deals together, they want their homes to cash flow, but insurance might be a barrier to that.” While catastrophe-related losses have forced insurers to reduce capacity or abandon the real estate sector altogether, other non-weather-related problems like inflation and rising material costs are hurting his clients’ bottom lines.

Everything is increasing, including lumber prices and inflation. Consequently, when clients’ contracts are up for renewal, their lenders poke their heads in and say, “Hey, your building might have been $20 million last year, but we know it’s definitely going to cost $25 or $30 million today.” In any case, the rate on a $30 million building will inevitably raise the premium.

In today’s market, according to Flanagan, it’s critical to think ahead and come up with inventive solutions to lessen the impact on real estate clients.

“No insurance broker is going to have a hidden weapon where they are reducing expenses,” he said. “However, a smart insurance broker can not only educate his client for what is going to happen, but can also put together unique programs to mitigate some of the burden.”

He suggests gathering as much information as you can. The best thing an insurance broker can do for a customer whose assets aren’t class A or aren’t situated in prime locations, according to him, is to gather as much underwriting data as possible. Additionally, he advised asking for loss runs of seven or even ten years rather than three to five years. It’s good if those seven or ten years give the underwriter a clearer picture, he continued.

Brokers must serve as clients’ advisors regarding risk management initiatives that underwriters feel necessary in areas that have been severely affected by natural disasters.

“You can advise clients to weatherproof houses as much as possible,” he stated in reference to clients who have properties in weather-prone places like Texas, Florida, and even California.

In the viewpoint of an underwriter, using fire retardant, clearing undergrowth, isolating plumbing, and even upgrading for earthquakes can assist. Then, I can say, “Hey, my customer is very meticulous, they’re very hands on, and they’re weatherproofing their properties,” as an insurance broker.

It’s always real estate. You must be strategic about where you buy, he advised. However, real estate remains a desirable investment option even in challenging markets.

He claimed that the market for real estate insurance is somewhat similar. In the current market, he said, “you have to be strategic with how you advise your consumers on insurance.” “You can’t simply keep renewing the same insurance coverage every year. Knowing that the market is probably not going to improve in those 12 to 18 months, you must sit down with your insured face-to-face and put together a game plan.

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