Commercial lenders are closely scrutinizing insurance covenants included in their loan agreements with real estate firms, demanding more favorable coverage terms and conditions, and requiring greater access to policy documentation and risk modeling data, experts say.

While individual requirements may differ by lender, experts say risk managers in the real estate industry should expect most financiers' insurance requirements to include:

• Documentation of primary and excess property coverage for all insured assets, even those that are not part of the financing agreement, with a particular focus on the availability and distribution of limits, deductibles, indemnity clauses and other terms. This may include a schedule of valuation for the entire asset portfolio, regardless of relevancy to the loan itself.

• Probable maximum loss studies and other catastrophe risk modeling data for the entire insured asset portfolio. Lenders also may ask to see documented disaster recovery and repair plans.

• Minimum ratings for all underwriters on the master property program, including the reinsurers providing limits above the valuation of the insured assets.

• Recent changes to zoning laws, building codes and other regulations that might substantially affect the size, construction or use of an insured asset after a loss.

Additionally, experts say, lenders in recent years have tended to insist on specific terms and conditions, often without regard for their market availability or the additional risks and cost inflicted on borrowers. Common requests include:

• Additional primary or excess property coverage limits, particularly for catastrophe-exposed properties.

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• Deductibles at far lower levels than are customary in the property insurance market, as low as $10,000 or $20,000 for large property owners. In order to protect the health of the loan, lenders insist on low deductibles to keep owners from using revenue that ordinarily would be committed to mortgage payments for repairs in an effort to keep premium costs low.

• Extending the post-repair period of indemnity, which also is known as the “lease-up period.” The indemnity provides property owners with financial support for the time it takes to refill a property with tenants once it has been repaired. Insurers generally limit the coverage window to 12 to 18 months, but many lenders have asked for periods as long as 36 months.