2015 Innovation Awards: Marsh L.L.C.Reprints
Unique risks and demographics associated with multifamily real estate were the impetus behind a specialized insurance program to address the sector's needs, said Jeffrey S. Alpaugh, Boston-based global real estate practice leader at brokerage Marsh L.L.C.
Apartments are a profitable business and considered “one of the darlings of the real estate investment industry,” Mr. Alpaugh said.
But multifamily dwellings represent “a real challenge for insurance companies” because of the 24-hour exposures they create, unlike commercial properties in which tenants arrive in the morning and leave by early evening, he said.
Furthermore, with many apartments built on coastal properties, there are catastrophic windstorm exposures “up and down the Eastern seaboard,” as well as earthquake, hail and tornado exposures, said Mr. Alpaugh.
“There were many clients that had good loss experience that were facing a tough market,” with some underwriters walking away from them, he said.
“There were a couple of patchwork-type solutions out there,” but “there was a real need for a true insurance program that actually met the needs of this segment within the industry that was finding it very difficult to get insurance and challenged with increasingly high rates as well as high deductibles,” Mr. Alpaugh said.
“We sought to take the analytics we had with the data on the losses to see if we could create a product to fill the void in the marketplace,” he said.
Marsh was “pleasantly surprised” when its analysis found the business could be written profitably, leading to the establishment of Marsh's Prime Habitational Property Insurance Facility, a winner of the 2015 Business Insurance Innovation Awards.
Working with specialist broker Bowring Marsh, Faraday syndicate 435 at Lloyd's of London, which is owned by General Re Corp. and ultimately Berkshire Hathaway Inc., agreed to provide $25 million in primary coverage. With additional excess coverage from other insurers, Marsh's program has offered up to $350 million in capacity.
Mr. Alpaugh said that while he had met with many insurers, Faraday “quickly grasped what we were trying to put forward on a primary property program.”
There is a $50,000 deductible, although a separate mechanism can reduce that to as little as $10,000, Mr. Alpaugh said.
Since its January 2014 launch, Marsh has completed about 20 programs covering more than 175,000 units for multifamily clients, whose premiums declined an average of 20%, he said.
A more recent variation, which also has a $50,000 deductible with options to go down to $10,000, expands the program to student housing, assisted living facilities, single-family homes and low-income housing.