Insurance For Apartment Building Owners: 4 Key Things To Know in 2024

Apartment building insurance companies are dealing with a lot of uncertainty in the market, which is affecting the policies of many commercial property owners. The real estate insurance sector has faced challenges due to frequent claims and high payouts, especially in multi-family housing. This has led insurers to tighten their underwriting criteria, and some apartment owners this year are struggling to find coverage at all. When they do, they’re seeing double-digit rate increases, higher sublimits, and a host of exclusions.

If this sounds like you, don’t give up. Part of finding the right coverage is having knowledge about how to navigate the current insurance market. Here are four important things to keep in mind as you shop for insurance for apartment building owners to ensure you’re prepared:

1. Your replacement cost may be higher than you thought

Replacement cost is one of the most important coverages for commercial property owners. But you should know that the replacement cost valuation for apartment buildings will be higher than for other types of buildings. Apartment buildings often have unique features like elevators, swimming pools, or specialized HVAC systems that can increase the replacement cost significantly above a standard commercial building. Apartments also generally have restrooms and kitchens for each unit, increasing the replacement cost, where office buildings only have one restroom or kitchen per floor.

Be sure your apartment building insurance policy reflects the true replacement cost by obtaining a professional appraisal and working with an insurer who has experience in the multi-family housing market. If your commercial property insurance doesn’t cover the full replacement value, you could be responsible for the remaining cost, known as a co-insurance penalty.

2. Your exclusions may increase

Insurance on apartment buildings is a tough class for insurers. Some are looking for new ways to stay profitable, including introducing exclusions to remain profitable. Stay vigilant by regularly reviewing your policy's exclusions and discussing changes in the market with your insurance broker. This proactive approach will help ensure that you maintain adequate coverage as the industry evolves. Here are two exclusions to ask about this year:

Assault and Battery Exclusions

If a tenant or guest is assaulted on your property, you could be sued for failing to provide a safe environment. Assault and battery coverage covers your legal liability, including defense costs and any settlements. But many apartment building insurance policies exclude coverage for claims arising from assault and battery incidents.

While this coverage is optional, it can be important if you’re in a high crime area. Discuss options with your insurance provider to see if a separate policy or rider can offer the protection you need. If you don’t have this coverage, mitigate your risk with security measures like improved lighting, security personnel, and surveillance systems.

Animal Exclusions

Tenants’ and guests’ pets can also cause liability issues. You may think you’re covered by animal bite insurance for apartment building owners in the event an aggressive dog injures someone on your premises, but many companies are adding this to their list of exclusions. Make sure to check for any animal exclusions, like certain breeds or sizes. Discuss them with your insurance company to see if you can get coverage, or create a pet policy that offsets your costs, like charging pet rent or requiring tenants to have their own insurance.

3. Your sublimits may go down

A sublimit on insurance for an apartment building is a limitation on how much a policy will pay out for a specific type of loss. For apartment buildings, many sublimits are related to weather events. Here are two of the most common:

Water Damage

Frozen pipes, water leaks, water left running and other situations mean water damage is a common issue in apartment buildings. It leads to costly property damage insurance claims, and many insurance companies are cracking down with sublimits that reduce the payout for water-related damages. For example, a building could be insured for $4.5 million, but have a $100,000 water damage sublimit. Or, it could have a $100,000 water damage deductible, despite the regular deductible being $5,000. Review these clauses carefully.

Weather Events

Insurance for apartment building owners is becoming especially hard to find in areas affected by extreme weather events. Numerous insurers have pulled out of the Florida and California markets altogether, and in other states, they may put sublimits on coverage for perils like earth movement, flood, tornadoes, and hurricanes. Even in an “all risk” policies, it’s becoming more common to see sublimits like these, so check your policy carefully.

4. You may need data breach liability insurance

One thing you may not think of when it comes to commercial apartment building insurance is your digital liability. But with the increasing reliance on digital platforms for property management tasks, such as collecting rent and processing applications, data breaches are becoming a significant concern. If sensitive tenant information like Social Security numbers or payment information is compromised, you could be held responsible. Cyber liability insurance can help cover the costs associated with a data breach, including legal fees, notification costs, and credit monitoring services.

How to Get an Apartment Building Insurance Quote

While 2024 could be a tough year, it’s not impossible to find good insurance for apartment building owners. Start by gathering detailed information about your property, including the location, age, construction materials, safety features, and any updates that have been made to the HVAC, plumbing, or electrical or other systems. Get an accurate appraisal of the current replacement cost, and get together your claims history. Then contact an experienced broker like LandesBlosch. Start your quote online today to find the apartment building insurance that’s right for you.