K2 Private Property – Property Holder Risk Management and Transfer Considerations

For many of the Keystone Private and K2 Private Property clients, the wealth management journey will undoubtedly involve ongoing consideration of property investments and direct or indirect ownership.

Whether the investments are taken on as ‘passive’ or ‘active’ by ultimate asset owners, the effective management of the assets should be anything but passive… and this is true of the ongoing risk management, and insurance considerations, both of which have been the subject of increased focus, being driven by ongoing market conditions that continue to see:

  • Increased focus on the component of risk, and information, by underwriters
  • Increased costs of covers
  • Changes in market appetite and, in some cases a withdrawal from market segments by underwriters who have been in the sectors for a sustained period.
  • Additional deductibles being imposed
  • Capacity being reduced

The Current Market

Commercial pricing in the Australia-dominated Pacific region surged 35% in the fourth quarter as an upward trend accelerated, the latest Marsh Global Insurance Market Index shows.

The increase compares with 33% in the September quarter and 31% in the second quarter of last year.

Property pricing rose 31% in the final three months of the year, similar to the prior quarter, as the Australian market suffered heavy catastrophe losses in 2020.

There continued to be a focus on coverage restrictions and wording to mitigate increases while clients reduced limits on large programs to minimise impacts.

Pacific casualty pricing rose 15%, the largest year-over-year gain since 2012, 

(InsuranceNews.com.au 4th February 2021)

The impact of Covid -19 added 3% to 5% on pricing
(Marsh and McLennan Companies:  Marsh Insights November 2020)

So, having had the reality  ‘sniffing salts’ .. how do we best press on in the fight?

What is required is a well-planned/ prepared and pro-active approach to risk profiling and market engagement.

Proper Preparation includes (but is not limited to).

  1. Pre-engagement with the potential markets
  2. Discussion on market issues, with a view to then addressing these in a risk profiling submission … flattening their hot buttons … given them every opportunity to ‘write’ and reduce the opportunity for ‘flight’.
  3. Obtaining details on/generating a profiling report addressing.
    1. The assets themselves (construction, age, location, protection)
    2. The Tenancy operations (these have a significant impact on the ability of landlords to obtain cover/ terms of that cover … and should be given careful consideration at the time or sourcing/ replacing or varying tenancy mixes/ allowing their use of the premises to change)
    3. Neighbouring risks. These are a key underwriter consideration and cannot be ignored. Whilst the risk may be largely out of your control neighbouring risks are not out of the underwriter’s minds
    4. Maintenance (Capex and Opex) at the operations.
    5. A history/ commitment to risk management – often starting with the basics of housekeeping (from both the Landlord and tenancy sides)
    6. Prior claims (or near misses), and the changes in the risk that resulted (to the extent that they did).

Marketing

Having prepared comprehensively, and in good time, there is the opportunity to work on some STRATEGIC marketing. Wholesale shopping of markets (particularly in sustained hardening conditions) on an annual basis is generally counterproductive and proves to be short-sighted. It may appear to be in the best interests of the owners at the time, but a deeper strategic plan is generally the route that leads to improved cover and price conditions in the period following the ‘immediate’ marketing.

Position the broker to be able to engage early, in-person (wherever possible), and often in the process

Results

With tight markets, the results are still likely to be ‘smarting’ in many cases, but with

  • The correct attitude to ongoing risk management
  • Planning
  • Profiling and
  • Strategic marketing

there can be knowledge generated that the best opportunity to minimise cost, maximise cover and take greater control of the current market has been delivered.

By Jeremy Murfin 

Corporate and Commercial Insurance Brokers