The Value of a Commercial Real Estate Insurance Strategy

 

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Across the country, insurance premiums are climbing. According to the Deloitte Center for Financial Services, the average insurance costs for commercial real estate properties have nearly doubled over the last 10 years—due to factors like inflation in construction costs, extreme weather and more conservative underwriting, which is limiting available coverage. While the property insurance market has been improving recently, the cost increases over the last 10 years are still impacting borrowers.

 

In certain areas, particularly those prone to hurricane, flood, wildfire or seismic risk, insuring a property at full value has become extremely costly or, in some cases, nearly impossible. These insurance costs can disrupt financial models and impact loan terms, making it harder for lenders and borrowers to meet investment targets.

 

With insurance becoming a significant challenge in closing deals, it is critical that businesses have the right strategies in place to secure favorable coverage at optimal rates and terms. Use this guide to learn more about the changing insurance landscape and how you can effectively navigate today’s insurance market. 

 

How Real Estate Insurance Has Evolved Over Time
Changes to the real estate insurance landscape have heavily impacted commercial real estate transactions. Rising costs, tightening underwriting standards and growing exposure to natural catastrophes are reshaping how deals are underwritten and closed. What used to be a back-office, simple “check the box” exercise is now a critical workstream that requires a strategic element. The outcome of a review can affect whether a deal moves forward, how quickly it closes and whether there is collateral protection for the life of a loan.

 

However, even as insurance becomes more important in commercial real estate, many borrowers and lenders make critical mistakes that can slow down deals, prevent deals from closing or leave collateral exposed. Examples and key considerations insureds must take into account include: 

 

No Insurance for Debt Service Cost: Factoring in “debt service costs” is often not required by many mainstream lenders. While it is “market,” this leaves the lender potentially exposed in the event of significant casualty loss and downtime.

Parametric vs. Catastrophic Loss Insurance: As the cost of insurance for perils such as flood continues to rise, borrowers are looking for alternatives. An interesting alternative is a parametric program where a “payout” is made if the water level rises above a certain level. However, there are significant items to check, including warranties imposed on the named insured and the location of the measuring device, which help to ensure the financial interest of the lender is reflected. Insureds should use a parametric program in conjunction with traditional insurance.

 

These areas and others can unknowingly leave assets/collateral exposed. However, with the right insurance advisor, your business can effectively mitigate costs, protect collateral, meet insurance requirements and successfully close deals.

 

How to Develop a Strong Real Estate Insurance Strategy
In today’s ever-evolving market, it can be difficult to find insurance placements that meet the borrower’s unique needs and  the lender’s requirements without exhausting your budget. However, you don’t have to go through this process alone. A trusted insurance advisor with experience in commercial real estate can help both lenders and borrowers  identify comprehensive coverage with the most optimal terms and rates. 

 

As the premier insurance advisor for commercial lenders, Harbor Group Consulting delivers best-in-class insurance solutions and services for businesses by leveraging the following capabilities:   

 

Unrivaled Market Knowledge: What truly separates top-tier advisors from other consultants is their ability to pair expertise with market access. Harbor Group Consulting is backed by Alliant Insurance Services, the nation’s leading specialty broker, and leverages the Alliant network of industry professionals and A-rated insurers to quickly identify solutions, close coverage gaps and negotiate pricing. This access is critical in today’s market, where timelines are short and insurance requirements are more complex. When insurance gaps exist, Harbor can quantify programs and direct brokers on how to accomplish risk management objectives.

 

Seasoned Risk Management Professionals: Our team is comprised of leading risk management specialists with decades of combined experience navigating today’s ever-evolving risk landscape and the transaction lifecycle.

Powerful Data-Driven Insights Fueled by Technology: Our client-facing technology platform gives lenders a real time view of where we are during the loan review process, answering questions like: What does the lender owe us? What does the borrower owe us? What do we owe the lender?  These dashboards allow lenders and borrowers to track deal progress, monitor outstanding tasks and see exactly what each party owes. Automation handles routine outreach and follow-up so that senior consultants can focus on underwriting and problem solving. These tools make the review process faster without sacrificing quality.

 

Ideally, insurance strategy begins before a term sheet is signed. A qualified advisor like Harbor Group Consulting can evaluate risk exposure, identify red flags and structure coverage that meets both lender expectations and regulatory requirements. This early insight also helps borrowers understand what to expect, control costs and plan for contingencies.

 

Turn Insurance into a Competitive Advantage with Harbor Group Consulting
Insurance should not be a barrier to closing. With Harbor, we make the process of securing comprehensive coverage as simple as possible for you, ensuring you have the necessary support and guidance every step of the transaction lifecycle. Our risk management professionals are prepared to address your business’s most pressing challenges, write compelling waivers and leverage data-driven insights, helping our clients make more informed decisions. We take insurance off the plate of the lender from the onset, streamlining the entire deal process.

 

As the leading commercial real estate insurance advisor, Harbor Group Consulting works with businesses to verify that the borrower meets the lender or agency insurance requirements. We handle the data collection, policy review, waiver writing, flood zone determination, probable maximum-loss studies and more, driving deals forward.  

 

Reach out to an insurance specialist from Harbor Group Consulting today to access market best practices and innovative insurance solutions, giving your business a competitive edge.