Insurance costs fell in 2008 for multifamily firms, although prices may not stay low for long.
The total price of insurance fell 17 percent—on average (nonweighted)—for apartment firms this year compared with 2007. Prices dropped for all three types of insurance needed by apartment firms—property, general liability, and workers' compensation—according to the National Multi Housing Council's (NMHC) annual Apartment Cost of Risk Survey (ACORS).
Other types of commercial property also received insurance cost reductions ranging from 10 percent to 25 percent.
The market for commercial property insurance was extremely competitive in 2008 thanks to the favorable underwriting and investment results racked up by insurers in the two prior years. These positive results gave insurers more capacity to underwrite new policies and a desire for growth well into 2008, according to Conning Research and Consulting, which conducted the survey for NMHC.
However, prices may increase again in 2009 as insurers struggle with lower investment returns and economic uncertainty in the aftermath of the capital crisis, along with underwriting and capital losses in 2008. These factors will likely reduce underwriting capacity. Many insurers already declare that premium rates are as low as they can go to still cover claims and maintain profitability, according to Conning.
Full survey results are available only to firms that completed the survey. An executive summary is available to NMHC members at www.nmhc.org/goto/4970.