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Where the Habitational Market Place is Headed

By May 18, 2021May 25th, 2021Charlie's Corner

Do you need an update on the habitational market place? Charlie Venus, leader of our Middle Market and Specialty program, talks with Brendan Nohelty from XS Brokers. Brendan is the Division Leader for their Property Brokerage Unit. With years of experience in the Habitational marketplace, Brendan helps us understand what is happening to the market currently. Rates are increasing across the board and less and less admitted carriers playing in this space. It is important to keep a handle on what is driving this experience. This episode is great for independent insurance agents who are shouldered with the responsibility of relaying the rate increases and tightening terms to customers. Come back next week to hear from Scott McVicker.

Habitational Market Place tightens

Edwin K. Morris (6s):
Welcome to the trusted adviser podcast brought to you by Iroquois Group. Iroquois is your trusted advisor in all things insurance. This week, you’re listening to the special segment of Charlie’s corner hosted by our very own Charlie Venus. This edition of Charlie’s corner is a two-part series with experts from excess brokers. Make certain to catch both.

Charlie Venus (29s):
Welcome to our Trusted Advisor Podcast. Today we have Brendan Nohelty of XS Brokers who is the vice president and division leader of their property brokerage unit. We’re going to cover the issues in the habitational marketplace, specifically relating to condos and apartments. Welcome Brendan. So Brendan, can you give us an overview of what’s going on on the property insurance marketplace as a whole, and then kind of get specifics on, you know, some things you’re seeing on the habitational side. Yeah, absolutely.

Brendan Nohelty (59s):
So as far as from an ENS landscape, the property market continues to harden in the vast majority of the country, some areas of the country are quicker to harden than others. For example, new England seems to be lagging behind other parts of the country like California or the Southeast. And then you obviously have your tough states like Texas and Florida, that continued to be somehow seeing some higher rates. So overall I think the property landscape is continuing to harden and that’s driven mostly by your attritional loss history over the last few years, whether it’s from the wildfires in California, to the flooding in Houston, a few years ago, you obviously still have your hurricanes and tropical storms that ravage the Southeast and Florida.

Brendan Nohelty (1m 46s):
And then most recently you have the pipe burst claims down in Texas during that spell of a cold weather. So a lot of that is leading into what we’re seeing now, admitted markets are still picking their spots when it comes to some of those softer occupancies, especially in your not-cat driven areas. For example, the new England territory, there we’re still seeing some of the layers come in and offer terms on your condos and things that have some good loss history and not necessarily right on the beach, but to speak specifically to the hab market. I mean, historically habitational from a property standpoint is one of the industry loss leaders, you know, for condos, you see your ice dam claims, your water damage claims on our, for each unit.

Brendan Nohelty (2m 32s):
And then apartments you have your standard kitchen fires, your grease fires, your tenant leaves a candle burning, and you have those fires as well as a tenant might leave for the weekend and turn off the heat. And we’re definitely seeing for the most part, habitational leading the way on this hardening market and most carriers hiving rate they’re picking and choosing and being more selective, which accounts they’re looking to take a shot at. We’re seeing a lot of the older frame and Hab becoming tougher and tougher to place for the nature of the fact that it’s frame and jam construction, which honestly most carriers are looking for the better construction.

Brendan Nohelty (3m 13s):
So we’re seeing rates going up. Carriers are limiting their lines of business. So in past, perhaps they’d put up the full limit and now they’re doing a primary. And so we’re looking to have to layer deals more often than we would have a few years ago. Again, I mentioned they’re being more picky. They’re not necessarily offering all the bells and whistles on all these accounts and deductibles seem to be increasing as well.

Charlie Venus (3m 37s):
Let’s go back. You talked about the Texas water damage claims and the pipe bursting claims, but what have you seen from a rate response standpoint since that freezing down there in Texas?

Brendan Nohelty (3m 50s):
It’s still relatively recent. So as far as the rates sort of following suit, I think you’re going to continue to see that over the next few months, definitely carriers are trying to make up for the losses that they had in Texas as an example. So rates are increasing. What you’re seeing is they’re trying to get rates across the board. So even in a place like I keep saying new England, but new England doesn’t necessarily have massive cap losses, but they’re still trying to get the rate there to make up for some of the losses they’ve seen in other parts of the country. What we’re also seeing as a result of the Texas water damage losses is carriers are potentially putting up higher water damage deductibles, maybe there’s sublimiting water damage and sprinkler leakage to, you know, let’s say 250,000, half a million, depending on the size of the account.

Charlie Venus (4m 37s):
Now from a market standpoint, who are the admitted players in this industry, in the hab marketplace?

Brendan Nohelty (4m 44s):
They’re starting to dwindle as, as you might expect coming into the hardening market. I mean, the, the market hardens as a result of what the admitted carriers want to stay on and what they want to consider. You know, one that just pops to mind is, is Philly. We do see them still on quite a few of these condo risks. Some of them with some loss history, not in the same thing, any, not necessarily anything crazy, but Philly is an example of one. And then your likes and the standard travelers, Acadia, things like that. We’re still seeing out in the marketplace.

Charlie Venus (5m 15s):
And historically there’ve been quite a few program markets out there for habitational risk. Are those still around? Are those dwindling as well? And who are those main program players?

Brendan Nohelty (5m 26s):
Two that come to mind is Strata in the Midwest and the plains, and then Skinner, which we see quite a bit in the Northeast. You know, those programs certainly follow the marketplace in that they’re seeing the same sort of loss results that mirror what most carriers are seeing. So with them, they’re trying to do the exact same thing. They’re trying to drive up rate, increase deductibles. For the most part, what we see though, is those programs are so still to this day under priced that even if they take large integrate increases, in some cases, 50%, a lot of the times we’re still finding that even with the increase they’re still under where your traditional brokerage carriers are going to be.

Charlie Venus (6m 8s):
And when you’re talking about rate level, if you’re doing, you know, specifically on frame and joisted Joyce had masonry, what you would consider the normal rate levels for those classes of construction.

Brendan Nohelty (6m 19s):
Not necessarily a broad brush stroke on this, but, you know, we’re typically seeing most frame and JM starting in a high thirties at best. If something is, you know, has great loss history and a good part or a good area, but for the most part, I’m seeing them start out in the four, low 40 cent range. You know, again, depending on the size of the account, we’re finding ourselves on the larger schedules, whether it’s a dwelling schedule or perhaps one building, typically when you get an excess of 10 million in values and higher we’re seeing that for the most part, we’re having to layer them. So maybe a carrier will come in and do a two and a half or five mil primary, and then you can build a tower from there.

Brendan Nohelty (7m 1s):
So I would say as kind of a rough starting point, I’d say in the low 40 cent range is a good starting point right now, in some of your better in class cleaner accounts.

Charlie Venus (7m 13s):
Are you seeing much on the hiring construction or most of what you see as on the frame and joisted masonry side?

Brendan Nohelty (7m 18s):
We do see a good mix of everything dependent on the, the area of the country. You know, the Northeast, as I keep mentioning is an older part of the country. So it’s very, very common to see your older construction. You’re 1900 builds, early 19 hundreds, you know, so most carriers and it’s prominent in this part of the country. They’re going to look for a good updates. So the year built isn’t necessarily going to drive them away. As long as we can clearly show that they’ve undergone some significant upgrades. Most carriers are going to look for if wherever possible, complete gut rehabs and definitely a new roof is, is key. When you go to other parts of the country, for example, Florida, those are definitely newer construction.

Brendan Nohelty (8m 0s):
It’s much more rare to see a frame and JM most of the time, it’s just better construction, just given where it is, but older parts of the United States, you’re seeing a lot more of those older frame and JM

Charlie Venus (8m 13s):
We all know water damage claims are just a, such a big issue on the habitational side. What are you seeing in terms of the water damage deductibles for apartments and condos?

Brendan Nohelty (8m 23s):
For condos in particular, we’re seeing a lot of carriers that have had the history doing, going to a per unit water damage deductible with maybe a minimum per occurrence. So for example, you have a condo association, maybe they’ll do a 10,000 per unit water damage deductible subject to, you know, sometimes a 25 or 50,000 per occurrence, minimum something that might’ve had some claims they might do the same 10,000 per unit, but they’ll bump their minimum per occurrence to let’s say a hundred thousand. The apartments mostly are, at least that I see, aren’t necessarily doing a per unit.

Brendan Nohelty (9m 2s):
Maybe they’ll do a 25,000 per occurrence water damage deductible. I’m not necessarily seeing carries, just throw them on there, on clean accounts, for the most part. Typically it is being added if they have a loss history of water damage claims, and most carriers, you know, they have a freak loss and they have clean loss history for the last five years and they had one pop aren’t necessarily going to hold that too much against them. It’s the frequency issues that most carriers are looking out for

Charlie Venus (9m 27s):
And what about on some of these units in terms of getting adequate ordinance, a law coverage limits. Is that a challenge?

Brendan Nohelty (9m 35s):
So ordinance and law dependent on, again, the part of the country and the age of the buildings, you know, your newer construction and your better construction I think more carriers are more lenient into offering ordinance or law when you get into those older. And again, what we see a lot of in the Northeast is you’re 1900. If you can show that you have something with a complete gut rehab within the last, let’s call it 15 to 20 years, I think that carriers are willing to add it. If you have something that’s super, super old and spotty updates, most carriers are going to be reluctant to add or answer law just because of the claim payout that could potentially happen in the event of a loss

Charlie Venus (10m 15s):
And what about any other coverage enhancements, you know, water backup, sewer backup, any of those issues, that similar problems from a coverage standpoint?

Brendan Nohelty (10m 24s):
Your top of class accounts, I think carriers are still trying to get as aggressive as possible. They’re trying to gobble up the good clean accounts and they’re willing to put out a lot of those ancillary coverages like your property enhancements picked down. Most carriers they’ll add for an additional premium on a lot of the accounts, but as far as your water backup, a lot of carriers have their own either proprietary forms for the enhancements that add some water back up, your accounts receivable, things along those lines. When you get into your tougher accounts, they might be reluctant to add them, or they won’t just throw them in unless asked for. And typically, you know, they want some sort of reasoning as to why – is it going to be a deal breaker, are we up against some competition that has this, that we need to be comparable in coverage.

Charlie Venus (11m 14s):
And what’s your ability to provide flooding, earthquake when it’s needed?

Brendan Nohelty (11m 17s):
So depending on the carrier and the area, every carrier is going to model for both. So it’s contingent on their own modeling and their appetites as to what they’re finding acceptable from a flood zone, as well as earthquake, you know, up in this part of the country in new England carriers are more willing to offer earthquake versus perhaps California, where it’s much more of a, the driving factor behind a risk. Same with flood, it’s all contingent on the area and, and their flood mapping in a space where we don’t have a carrier that will necessarily want to offer the flood or earthquake coverage. We always have monoline options that can go and get them a monoline DIC quote.

Charlie Venus (11m 57s):
And backtracking a little bit to a water damage claims, you know, there’s new technology out there with all the water flow alarms and y’know, you can get messages to your mobile device. Are you seeing more risks that are using that kind of technology? And is there any demand for the carriers for the risks to be using that technology?

Brendan Nohelty (12m 20s):
That’s a great question because historically I have not seen those brought up very often until most recently. And again, I think the, the Texas situation is certainly sort of sparking that conversation to be had. I haven’t personally seen many carriers making that a requirement, although I do have a feeling that that’s probably in the pipeline, especially with the accounts that have had some water damage claims. I did run into an account recently where they did have a water damage claim. And as far as preventative measures taken to prevent from happening again, that was one of the things that the insured was going to do was to add exactly what you mentioned, those sorts of indicators with regards to the piping.

Charlie Venus (13m 5s):
So if you were going to make a general recommendation to all of the agents out there in terms of putting together a submission that they’re sending to you, so you can get the best deal possible for them, what kind of information do you need? And what’s critical and what is really good to have in terms of making the sale?

Brendan Nohelty (13m 28s):
It’s a situation where the more information is always better. Most markets are going to want to know why it’s coming to ENS, whether or not it’s being non-renewed from admitted carrier because of change in guidelines or appetite for coastal proximity or in most cases due to losses. So the first thing is just to know, who is the incumbent? Are they getting off? If not, what’s the renewal pricing going to look at, just so we have an idea of sort of backstory as to why we’re seeing it, and then your common cope information, as far as you’re building details, your construction, you’re built square footage, building updates, as I mentioned, is super key, especially on any of the older buildings, your type of occupancy, if it’s habitational in particular, which I know we’re speaking of, you know, just to know the occupancy percentage is key and loss history.

Brendan Nohelty (14m 19s):
Loss runs don’t necessarily needed to submit out to a market per se, but if they have had any claims, we need to know of them, confirm all damages had been repaired, and then what preventative steps the insured is taken to try to mitigate these or prevent them from happening again.

Charlie Venus (14m 37s):
Do you see much restriction on the condo side, just in terms of what percentage of those units are owner occupied versus rental units?

Brendan Nohelty (14m 45s):
All contingent under the carriers. I would say if there’s a sort of just a rough idea, most carriers want at least 80% give or take of owner occupancy. You know, when you have anything that’s more than that, that’s rented, they’ve almost think of them as apartment units. And I’m sure it’s the same way on the casualty side. I’d say it’s just kind of a rough idea. They’re looking for about 80% owner occupied. You know, when you get into your, some of your seasonal areas, whether it’s the Jersey shore, the Cape or the islands, they’re going to want to know, even if they’re owner occupied, are they being rented out seasonally. And if so, who’s responsible for their rental.

Brendan Nohelty (15m 26s):
Is that the association, are they doing it on, you know, an Airbnb or VRBO, or are the unit owners just renting them out themselves?

Charlie Venus (15m 33s):
Now, what are you seeing in terms of reconstruction cost? I mean, I was reading just in the last 10 days that a single family home, the cost of construction, just because of the price of wood has increased $25,000 per home. So when you’re looking at these in a frame and joisted masonry apartment complexes and condos, what is that doing to the reconstruction cost?

Brendan Nohelty (15m 59s):
So it’s relatively new with regards to obviously the cost of lumber increasing on our side as a broker, we don’t run replacement cost estimators just because it becomes an E&O issue. So we don’t necessarily specify as to what the replacement costs should be. My recommendation to any retailer is to run a replacement cost estimator on their end. Marshall Swift is a, is one that comes to mind. There are a few others that are similar to that, you know, to get the true reconstruction class, because they’re all contingent on the area, obviously the construction itself and the year built. So it’s hard for us as a broker to necessarily narrow it down because we don’t run the replacement cost estimators on our side.

Brendan Nohelty (16m 39s):
But to your point, you know, within the last few months or so, I have seen an increase in lumber costs. So I’m assuming that that’s being factored in with regards to the reconstruction cost, although it’s likely going to be temporary. So I’m not sure if claims adjusters are going to necessarily look to for this period of time, your costs are going to be higher. And then it’s going to go back to where it was. I think it’s, there’s more to be seen on that and how it’s going to ultimately affect the reconstruction costs.

Charlie Venus (17m 9s):
Now anything else that it’s important for agents to know in terms of the what’s going on in their habitational marketplace from the property perspective?

Brendan Nohelty (17m 18s):
Unfortunately, I’ve had plenty of these conversations with agents and just given what’s happened over the last 12 to 18 months, they’re on the front lines, dealing with their insurance directly. And unfortunately right now they’re essentially the bearer of bad news in a lot of ways because rates are increasing and terms are becoming more tight and then deductibles are increasing. And unfortunately it’s not necessarily a part on the individual account. You might have an insured that’s been loss free for five years and nothing’s changed. Why is their rate all of a sudden increasing? It’s a by-product of the marketplace as a whole. And you know, a lot of these carriers have been hit with some claims over the last few years.

Brendan Nohelty (17m 59s):
Again, whether it’s the wildfires in California to the cat exposure in the Southeast to the Houston water damage. So even though a particular account might be loss free, or the area of the country is relatively free of these catastrophic events, carriers have to make up for the losses in some way. And in a lot of cases are trying to drive rate across the board. So my message in as simple as possible is be prepared, you know, as a broker, it’s our job to scour the marketplace to try to find the best and most competitive pricing in terms possible. But even with that, we are at the mercy of the marketplace and where the true, what, what the carriers are looking for. And unfortunately that might not be the same as what they were previously paying.

Brendan Nohelty (18m 42s):
And there, there could potentially be changes as a result.

Charlie Venus (18m 46s):
Thanks Brendan. Next week, we will continue the conversation in part two with Sean McVicker on general liability and umbrella liability issues.

Edwin K. Morris (18m 55s):
Thanks for listening to this edition of Charlie’s corner brought to you by Iroquois Group. I am Edwin K Morris, and I invite you to join us for the next edition of the Trusted Advisor Podcasts.

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