More and more commercial real estate owners are traveling to insurance hubs like London and Bermuda to sit down with underwriters and make their case in person. Other foreign insurers are beginning to follow this trend, with some suggesting that trips to places like Japan and Germany might soon be on the horizon as well. But what has caused this dramatic shift?
Real Estate
By Candise Shanbron
Candise Shanbron, managing partner of Cernitz Law. Courtesy photo.
The commercial property insurance industry is undergoing a dramatic shift. Gone are the days when property owners and operators could simply provide a building appraisal or portfolio valuation to an insurance broker, who would then reach out to a handful of insurance companies to obtain quotes. In the past, the process was relatively straightforward — there was a clear, well-defined formula for insuring property assets.
Today, however, insurance companies have adopted a much more holistic approach to underwriting. No longer are properties assessed purely based on tangible factors like age, valuation or size. Insurers are expanding their scope to consider the “intangibles” such as the risk management practices of the property owner or operator, the quality of the property management team, and even the way in which the owner or operator runs the business. In fact, in some cases, owners and operators may find themselves having to meet with insurance companies face-to-face, engaging in relationship-building conversations (and perhaps even a bit of wining and dining) to ensure their assets are properly insured.
This shift represents a move toward a model where relationships once again take center stage. In a sense, it’s a return to the “old way” of doing business — where trust and personal interaction are as important as the numbers on a spreadsheet. For many property owners and operators, this may feel like a surprising throwback. After all, the idea of personal relationships in insurance seemed to have faded in an era dominated by digital platforms and impersonal transactions.
Yet, more and more commercial real estate owners are traveling to insurance hubs like London and Bermuda to sit down with underwriters and make their case in person. Other foreign insurers are beginning to follow this trend, with some suggesting that trips to places like Japan and Germany might soon be on the horizon as well. But what has caused this dramatic shift?
To understand the current state of commercial property insurance — or any kind of property insurance for that matter — it’s essential to look at how the industry has evolved. Many policyholders view insurance companies as guardians or fiduciaries — entities that exist to automatically protect them in times of loss. However, like any other business, insurance companies are in it for profit. The primary way they achieve profitability is by minimizing payouts and reinvesting the premiums they collect. Consider the way banks work: they take in deposits from clients and use those funds to invest in various financial vehicles. Similarly, insurance companies collect premiums, hold onto that capital, and invest it in order to generate returns. The more they can avoid paying out claims, the more they can retain to reinvest — which is where the big money is made.
However, this system has come under strain in recent years and even decades. A surge in natural disasters has led to a significant increase in insurance claims. The billions of dollars in payouts resulting from hurricanes, wildfires, floods, and other catastrophic events have placed immense pressure on insurance companies. Furthermore, the availability of reinsurance also factors in. As a result, insurers have had to rethink their underwriting practices and tighten their guidelines.
In response to these challenges, insurers are now taking a more comprehensive approach to risk evaluation. It’s no longer enough to simply look at a property’s age, condition and value; insurers want to understand the entire risk landscape. This includes evaluating how the owner or operator manages the property and mitigates risks.
Technology now plays a crucial role in property management and risk mitigation. Today’s commercial property owners and operators need to equip their buildings with cutting-edge technology to make them more attractive to insurers. For example, advanced leak detection systems can be installed to monitor for even the slightest signs of leakage. When a potential leak is detected, the system can automatically shut off the main water valve, preventing costly water damage. Other technological innovations include proactive maintenance software that automates building maintenance scheduling as well as remote monitoring systems. These tools can help reduce the likelihood of costly damage and minimize the overall risk profile of a property. In turn, insurers may offer mitigation credits that reduce the cost of premiums, rewarding owners who proactively address potential risks before they escalate into major issues.
Another key factor in adapting to this new insurance landscape is reevaluating the role of insurance brokers. Many commercial property owners and operators operate under the assumption that their insurance broker is their primary advocate — someone who will fight on their behalf in the event of a claim. However, this is a misconception. While brokers are valuable for their ability to connect property owners with insurance providers, they are essentially intermediaries. They help facilitate the process of obtaining insurance but do not have a fiduciary duty to the policyholder. Property owners should broaden their perspective and recognize that they don’t have to work with just one broker or insurer. In reality, they should be engaging multiple brokers to ensure that they are getting the best possible deal and coverage.
Another factor influencing the commercial property insurance landscape is the recent wave of legislation aimed at strengthening building safety. In Florida, for example, new recertification requirements were put into place after the tragic collapse of the Champlain Towers in Surfside. These regulations have led to a heightened focus on building integrity, particularly for high-rise and condominium properties. As a result, properties that fail to meet stringent safety standards may face increased scrutiny from insurers. In some cases, insurance premiums may rise, or coverage may become more difficult to obtain — or not obtainable at all. This has placed additional pressure on property owners to ensure their buildings meet or exceed safety standards.
The commercial property insurance market is undoubtedly evolving. Insurers are placing a greater emphasis on understanding the full scope of risk associated with a property, including the actions and risk management practices of the owner and operator. While this shift may seem daunting, it presents an opportunity for property owners to take control of their risk profiles and build stronger relationships with insurers.
By embracing technology, focusing on proactive risk mitigation, and seeking out multiple insurance brokers, property owners can position themselves as attractive risks in an increasingly competitive and complex marketplace. And, as the industry continues to adapt to changing environmental, legislative, and economic factors, those who stay ahead of the curve will be best equipped to navigate the new era of commercial property insurance.
About the Author
Candise Shanbron is the managing partner of Cernitz Law, which has offices in Florida, New York and Texas. She has dedicated her entire legal career exclusively to the practice of property insurance law. Shanbron spent the first part of her career representing insurance companies, giving her a unique perspective and advantage in representing policyholders. Since 2008, she has zealously advocated on behalf of policyholders.