GI239: Navigating Property Insurance Today with Calvin Roberts

GI239 Navigating Property Insurance Today with Calvin Roberts

Calvin Roberts is a nationally licensed Commercial Insurance Broker and principal of Falcon Insurance Agency, a boutique Insurance Brokerage specializing in Multifamily, Commercial Real Estate, and M&A pre-acquisition Insurance guidance.

Watch The Episode Here:

Listen To The Podcast Here:

Transcript:

Announcer:
Welcome to the Global Investor Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host Charles Carillo combines decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now, here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Calvin Roberts. He is a nationally licensed Commercial Insurance Broker and principal of Falcon Insurance Agency, a boutique Insurance Brokerage specializing in Multifamily, Commercial Real Estate, and M&A pre-acquisition Insurance guidance. So thank you so much for being on the show today, Calvin.

Calvin:
Oh, thank you very much for having me, Charles. My pleasure to speak with you.

Charles:
So tell us a little bit about yourself both personally and professionally and prior to getting involved with insurance and the Falcon Institute or agency.

Calvin:
Yes. So I’m one of the, started off as a Allstate agent. Quickly worked my way up to agency sales manager with that agency for my first two years in the industry. You know, got my feet wet and they took a chance firing a 19-year-old kid, fresh out school. So I, I’m thankful and appreciate for that opportunity, but, you know, selling only one company with the limited product offering stuff that they have, kind of like trying to swim with both of your arms, handcuffed behind your back, your maybe you can kick and try to doggy PAB for a little bit, but there’s not much longevity do that. So I, I left for my first independent agency going into my third year of PNCI recognized, oh, this is a time in place to get after it. So I, I pretty aggressively over that next few year period, restarted from zero.

Calvin:
A good friend of mine had started his own retail brokerage firm on January 1st of that year. It made me a, a pretty sweetheart offer where I owned my book of business. The trade off is, I didn’t have a base salary, it was a pure commission split with the agency type of relationship, but I was able to build something that was mine and I could eventually take with me when I, if and when I, you know, left to start with now Falcon. So during that two year period, I built, give or take about a million premium book of business.

Charles:
Nice. Well that’s fantastic. So tell us a little bit about the type of insurances that or lines that your your agency focuses on.

Calvin:
So license today in 44, 45 states real estate is our lead practice is primary focus. It’s 75, 80% my book of business by premium volume, just about anything with four walls, we go absolutely hand over those four. So multifamily is kind of our primary focus. That’s what I would say that we specialize both highly in and, and really get the job done on when there’s a gritty element with many moving parts to the account. Mm-Hmm, <affirmative>, I just placed a it was 1,024 unit apartment complex and Michigan right in my backyard. We’re, we’re based in downtown Ann Arbor, so it’s about 10, 15 minutes away from where I lived, and we’ve worked on that pretty much all year. To save you a tangent, it was surprisingly non-renewed by Greater New York Mutual. They were a, a super regional insurance company based in New York is active in like working states, and one of the two admitted insurance companies admitted being kinda like a traditional or like a household name insurance company.

Calvin:
But that can get the job done on these very large older frame non sprinkler apartment complexes throughout the Midwest save up to billion dollar insurable value capacity. It was non-renewed unexpectedly. My firm Canid scored four touchdowns in the last of the Super Bowl, and we got the job done on that. We shotgun that out to insurance companies. I mean, I, I pride myself on bringing the highest levels of due diligence and hunger really more than anything to our insurance placement marketing efforts. You know, we, we don’t make an assumption and go out to one or two or five or 10 insurance companies. We’ve blasted out far and wide and coordinate a bidding war amongst them to see who wants to earn our client’s business. Most aggressively, it seems to yield very consistent best in class outcomes for our operator clients.

Charles:
Fantastic. So with everybody knows with insurance right now, I mean, it’s, it’s this, it’s skyrocketing, I mean, across our portfolio. And it’s not, I’m based in Florida, so obviously Florida is Florida, but the, you know, other place that we have Atlanta, I mean Dallas year, a couple years back when I started seeing the beginning of it, I had properties in the northeast. I mean, we were seeing double digit increases there too. So it’s something that I’m seeing across the nation with properties that I’m actively involved with or properties that we’re passively invest with. And you know, we used to underwrite years back the, the three, 3% to 5% annual increase. And you know, now we’re lucky when I get updates from, you know, people that we’re working with and everybody’s a static when it’s a single digit increase. Right. So tell me, I mean like how does this slow down? Does this slow down? I mean, is this a mix of inflation mixed with reinsurance? I mean, where’s the problem as, so if we pinpoint where the problem is, we kind have an idea maybe where we know where it slows down.

Calvin:
So I, I suspect going into 2024, we’ll see similar market conditions to what we experienced this year. You’ll see continued restricting and reduced appetite for especially real estate and particularly habitation, meaning mostly multifamily insurance companies over the last 12 to 15 years have struggled even outside of these CAD exposed market like Florida, Gulf Coast, United States.

Charles:
Can you explain that for a minute what that is?

Calvin:
So cat exposed, meaning it’s kind of industry jargon, but catastrophe exposed. So it, it’s markets with a disproportionate likelihood of experiencing large shock losses that are at or around the policy limits. So Florida, some of the, most of the Gulf Coast I would consider cat exposed unless you get at least a hundred miles inland. Some of the more wildfire from parts of the country, like even parts of Colorado parts of Montana, good chunk of essentially central Northern California, what I would consider a but essentially it’s markets that due to weather, you know, storm or wildfire phenomena have a, a predisposition towards large, we call them cat losses, but really what that means is losses at or around the policy limit.

Charles:
Yeah, okay, that makes perfect sense. So with this happening at this point, you’re getting people insured multifamily owners and other commercial real estate investors. How are you telling them to plan for these premium increases? You said it was gonna probably continue through 2024. So is that mean, I mean, what kind of numbers are you putting? I mean obviously this is all specific to be different for me in Florida than is in someone in the Midwest, but I mean, how are you, I mean, how are you seeing when you’re telling people to plan out their underwriting going forward? What are you looking at for these annual increases you think for the next couple years and then maybe from there on?

Calvin:
Well, I generally indicate for future insurance performance underwriting purposes, it isn’t that worst case scenario. But then in some of the markets for the foreseeable one to three future, I’m recommending that we underwrite anywhere between 20 and 65, 70% annual Florida I think is in for more hurt. And then maybe it’ll start to level, it’s not getting better anytime soon. And that’s where the, the reinsurance element comes back into play. Reinsurance is insurance purchased by the insurance company primarily to limit their exposure for any one loss or any set of cumulative losses over the year. And they do this because it enables for a more efficient utilization of capital throughout the entire risk capital stack. You know, if your possible probable max loss as determined by your team load in house actuaries is maybe 75 billion for property in a year, you don’t wanna keep 75 billion in highly liquid reserves that have less favorable germs.

Calvin:
Maybe you keep 5 billion in very liquid instruments like bonds, for example, which another reason why insurance companies are hurting how bonds valuations have deteriorated over the last couple of years. But essentially it allows for insurance companies to not keep a unnecessarily large, highly liquid reserve stockpile ready to go by transferring risk beyond what their reserves enable them to with a fair bit of liquidity handle. Reinsurance is really what’s driving premium variance over the last year, going into quarter 1 23, inflation has for the most part been priced into insurance pricing models on real estate. But on the reinsurance side, you know, when insurance companies are expecting to have a, a combined loss ratio, so the amount of claims paid, the amount of reinsurance premiums that they seed to the reinsurer and then whatever their cost of doing businesses, if they’re underwriting under a 95% combined ratio and because the cost of rebuilding everything like 40% in a year like we saw going into 2021, well suddenly they’re not posting a 5% underwriting profit.

Calvin:
They’re posting a 30 30 fiveish percent underwriting law. And that’s where a good chunk of that risk is passed off to the reinsurance companies who they had treaties with. Well, reinsurance had a bad time to put it candidly, over the last three, four years. And due to this, there has been the secondary influence as to why this happened is taking a step back as interest rates have climbed back up closer to kind of historical averages, capital does not need to compete as stringently or, you know, otherwise compete against an abundance of investment economy. So essentially what that means is as interest rates have climbed back closer to a historical baseline, the relative attractiveness of putting your capital to work by providing reinsurance cover, God forbid that these, those markets like Florida, it’s not there. If you can get 7% in a bond, you really wanna risk your capital by putting it to work on providing insurance to insurance companies who operate in Florida, for example, maybe get 11%, I dunno, <laugh>.

Calvin:
So there’s been a, a greatly diminished availability of capital in reinsurance markets over the last 24 months. The tune of around two 25 billion or roughly 30, 35% of all capital down previously in reinsurance markets. So in quarter four, 2023, you have greater exposure, meaning larger insurable values found on policies written by primary insurers like Travelers or nationwide or you know, just about any other primary insurance company. But there is a substantially lesser amount of reinsurance capital that’s available to absorb those losses and insulate primary insurers. So essentially we transitioned from a, a very favorable buyer’s reinsurance market to a very unfavorable seller’s reinsurance market. I’ll put it this way, Warren Buffett got out of the cat reinsurance game close to a decade ago, just wasn’t priced appropriately in his opinion. He got back into it this past spring <laugh>. Yeah, because there’s money to be made now.

Charles:
Yeah, I mean it’s, it’s interesting how that works. Where we were, I think it was totally the, the premiums were not aligned with the values of these properties and the cost to rebuild them. And so definitely I definitely see it definitely all makes sense.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
So for investors that are, you know, we work, we have investors that have, you know, one single property, we have some people that listen that have you know, there are syndicators, they have thousands of units. I mean, what are some of the ways that you’ve worked with some of your investors? Are there any ways to kinda maybe work to lower premiums by maybe making their properties less of a risk to insurance companies? Maybe if there’s, are there like portfolio type insurance products that you guys are offering?

Calvin:
There are a few things a savvy operator can do to control occasionally reduce their insurance costs. The first is, it’s good to work with a retail insurance broker who understands where the market is at and can arrange your account in the, the most favorable configuration possible. So for example, you you often hear, talk about a master policy approach for you many or all of your properties on a single form. That can definitely work if you’re invested into, you know, one market or a series of markets in close proximity with similar cat characteristics. Like if you buy in Michigan and Ohio for example, you could probably write a master policy for that, assuming that the other component, the assets you’re acquiring are all similar or have like characteristics for the most part. But where it doesn’t make sense to attempt to utilize a a master policy approach is if you have varying flavors of real estate assets in your portfolio.

Calvin:
What I mean by that is maybe you have a market rate class B minus 75 complex in Indiana and instead of running a single master policy for a portfolio consisting of 1500 apartments and in, you know, nine properties in three different states, maybe chunk that out into a couple of master policies. So they’re smaller master policies that more closely and say accurately but just appropriately reflect the unique characteristics of each asset. You group them into smaller master policies. This enables you to remain more nimble and flexible as the marketplace continues to evolve and change over time. You know, remarketing 26 locations, fulling 3000 doors around a single master. That’s a bit of a task. Whereas if you have four or five master policies that more appropriately reflect the characteristics that you’re covering under each of them, you can move them around fairly readily in the marketplace.

Calvin:
It allows you to adapt to unpleasant renewal premium increase, for example, with a bit more fine rather than really the, the single master policy approach in of a total cost perspective, I don’t believe most of the time the most efficient way arrange the, it’s really administrative of doing business element’s, kind of where the single master can come into play. You don’t have to think about having multiple renewals or, you know, it does reduce the administrative workload. So if you’re paying an additional 20 a year for the coverage versus what you could achieve by kind of carving it out into pieces, I mean you tell me what your line’s worth <laugh>, you know, <laugh>,

Charles:
Right, right. So we have like, you know, when you’re owning real estate, it’s a, it opens up the owners and to a lot of liability. I mean, how can investors use, and I’ve, I’ve heard this before and we’ve used it before, but maybe we haven’t spoken about too much on the show, but contractual risk transfer agreements to decrease their liability and maybe if you wanna explain it first and then how a investor might be able to utilize something like this for taking a little of their liability off the table.

Calvin:
So we we’re a big proponent for implementing and refining contractual risk transfer processes specifically for the owner operator where you also handle the, the management element in house. So where we see this come into play in our practice regularly would be we’re hiring a, a subcontractor who maybe does snow removal and landscaping work for you. Well maybe you have a apartment complex with eight buildings full going 96 units and you know, you hire this snow removal contractor and they come out and they scrape the parking lot and they also, you know, throw salt on the sidewalks. So hopefully de-ice and reduce that slip and pull viability element. Well, what if one of their employees, he’s not thinking, oh, I need to make sure I’m diligently applying fault everywhere on, all on the sidewalk. They instead thinking, oh shoot, one of my good friends is coming to town tonight.

Calvin:
I need to hurry up and get to the sun so I can go meet with them at the bar <laugh> get outta work. And they just completely neglect to, you know, throw salt on one of the apartment buildings, immediate sidewalk out in front, and perhaps a tenant who you know could be a 60-year-old man or woman substance falls and seriously hurt the hips or legs and bring suit against you by requiring that the landscaping contractor provide you with a general liability certificate with additional insured provisions providing cover for yourself, the management company and the building owner company with primary non-contributory conditions included. Primary non-contributory means that their insurance company agrees to run on a primary basis and a non-contributory basis, meaning that they will pay for the full cost of defense damages up to the contractor stated policy limit and they will not attempt to drag you or your insurance company into the law to share the out from it.

Calvin:
And you also want a waiver of subrogation condition. Waiver of subrogation means that their insurance company agrees to, you know, not pay for that loss and then try to come pointing fingers that off or maybe the management entity. The reason you want those is losses, like that example scenario I just described, are they really your fault as the operator? No, you’re just kind of the deepest pockets that gets named on the lawsuit because you’re a attractive target for litigation. So by requiring these provisions contractually in your subcontractor employment agreement for example, that is typically what triggers the coverage to respond. Most contractors, if their account was written by anyone who has any idea what they’re doing when it comes to writing contractor insurance, there’s gonna be a blanketed endorsement that includes all this stuff. Not even like it’s gonna cost the subcontractor more money on their insurance to provide this to you. It’s likely already there, but it does require that contractual obligation to impose upon the contractor in order for coverage to formally trigger and respond in our benefit.

Charles:
Yeah, when I’ve dealt with roofers for example, so something that has a a lot of liability with it for the, for the property owner if something goes wrong it’s the, the most professional roofing companies I’ve dealt with it’s in the first before you even get to a contract. I mean they’re bringing up to you and it’s just like, okay, we’ll do this. All this gets done, you know, we’ll odd you here. We’ll, and it’s just a normal course of business when you start have to ask questions and it’s not completely straightforward. That’s kinda a red flag for myself about that contractor and about their insurance that they don’t know this ’cause it should be something that they’re doing all the time. But that’s a lot of great information. Thanks a lot. So as we’re kinda wrapping up here, there’s one other thing here that I’ve seen kind of a trend in multi-family and self storage, self storage for years as well. But in really offering insurance back to the tenants, and if you’re familiar with this, can you speak to how this can be an additional income stream for landlords and if the landlords are offering this, do they have to be licensed or something like this or they just work as like an affiliate?

Calvin:
We, we love it. It’s called Tenant Legal Liability Insurance. It’s been a, a huge emphasis and focus within my firm for your there’s two ways that you can organize and the most commonly seen doesn’t require a substantial unit count in order to have this be feasible for your management operation. But essentially what you do is, which we, we write these for our insured all the time and happy to talk through questions, but tenant legal liability insurance, you meaning your management company most commonly is the named insured. It’s a master policy format and you can think of it as fairly similar to how there’s a, like a lender force placed, insurance banks will force onto their borrowers if they fail to abide by the terms of, you know, providing compliant insurance coverage, but you are the named insured. You can structure it so that all of your tenants are enrolled, they don’t have a choice and you just bill them back for it.

Calvin:
And the way that we commonly see it monetized for this first approach is, and again, you should check with your attorney, check with your state licensing regulatory bodies to make sure that this is permissible in your state. I I can’t speak to it in all 50 states, but you throw management fees on top of your costs. So if you’re out the door cost for tenant legal liability insurances, 10 or 12 or 14 a month or whatever it comes out to with the coverages that your operation feels comfortable seeing your tenant have, you throw on maybe a dollar three or six or 10 per door per month on top of your direct cost of buying the insurance, and then you just bill it back to your tenant as a line item, part of their monthly rent bill. Same way with with like electric or garbage or water for example.

Calvin:
You can also structure it so that the tenant has an opt out option. So if they give us a compliant third party renter’s insurance policy with State Farm or Lemonade or whoever, then we unenroll them from the program. Remove the recurring charge. You don’t have to give ’em an option that least in most states against check with your attorney, but generally, because it’s not a renter’s insurance HO four policy form, my understanding in most states, you don’t have to give the time the choice if, if you think that most of your tenant will just kind of charge it off and say whatever, it’s 12 bucks a month and move on could make it mandatory even if they have third party renters insurance. Now, another way that you can do this, and this is more applicable for the, the larger operators who have more than a thousand doors, it would’ve to be realistically about a thousand plus units enrolled into the program for the second option to work.

Calvin:
But we can configure and administer a captive insurance company for the tenant legal liability insurance that is a member controlled insurance, fully licensed and compliant with state insurance regulatory provisions. But you own the insurance company that would provide the tenant legal liability insurance buildings and coverage and you know, you can still throw management fees on top of the cost that you build it yourself if you would like. Nothing’s stopping you from doing that. But this allows you to tap into the underwriting profit, which tenant legal liability insurance is generally kind of a money printer for the industry. Industry does pretty well on underwriting for anything insurance. And you also tap into the float investment income generated from the premiums being an investment account until they’re reserved or a loss. And this also does kind of tap back into the how do I save money as an operator, you save money by not just retaining every situation that could possibly be a claim, but the infamous example is the Kitchen Fire Senate has a 70,000 kitchen fire law. You might get a couple of those per year at scale. It’s not really that uncommon. That’s an occurrence. But again, if you’re looking at a portfolio of 3000, do you wanna claim every 70?

Calvin:
Probably not because you want that insurance to be there for the seven, not the low to low medium severity, but very high frequency types of occurrences. So it, instead of having the option of make an insurance claim on our property insurance, retain the loss, eat it out pocket the third option, make it a claim on policy that doesn’t affect our property insurance. Future pricing doesn’t go on fraud. So it’s just from a deductible savings point of view. If you’re deductible for the TLL insurance 50 and your property insurance is 25 50 or I mean that’s much, you save some money.

Charles:
Yeah, no, that’s a lot of great things. We, when we’ve done it before with renters insurance, we, we just require that they haven’t. So Kelvin, how can our listeners learn more about you and your business?

Calvin:
We are extremely responsive to email, phone, text message, Facebook, LinkedIn, carrier, pigeons, smoke signal, telegram, morse code just about any preferred method of communication looks perfect for us or we’re wrapping up on a call or otherwise answer questions anytime.

Charles:
Okay, well that’s great. I’ll put your contact information into the show notes and thank you so much for being on today and looking forward to connecting with you here in the near future.

Calvin:
Well, thank you again very much for having me. It was my pleasure to speak with <inaudible>.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Thank you for listening to the Global Investors Podcast. If you’d like to show, be sure to subscribe on iTunes or Google play to get new weekly episodes. For more resources and to receive our newsletter, please visit global investor podcast.com and don’t forget to join us next week for another episode.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

About Calvin Roberts

Calvin Roberts is a nationally licensed Commercial Insurance Broker and principal of Falcon Insurance Agency of Michigan, a boutique Insurance Brokerage specializing in Multifamily, Commercial Real Estate, and M&A pre-acquisition Insurance guidance. Calvin has been active in the field since he was 19 years old. He brings a wealth of knowledge, expertise, and determination to the table, serving real estate investors throughout the United States. He is a trusted resource for creative real estate risk management and Insurance placement.

Are You a Fan? Subscribe, Rate, Review & Share – Click Here To Learn How

What question do you always wish I would ask but I never do?

Connect with the Global Investors Show, Charles Carillo and Harborside Partners:

Scroll to top