Unity. What do you think of when you hear this word? I doubt you’re thinking about insurance policies. In our world, unity can be interchangeable with consolidation, a common word used in real estate insurance. It’s a term for insuring multiple assets under one insurance program rather than the traditional one policy per building. In other words, unifying everything you need to protect under one roof.
As many companies have slowly grown, they’ve purchased one insurance policy to cover that building. But the more buildings they acquire, the number of policies has increased. The idea seems simple enough, right? When you own 15, 30 or 100+ buildings, does it really make sense to have all the paperwork that goes along with that? The solution is consolidation, unifying those assets.
Here’s the trick: A great broker can structure one program to cover all your assets. The key is to make sure that everything is covered under one program and the limits are not shared. Each building should have its own limits. This prevents a loss at one location from impacting the coverage for another.
So, what’s the advantage in all this? Well, that’s what I’m here to tell you. The advantages are:
- Reduction in Cost: Consolidation allows the owner to take advantage of volume to reduce cost. Insurance companies look at the total value being insured. The higher the volume of coverage the lower you can drive the cost per building.
- Improvement in Loss Ratio: Losses drive up premium due to bad loss ratios. A loss ratio is a premium paid to the money paid out for the loss. For example, if a building is insured individually for $10,000 annually but has a $50,000 loss, their loss ratio is 500%. However, if that building is consolidated with 15 other buildings for a collective $100,000 annually and has the same loss, that loss ratio is now only 50%. This makes a huge difference when insurance carriers are setting premiums for renewals.
- Ease of Use: Rather than managing multiple policies throughout the year, owners can simply manage one program with one effective date, which significantly reduces your administrative work.
Publilius Syrus said, “Where there is unity there is always victory.” Unifying, or consolidation, of policies will definitely be a win in minimizing risk for your business.
To learn more about policy consolidation, contact an MMA real estate advisor.