Considering the long-term, strategic insurance moves.If you don't think that insurance is a critical factor in the viability of the real estate industry, think again. Most of the headline issues in the insurance world echo those that real estate concerns must address every day. Environmental exposures such as asbestos asbestos, mineral asbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. , mold mold, name for certain multicellular organisms of the various classes of the kingdom Fungi, characteristically having bodies composed of a cottony mycelium. The colors of molds are caused by the spores, which are borne on the mycelium. and lead. Security issues, including terrorism. Spiraling Healthcare and Workers' Compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. costs. And out-of-control liability verdicts across the spectrum. The availability and pricing of cover age for all of these risk factors can contribute to escalating costs for risk transfer at a time when the vacillating economic climate means reduced revenues for many with real estate interests. The result? Those either owning or managing real estate are being squeezed from two sides. Now for the good news: For most companies in real estate-related businesses, insurance market prices are going down and capacity is going up in 2004. This doesn't mean everyone. Risks must be well managed, and loss experience good. The insured properties must be outside of areas prone to catastrophic perils--Florida and California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). , for example. But for good real estate risks, property rates may fall as much as 20 percent. General liability programs may see reductions up to 10 percent. Real estate insurance buyers will note that while premium pricing Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. may be easing, underwriters are generally holding firm on terms and conditions. In this respect, no return to a soft market is coming any time soon. Exclusions for mold, of particular interest to property owners, are for the most part a fact of life. Improvements in market conditions, furthermore, do not apply across all lines of coverage. Directors & Officers and Workers' Compensation lines are posing difficulties to buyers, and savings in these areas aren't forthcoming. In terms of expense management, the biggest challenge facing the real estate industry today is managing the cost of employees, especially Workers' Compensation and Healthcare coverage. In a recent survey, hoteliers reported that Healthcare and Workers' Compensation costs represented the second biggest business problem they face (the first on the list was energy costs). While the message of the moment is still positive, the improving market is quite precarious. A catastrophic loss--an earthquake, hurricane, terrorist incident--could have immediate and dramatic consequences. The same may apply to the question of whether the government's terrorism backstop, TRIA TRIA Terrorism Risk Insurance Act of 2002 TRIA Term Requirement in Average , is extended past 2005. If it is not--and current indications are that it is unlikely to be extended--repercussions will be felt in the property markets. Capacity for risks in major US cities could be greatly restricted. Given these uncertainties, real estate risk managers might want to consider long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. strategic moves--forming a captive captive said of naturally wild or feral animals kept in captivity for educational and scientific investigation with no attempt being made to domesticate them. , for instance--that are usually reserved for times of market hardening hardening, in metallurgy, treatment of metals to increase their resistance to penetration. A metal is harder when it has small grains, which result when the metal is cooled rapidly. . Good deals may be easier to come by than stability these days, but stability may be the more prudent goal. Willis Group Holdings Limited is a leading global insurance broker |
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