The recent market softening of multifamily property and liability insurance may do little to calm wary owners and investors. Seven years of hard market conditions have taken a toll. Is the worst finally behind us? Many want to believe so.
one respected insurance authority sums up the feeling this way: Yes, the skies are brightening. But keep an umbrella handy.
After all, extreme weather risk hasn’t disappeared. Today’s hopeful mood could be upended in short order by major wind and wildfire events. That explains why smart multifamily owners and operators aren’t sitting still. They’re busy preparing.
Hard Lessons Learned
A good example is Investors Management Group (IMG), a California-based multifamily sponsor that owns and asset manages over 5,000 units in Western, Southern, and Southeastern states.
“The last couple of years were brutal,” admits Karlin Conklin, an IMG principal, co-president, and chief operating officer, referring to insurance, material costs, and government-imposed operating restrictions brought on by the pandemic.
“The industry got knocked on the side of the head. Conditions feel better now. We have our legs back,” explains Conklin. “I believe there’s been a paradigm shift in multifamily. Success will go to operators that recognize this and are willing to embrace change.”
Resiliency Through Insurance
High among those changes is crafting an enduring resiliency strategy. Consider insurance, for example. IMG has taken steps to mitigate insurance costs. “We bundled up all of our buildings into a master policy to help manage costs,” the veteran industry leader reports. “By spreading risk around, it helps all our properties. We’ve been able to keep insurance rates flat for 2026.”
As an added precaution, IMG hired its first risk and compliance officer this year. The new executive will likely be busy. Extreme weather aside, insurance underwriters will continue to zero in on local crime scores, asset age, infrastructure condition, and loss history in updating insurance rates and terms. Rising replacement costs will also impact underwriter decisions.
7 Risk-Mitigation Solutions
Fortunately, owners and operators have an assortment of risk- and cost-mitigation strategies and tactics available to them, including:
- Water leak detectors;
- Fire suppressant devices;
- Smart security technology;
- Closer collaboration with brokers and underwriters;
- Comprehensive recordkeeping of maintenance, safety and renter interactions;
- Vendor compliance with liability coverage and indemnification; and
- Self-insurance or captive tenant liability insurance.
Circle that last one, captive tenant liability insurance. It’s not a risk management solution available to every multifamily owner or operator. But if you meet the criteria, it can represent a potential financial windfall and resident amenity.
The idea isn’t new. In fact, a captive insurance strategy is widely practiced across many industries worldwide, from manufacturing to professional services. By year-end 2024 the total number of captives globally rose to 6,290, according to Business Insurance magazine. Atlanta-based River Oak Risk, a leading captive insurance management company, verifies the surging growth in multifamily: Over the last 12 months, multifamily clients accounting for over <000,000> units have engaged its services.
$100/Unit/Year
It's a safe bet a substantial portion of the NMHC Top 50 owners will be well along in their captive insurance journey by 2030. A few reasons why:
- NOI Growth. Net operating income on average is $100 per unit per year. Doug MacGinnitie, River Oak Risk chief operating officer, says “If you own 5,000 units, that should equate to around $500,000 per year in extra profit.” For many operations, that’s found money—a new and reliable source of additional revenue.
- No Coverage Gaps. Automatic, lease-embedded coverage guarantees universal resident liability compliance across the entire rent roll year after year.
- Administrative Simplicity. Embedded engagement at the lease signing ends the suspense of ‘Can they confirm their COI? Did they renew their policy?’
- Low Per-Resident Premium. The resident fee, paid through their monthly rent payment, with premiums as low as $12 per month.
- Marketing Differentiator. The property owner or operator can promote automatic resident liability insurance coverage at no extra cost as a community amenity.
Scott Stettler, chief financial officer of Wasatch Property Management, a Utah-based manager overseeing more than 18,000 units across five Western states, says launching its captive made sense for several reasons. “Our main struggle was with revenue share and the amount of money that was going to insurance companies. Our low claims history indicated there was great potential in having our own captive insurance company.”
Tax Savings, Too
Besides the listed benefits, Stettler also liked the idea of tax savings, including the 831(b) election, which precludes tax payments on $2.3 million in premiums, as well as deductions on the costs of reserves.
At a time when many industry players are future proofing their operation against shocks like another hard insurance market, it makes sense to explore all resiliency options. For owners with portfolios of 1,500 or more units, captive insurance is one worth investigating.
As for the industry’s general outlook through 2030, IMG’s Conklin sounds a note of resolute resilience and optimism. “Yes, 2023 and 2024 were challenging. But we’re multifamily. We are born optimists.”