WASHINGTON, DC - Apartment firms benefited from lower insurance costs in 2010, according to the National Multi Housing Council's annual Apartment Cost of Risk Survey (ACORS). The mean (nonweighted) average Total Cost of Risk (TCR) decreased by about 6% from 2009 to 2010. (Total Cost of Risk reflects the cost of the three principal components of the insurance premium: property, general liability and workers' compensation.) The weighted average cost of risk, which is less distorted by very large or very small respondents, dropped by a full 14%.
"Our findings show that it's a buyers' market," commented Jeanne McGlynn Delgado, NMHC's Vice President of Business and Risk Management Policy. "The momentum of insurance rate decreases accelerated in 2010, following decreases in 2008 and 2009."
Market reports indicate that insurers are relatively flush with capital and rates are low. The frequency and severity of losses have been on a decreasing path since 2004. According to industry experts at survey partner Conning Research and Consulting, these conditions will continue until significant events push rates upward.
Key findings of NMHC's ACORS survey:
Rate decreases for two of the three Total Cost of Risk components—property and workers' compensation—drove the TCR down.
The mean average property cost of risk decreased by 11% from 2009 to 2010, driven largely by falling property rates.
The mean average workers' compensation cost of risk decreased by 3%, from $858 per employee to $833.
Premiums were relatively unchanged, but deductibles decreased.
The cost of risk of the third TCR component, general liability, saw a slight increase of 3%.
Two-thirds of apartment firms—66%—require residents to have renters' insurance, a big jump from last year's figure of 44% and up dramatically from 2008's 24%. The most common limit required is $100,000.
The ACORS contains information about property, general liability, umbrella, workers compensation, D & O, professional liability, employment practices and environmental insurance lines. Data were analyzed by Conning Research and Consulting for NMHC and the survey includes Conning's proprietary Property-Casualty industry forecast data and trends to add context to the survey's findings. Forty-five firms responded, supplying cost data for insurance procurement for more than 750,000 apartment units.
Firms that completed the survey can receive the full data sets, along with the report. Non-participating NMHC members can download the report and a PowerPoint summarizing the results at www.nmhc.org/goto/5950.
Based in Washington, DC, NMHC is a national association representing the interests of the larger and most prominent apartment firms in the U.S. NMHC's members are the principal officers of firms engaged in all aspects of the apartment industry, including owners, developers, managers and financiers. One-third of Americans rent their housing, and over 14 percent live in a rental apartment.