Canada’s insurance market has “hardened” over the past couple of years, a word industry insiders use to describe a cycle of significant premium cost inflation and limited supply of coverage for all manner of commercial properties.
First National, in collaboration with Hub International, one of the world’s largest insurance brokers, provided insight into these trends during an Insurance Briefing on March 11, 2021.
Now it’s time to profile the successful countermeasures that leading property owners are taking to combat the hard market and secure the best coverage for their portfolios. In part one, we feature the advice and perspectives of Clark McDaniel, co-founder of Williams & McDaniel Property Management.
About Williams & McDaniel
Founded in 1978, Williams & McDaniel has grown to become one of Canada’s largest property owners with 3,300 apartment suites, and over 250,000 square feet of commercial office, retail and self-storage space in more than 20 cities. “To say the least, it is an experienced operator with a portfolio of over 60 buildings,” said Evan Pawliuk, Assistant Vice President, Commercial Financing at First National, which has worked with Williams & McDaniel for more than 30 years.
With its industry-leading reputation for quality, service and integrity, focus on discerning apartment tenants in the 55+ year category who want condo-quality accommodation, and responsive boutique-style management, Williams & McDaniel typically commanded highly competitive offerings from insurers. Understandably so since its claims history was in line with the industry except in one area: claims related to faulty building systems. Due to attentive management and substantial capital investment, claims for water leaks and electrical problems are consistently below the commercial property industry average, making Williams & McDaniel’s assets low risk to insure.
Origins of the hard market
About two years ago, Mr. McDaniel noticed a change in the insurance market. “In 2019, we started to experience pressure and had to negotiate just to achieve a 12% increase in our premiums over 2018. The insurance company asked for considerably more than that. Then in 2020, it was up another 15%.”
In an environment of persistently low inflation and recent government-mandated moratoria on rental rate increases, the rising cost of insurance was understandably unwelcome and became a significant focus for management. Mr. McDaniel requested an explanation for the increase. He was told the insurer was finding other avenues of business more attractive than real estate, although he also feels that insurance companies are ill-equipped to manage the costs of repairing damage to buildings, which has exacerbated cost increases, as has baseless law suits common in a more litigious society.
“We’ve been buying a new property every month for the last year and a half and every time we do, the insurance carrier says ‘we’re not sure we want to be in real estate any more because of the pandemic, so we’re conserving our cash, changing our underwriting and staying out of industries that have any risk at all.’ Every property owner is being painted with the same brush.”
It has been a frustrating experience for a company with a great track record. However, it could have been worse. As Mr. McDaniel remarked: “When I spoke to my peers, they told me they were experiencing increases of 25% to 30% in our area of business. In context, we felt we were quite fortunate to come away with 12% and 15%.”
Discipline, the saving grace
Mr. McDaniel attributes the lower relative premium cost increases realized to “running a tight ship.” But more specifically, his firm created a dossier of information to present to insurance carriers to make the case for a better deal.
The dossier included:
- Specification Reports on every property outlining current maintenance status and plans for future capital spending on items such as roofs and parking structures so that the carrier knows what it is being asked to insure
- The dollar amount of annual capital expenditures made at each location to demonstrate the ongoing commitment made to maintaining and upgrading all properties – a figure that last year represented 20% of company revenue
- Daily Logbooks that every Williams & McDaniel building manager completes to chronicle activities at every building from the dates/times of fire system testing to the dates/times the manager applied salt or shovelled during a snow storm and the condition of paved surfaces
- Copies of 12-point tenant-witnessed inspections that the building managers complete every October in every suite including testing and cleaning smoke detectors, removing dust from radiators to ensure better airflow and prevent mold and remedying any unsafe behaviour such as hoarding
- Details of the 34 standards (many of which are safety related and therefore relevant to insurers) to which Williams & McDaniel complies to be part of the Certified Building Program sponsored by the Fair Rental Policy Organization of Ontario; to qualify for the program, Williams & McDaniel submit to onsite audits by J.D. Power & Associates every three years
- An explanation of why Williams & McDaniel receives a 4.6 Google rating, higher than any of its peers, which speaks to the quality and customer-focused management procedures applied in every building
- Evidence of on-time payment of all insurance invoices
Said Mr. McDaniel: “We do everything we can to make our case, times two.” Additionally, Williams & McDaniel hosts seminars for its staff every six months to review items of significance and often invites a local fire chief to share knowledge as part of disciplined management.
The Importance of a good insurance broker
One of the tips that Mr. McDaniel offers to all property owners is to choose an insurance broker wisely.
“Brokers are very important in the equation as they sell our business to an insurer and represent our interests. In our case, the broker presented our portfolio to five carriers and started negotiating several months in advance of premium renewal to give underwrite enough time to review our submission.”
The bottom line
While Williams & McDaniel succeeded in keeping its insurance increases much lower than many peers, it was hardly what Mr. McDaniel would label a victory. “When someone is hitting you with a hammer and stops, it feels good but it’s better not to be hit with a hammer in the first place.”
His advice to other owners who are confronting today’s hard market: “document, document, document…keep meticulous records that show you are doing a good job…and maintain detailed oversight by management in the field because that’s where you do business and that’s where the rubber hits the road as far as insurance is concerned.”
This story was provided as a service to our clients. We thank Clark McDaniel of Williams & McDaniel Property Management for sharing his experience and advice. For advice on property financing, please speak to your First National advisor.