Insurance Market Update & Q&A

Alex Bell

Sarah: Alex Bell is a real estate investor himself over 25 years as a commercial insurance broker whose entire practice is focused exclusively on working with real estate developers and investors. His passion, Alex loves being able to find creative solutions to his client's individual insurance needs.

You've likely heard the phrase realities of the hard market, Alex Take us through what that currently means for real estate investors, including proactive risk management and some client examples. Welcome Alex and colleague Trina Burgess.

Alex: Thank you very much, Sarah. Thank you. First, there's three things that I'd like to cover tonight. And the first is to formally introduce Trina Burgess. I think Trina was maybe last month or maybe even the month before when we informally introduced Trina to the REITE club nation.

And I'm absolutely thrilled to have her as a part of the team. It's a really cool story. How Trina, we actually were introduced to Trina through the REITE club. As a matter of fact, I'll let her elaborate and tell that story. But it's great because it's a great fit for MyCor and for Trina, because she is definitely what I would call a sophisticated investor who has built a really nice portfolio out in Western Canada.

I'll let her talk a bit more about that, but it was a great fit for us because we're teaching her the insurance piece, which she's very quick. But she understands investing. So, it's a great fit. People have heard me talk in the past about the tremendous growth that we're experiencing here at MyCor.

So, happy to be thrilled to have Trina Burgess to help manage all that growth. So, she's up to speed licensed in British Columbia and Alberta. And we're ready to get her put to work for all the REITE club members in Western Canada. So, that's the first thing to formally introduce. Actually, you know what Trina I'll turn over to you. If you don't mind sharing with everyone, the whole genesis of how you started with MyCor.

Trina: Thanks, Alex. Yeah, I was a member of another investment support group. And we had a presentation from a MyCor representative and it was like a two-hour long thing on insurance and I was totally engaged.

So, I thought, oh, this is so awesome. So, I got quite two hours of insurance and we stuck it to the end. It was so awesome and I was totally interested the whole time. And it looked like the premiums were really favorable and the coverage was really good. So, I went and I got a quote on my properties.

It saved me money, got me better coverage. And I thought, Hey, I should work for this company. So, that's when I joined the team. So, thanks for bringing me on. I really appreciate it.

Alex: Yeah, she's off to a great start and looking to get even busier. We'll talk a bit about how to reach out to Trina. If you live in British Columbia or Alberta, where she's now licensed, reach out to her directly and we can help you out there. 

So, that's the first thing on the list for tonight's. Secondly, I just want to go over a bit of a market update. I've talked in previous REITE club meetings about the insurance market place right now. So, I'll do a deeper dive into that. 

And then the third piece is I'd like to really turn this over to a true Q and A for the REITE club members. I know in previous meetings and calls that I've been on. A lot of people have reached out after the fact and had questions about their particular property or portfolio, and more specifically what's going on with their particular insurance company. And are there solutions out there? So, again I'm more than happy to answer coverage questions at people instead of me just being repetitive and going over the five to eight key coverages. I'd like to turn it over to the REITE club nation. So, insurance marketplace, Trina, please feel free to jump in here as well. Okay. At any time, but the insurance market and everyone's heard me say this before on REITE club calls.

We're not in the business of defending insurance companies at the end of the day doing it to make money, right? They're no different than big banks or whatnot. But the reality is we are still in what's called this heart cycle, it is a hard insurance market and I've had a lot of REITE club members. And the great thing is the growth with the REITE club. They're going from coast to coast. I was on a call on the fifth with the Atlantic membership. And there were a lot of questions after that meeting with respect to their particular insurance policies.

Capacity is certainly an issue in Atlantic Canada and pockets of Alberta and pockets of British Columbia. A lot of insurance companies their loss ratios are horrendous. There are some insurance companies that are completely pulling out of insurance markets that have just started provincial markets and the ones that are choosing to stay in have taken massive rate increases.

And not only with the rate increase, but they're also reducing coverages as well. They're transferring the risk back onto the clients through higher deductibles. And I excluded the main coverage. Some insurers are excluding floods when you live in pockets of Alberta or British Columbia, that's a very important thing to have.

I think that was one of the things that first appealed to you, Trina, was that offering that product that we have, you were able to get flood insurance. The markets everything that we're hearing and reading from our insurance partners and just the general marketplace is going to continue at least for another 12 months.

All right. I've said in the past, and I'll say it again, the Insurance Market is cyclical. It's no different than the real estate market, the stock market, whatever it is, it has its ebbs and flows and its ups and downs. We've been in this for two years now and it looks like we're in it for another 12 months.

The great news is depending on the particular strategy or investment deals that you're looking at. At MyCor, we do have an exclusive product. We're the only brokers in Canada that have access to this. And truly is still best in class with respect to the coverages and just as more importantly, the pricing.

So, we still have access to that. We are at the point now where there's been such a demand for people to get into this. We're at the point now where we've just gone through our internal audit. And some internal tightening up the underwriting. So, if you don't belong to the REITE club, if you're not a member in good standing of the REITE club, you don't qualify for my core program anymore, that wasn't the case two years ago.

We were having a lot of referrals sent to us from REITE club members who had friends who were not members as of yet. And we were writing about that business. That's no longer the case. If you're not a member of the club, you don't qualify for our preferred products. Our program with our insurance, that being said as we are a full-service brokerage, we are still able to place risks, right?

Rooming houses, different strategies like that. Short-term rentals. We do have access to insurance markets and Trina and other members of our team are happy to work on those. Even if you're not a REITE club member, but more importantly, where we're focusing, we're really making our product or programs exclusive to the REITE club nation. So, that's a high-level overview. And would you like to edit anything to that, Trina? What's your finding to start?

Trina: No, that sounds true. Yeah.

Alex: Yeah, so that's the reality of the marketplace. So, we've talked about capacity. We talked a bit about appetite. Again, for those that have not been on a meeting or a call with myself previously. So, just to give you some background on MyCor, like most of the vendors that work with the REITE club nation, we are investor focused, and we're different than most general insurance brokers, because this is all we have different divisions within MyCor that handled different sectors, but Trina and myself and the other new team members, this is all we do.

We don't do any other type and as a result of that, we were able to build this exclusive product or program that's really a high-level overview. As far as the coverage piece again, I've done that in the past. I'm happy to do that again. So, if you want to jump in here and if there's any coverages that you think I should go over, but again, I'm more or less wanted to turn this over to, because what happens is when I've done these into the past everyone reaches out to me and get into data with question and call.

Sarah: All right, I guess I'll start with a couple of questions. What area do you cover?

Alex: So, we're licensed in every province. Trina is first licensed in Alberta now, British Columbia myself licensed in every province with the exception of Quebec. Quebec is a different model. It's a hybrid, our brokerage, under the MyCor banner, we are able to place some risks in Quebec. But right now, it is licensed in every province.

Sarah: All right, awesome. We've got a great question from Celia, one of our mortgage broker partners with Claire Drage. When a primary residence turns into a rental, does the landlord need to notify the insurance company?

Alex: Very much so that's called a material change in risk. All right. And that is very important.

So, how does the insurance company view that? Is an insurance policy essentially an insurance contract? And what that insurance company is doing is they are taking risk. Insurance companies, much like banks they're in the business to evaluate or underwrite risk.

And when they set premiums, all right, the premiums for a principal residence, the premium and the coverages are based on their underwriting loss experience or past precedents. So, if that risk changes. The appetite for insurance companies for investment properties is very limited. There's only a small, like when you look at all the insurance companies in Canada, less than 5%. I don't know the exact figure, but less than 5% would only be interested in quoting on that class of business.

And when you really start getting good at this, and you're expanding your strategies, like when a lot of investors start off with a turnkey single family, when you get into student rentals and BRRRRs and things like that appetite, or the number of companies really dwindles down before.

Yes, back to the question. When you do change, it's a material change in risk and you happen otherwise. And I've never had one of my clients, but I've heard about it. If you don't notify your insurance company and there is a claim as a rental property, there's no coverage. The coverage is null and void. So, that's very important.

Sarah: All right. And just to follow up to that. So, if you are in between, let's just say it's already a rental and you're in between tenants. How often do you need to actually, if it's vacant in between, your next tenant, like how often do you actually have to go and check on the property in order not to void the policy if something happens for payout?

Alex: Great question. So, it all depends on each individual company. But what I can talk about is the program that we have with ours. So, they can see coverage. And I think I've said this several times in previous meetings, most insurance companies, the vacancy coverage is only valid for 30 days, right? So, from the first day, this really drills down into your documentation, whether it's through yourself or through your property manager. You really need to have great documentation.

So, from the day that tenant moves out, most insurance companies will only provide vacancy coverage for 30 days. So, on the 31st day, At the property, if you're still going through the tenant screening process, then you must notify the insurance carrier and purchase what's called a vacancy endorsement.

That's for most insurance companies. I'll refer to our program products. You get 120 days free coverage with. But that's very important and especially in the winter time. Sarah, we came through our winter certainly profitable but we did have a number of claims.

Frozen pipes. And when you've probably heard of playing claimed examples like this yourself, So, when you are going through the re-screening process, a lot of people try to turn down the heat to save a bit of money. I've even had some turn off the heat which makes me crazy.

 So, frozen pipes in the wintertime are very important.

Sarah: Yeah, absolutely. And there's a question here from Samira about properties in the 1800’s. I have a house from the 1850s myself. And in terms of older homes, what kind of insurance is available and you have coverage for something from the 1800’s.

Alex: Absolutely, so I'll refer to the MyCor program then, because it's all different with various insurance companies, but with our particular program. Yeah, absolutely. We are happy to put that in our preferred program. The caveat is that it essentially has to be a BRRRR, right? It doesn't have to be a flip, but you have to be going in with a renovation, budget and extensive renovation budget.

And updating all the utilities. It doesn't have to be stripped down to the studs. And in fact, if that were the case, then it actually requires a different insurance solution called a builder's risk or a course of construction form. But there is with our program. There's no cutoff as far as the age of the original build, but it must be. And the great thing is we can close on that particular deal for you. So, the deal will get funded as long as on day one, we know that you're going in with a renovation budget and updating all the utilities, a roof included. But that's a great question, because again, we have contracts with about 40 different insurance companies and some of them there is a cutoff for that.

Sarah: Okay. All right. That's interesting. What about a brand new? So let's switch it up to the opposite. What about a brand-new condo?

Alex: Condos. Yeah. Wow. This is really relevant out in British Columbia. So, if it belongs to a condo association. Okay. The insurance piece is really minor actually, as far as the price is concerned.

Okay. So, what should be done? There's what's called a condo unit owner's policy, which used to be on with us. It used to be only $365 for the year. We've now had to change it to $750 dollars per year. But what happens is essentially iif it's a freehold, it's a different story. You have to ensure that as more or less a detached structure, if it's a condo freehold, but if you're paying condo fees and belong to an association part of that, the monthly condo fee, pays for an insurance policy for the condo board, right? The condo board has, so they're insuring everything from the brick out, right? Everything from the drywall in, the investor is responsible for. Now, what's happened is there's a lot of strain in this particular class of business. A lot of insurance companies don't want to touch it because of what's happening. Yeah. The condo boards. All right. And they put, this is a particularly big issue out in British Columbia, the whole strata thing.

So, the condo boards are not buying adequate insurance to properly insure the buildings. And what they're doing is they are when there is a loss. All right. So, the actual physical structure, they're trying to turn around and put that on the investor. There is not an insurance company in Canada that will cover something like that.

A condo unit owner's policy is only good for the drywall in. So, right now, a lot of insurers and again, it's an issue. A lot of clients, I have a lot of calls from investors out in British Columbia that are having issues with that. Again it's a gray area that I talk about the hard market, the hard insurance market.

We will do condos here at MyCor for existing clients for REITE club members. But we're not in the business of writing condos. Okay.

Sarah: All right. That's good to know. What about, I'm trying to combine what I can multifamily. Obviously, there's been big increases in insurance costs and insurance premiums are multifamily like 6 to 10 units that are a little bit older. Are they getting harder to insure from you?

Alex: The short answer is yes; most insurance companies don't want that business anymore. I'll particularly mix commercials, right? That used to be, and that's a great, a lot of people. As they develop and build a portfolio they learn more about mixed commercial.

It's really hard to place mixed commercial properties right now. Our program will not fall, but will not take on mixed. But as far as it's straight residential insurers as a unit, sorry, it still qualifies for our program. Again, there's yeah, absolutely we can certainly help REITE club members with that. Once you get into multi units that are three stories, then it no longer qualifies for our program. We have to reach out to other insurance markets.

Sarah: Got it. Okay. All right. And then there's another good follow-up question in terms of asbestos. And I'm going to add oil tanks or foundation issues.

Like what are you seeing there from an insurance standpoint?

Alex: Yeah. So, even our program will not again cover with the asbestos. If you are underwriting a deal, and you get the home inspection report, if there's asbestos absolutely there, we will close on that property. But we will only give you 15 days to have that remediated.

So, you have, and again, when I'm having the conversation with the client, it's okay, how much of a renovation budget do you have? And we will follow up within 15 days. And it has to be a licensed insured special removal contract. And our underwriters will even look in and do some due diligence to see if they're worthy because that, especially this is an absolute exclusion on any insurance policy in the north or the world for that matter. That's the deal. We'll never pick that up again because our program is investor full. As long as you have the right underwriting mechanisms in place, we will close and fund the deal.

Oil tanks, it's the exact same thing, right? Oil tanks are now a brand-new oil tank within 10 years. All right. As long as you have an inspection of the current updated inspection, we will be able to place that in our program. Anything older than that would need to be removed within 15 days.

Sarah: Yeah. All right. So, we gotta just work with our contractors to ensure that we do it all within that timeline.

All right. Awesome. Now, I like this question as well. MB Property Management was asking about short-term rentals or mid-term rentals. What is the best policy for that? And then, is there a need to contact you in between each one or is it just a straight policy all the way through? What is the best option for those short to medium term rentals?

Alex: Yeah. So, short-term rentals are a very tough class of business. Okay. The what we call standard market standard insurers,  Intact, all the brand names. They are not interested in the short-term rental business. All right, at MyCor, we have access.

There isn't anything we can't insure. All right. We do have access to what's called MGAs or a Managing General Agent. Basically, it's an insurance wholesaler, right? So, we do have access to that. In fact, I had a new client for Trina that is buying for a short term.

Short-term rentals in the Okanagan and they have a strategy. So, yes, we can, we do have access to that. The premiums on short-term rentals are very high to the point where I would say three or four years ago, I had some clients who had large portfolios and they were doing the due diligence, the proformas, and looking at, piecing off some of their portfolio and changing it to a short-term rental.

And when they reached out to find out what the insurance premiums would be, as opposed to what they're currently paying, it's four or five times the premium for short-term rentals. And the reason being is the insurance company. Again, they're in the business of the value of evaluating risk. 

Short term rentals there's no long-term lease agreement and you get people in there for the weekend, have a good time. We've all heard the stories, right? So, the insurance companies, we do have access to companies that will do it, but it's not easy to play.

Sarah: Yeah, absolutely. I do love them. The cash flow is great. You just have to include the premium ahead of time and calculate that in. I do have one last question and I think this is all relevant to all of us here on the line as landlords and investors, tenants’ contents and liability insurance. What does that cover for them and why should we ask them to have it?

Alex: Yeah, absolutely.

The first answer is, why shouldn't you have that built into the lease as an investor and the coverage that you were forwarded as a result of that is if there is a slip and fall claim. So, if there's a liability. Okay. Now your tenant, if they have their renter's insurance, they can't sue their own insurance policy.

But if the tenant has friends, family, whoever may be any third-party member. Okay. At one point in their unit, and if they heard the damage themselves in any way third-party liability that renter's insurance policy. We'll pick up the liability exposure from the tenant's policy. That will be the first payer.

All right. And as I said previously, you've heard me mention this in the past. Any lawyer worth his salt will find out who owns the house. So, that investor will be named in that lawsuit as well. But what you're doing, how you're getting an extra layer of free liability insurance, because when I say free it's because the tenant is paying for the renter's insurance, not you, is that renter's policy will be the first payer they will pick up.

Now, if it's a severe accident and the liability limits are exhausted and that particular renter's policy. Then your insurance policy will kick in to cover any subsequent damages or judgements above that liability. So, that's what you get from it as the investors. Another reason why it's a great business practice and the great thing about the majority of the people that we work with is, what they care about their tenants.

And in most cases, not in all cases, but in most cases. And what happens is if there is a sewer backup loss or a flood or whatever. The investor's insurance policy. All right. And it doesn't matter what company it's with or what your insurance brokers will not afford any temporary living arrangements. Your insurance doesn't cover that. So, it's a really good idea. And I've had clients reach out well, what do you mean? My insurance doesn't cover hotels for my tenant. We have found that their policy has no financial interest for that tenant. So, it's just, you know what, morally, it's a good thing.

If there is a loss, renters' insurance will pay for temporary accommodations for the tenant while your investment property is repaired.

Sarah: That's a great tip. I didn't even know that. And just a quick answer, because I know we have to wrap up, but a quick answer, I'm hoping that you can also add to that.

If a tenant does leave for a week or two is there a responsibility on us to notify the insurance company or go check on the property? Or like what, from an insurance standpoint?

Alex: So, a week or two is fine if it's going to be longer than 30 days with us, it's 120 days, but most insurance again, I always actually go back to your current insurance policy, scrub it, as you said, Sarah. If it's going to be longer than 30 days, you want to notify your insurance carrier.

Sarah: All right. Alex, Trina, thank you so much. This was great.