Sarah: I'll introduce Dan Tetzlaff. Dan, for many of you guys that have been at the club in person or at one of our virtual events has been a supporter pretty much. I think since we started the club and if you need insurance for your real estate investments or you know what not. I'm sure you do a lot more insurance and just homes. You are a wealth of knowledge. You've been in the investments round working with investors when it comes to an insurance standpoint for a long time.
I'll tell you, you have our best interest because many times I call you and I'm like, hey, do I need to do this? And you're like, yeah, probably knowing you explain it to me. I liked that you're able to have those conversations and you really have our best interest at heart. We'll hand it over to you, Dan. Welcome to our events, super excited to have you on board and you can discuss what you're going to share with the REITE club nation.
Dan: Hi Sarah, how's it going?
Sarah: Good.
Dan: Thank you for having me on. Yeah, I've been with the clubs since the start. It's just so great to watch it grow and watch it adapt during COVID. This is obviously not ideal for us, but yeah, I think one day soon we'll be back in person and fingers are crossed and I appreciate the opportunity to speak tonight.
I'm coming with a topic that is very dark and it's slightly negative, but it's very important. I would say my phone rings off the hook on a daily basis from other clients and people who are investing in real estate and they all have the same question for me. Why has my price on insurance gone up so significantly so fast?
When I say this, you have to assume that this is for the general marketplace. If you have a specialty product, for example, we have one for REITE club members through my brokerage. You will not see this affect you as much. But if you are, have your insurance with a general company in the general marketplace or the bigger you get, the more it will affect you. Meaning if you own multifamily or larger, or a lot of multi-families, why is my price going up, maybe 40% on my renewal.
I wanted to share this information with everyone, because I think it's so important that people start preparing for what they're going to see either on the renewal or when they're acquiring new locations, you may be previously asked the seller, where are you paying and expect to pay a similar price where that may not be the case.
Second to that? Again, I know Michael and Dan previously said, this is the lowest rate they've seen. Since they've been in the business. I work with a few guys that have been in the insurance industry for 50 years and they said they've never seen a market that is difficult to navigate for insurance.
Starting, what is this call in the insurance industry? We call it a hard market or a market crash. And then what all my clients continually ask me is, can you help me? And why is this happening to me? So, I want to explain to the group again, please remember that I'm a broker and like Sarah mentioned, I'll always try and have your best interests at heart, but I'm trying to explain to the group here why the insurance companies are taking such aggressive action so quickly.
A lot of the numbers I'm going to give out are not exact, but they're close enough so that I can get my message across. So, for the last seven years in Canada, there's about 14 insurers that provide the majority of residential realty insurance. And of those 14, I think 13 of them have consistently lost money every single year from about 15 to 20 cents on the dollar. What does this mean?
Eventually when they were returning to their board of directors meetings and they're sitting down, they made 50 million in trucking and 30 million in men, manufacturing insurance. And once again, another $200 million loss and residential Realty, the management at the insurance companies or investors in the insurance company said we've had enough. And so you're seeing what's called now the hard market.
Why is it happening now? A bunch of different factors are toppling all of the insurance companies over the last seven years. Number one, in the majority of the cities, especially in Ontario and the GTA, you have aging infrastructures currently. Right now, I have a new house that I'm living in.
Second, the weekend. I had a claim because the clay pipe from my house to the city was about 110 years old and had never been updated previously. I got the fun chore of digging up my driveway and replacing it and dealing with the damage that it left inside my house as a lot of new builds are ongoing. They're basically being built so poorly, poor craftsmanship. I can think of off the top of my head the news.
There were incidents in condo buildings in Toronto where the glass balconies were falling out and landing on people three, not only do we have aging infrastructures, we have aging properties. So, if you think of apartment buildings or rental properties that were maybe built between 1920 to 1970, I would guess myself that probably more than 90% of them have the original plumbing still left in them.
It's not often when you do upgrades to your property, do you rip the walls and put in new pipes? This is causing the insurance companies to suffer so many water damage claims because the pipes are reaching the end of their cycle, if we call it. Number four, we have global warming. this is when you see, oh, again, every year I turn on CNN and California has wildfires and I think I hope this isn't going to impact my clients.
It's starting too, so you see California wildfires, hurricanes flooding. All of these things are going to impact the domestic market because all the insurance companies you work with, they have to go buy reinsurance. And what kicks in when you have a forest fire reinsurance, so, those guys are losing money, which then gets passed down onto the consumer, which is another reason point number five, which is a new one, but the insurance companies are bracing for impact.
There are so many businesses and restaurants that are having to close because of government mandate some not all. And I'm not looking particularly at just investment properties here. They have had to reimburse their clients for their inability to operate depending on the policy that they've purchased A or B class action lawsuits.
For example, if you have a seniors facility and let's say there was an outbreak in that seniors facility who likes to come knocking and look to reimburse those people, but personal injury lawyers. They are going around obviously from senior home to senior home checking databases, et cetera, the news.
If there was an outbreak, they're looking to sue the insurance company that insured the building for negligence and properly handling the outbreak. And five, which is somewhat related. There's a massive influx of liability losses. For example, I think everybody listening on this panel could probably name at least three personal injury lawyers just through advertising and alone.
I think if you sat me down, I could probably name 20 purely from advertising. The majority of them, if not all, to my knowledge, and I could be wrong on this, they work on a percentage basis of the settlement in which they get. For example, if somebody now who maybe isn't in a good financial position knows that it's there in your property, your rental property, your building falls down the stairs accidentally.
I know there are many claims that are not frivolous, but there are many that are. They will reach out to a personal injury lawyer and say, Hey, I hurt my leg at my rental property. I fell down the stairs. What can we do to help me get back on my feet, part in the plan and reimburse me? Cause I can't go to work now.
All of those things all at once, they're combining with the insurance companies and many of them. Of the 13 that I mentioned that are, that have been significantly impacted in Canada. I would say there's probably, I'm not going to name any names of the insurers, but I would say there's four left that will offer new business reasonably on anything over four units and higher.
The marketplace is becoming so limited. And then of those 13 or 14 that I've mentioned about five of them have completely closed their business in Canada. When I say that there is an example of one company that's global that is completely late leaving Canada for all lines of business, but the majority of them are just no longer offering residential realty insurance, and every renewal that comes up for their clients, they are getting off risks.
They send them a letter 90 days in advance and they say, hey, thank you for your eight years of business. Thanks. You didn't have any plans. But we've decided this sector has been so unprofitable for us. We no longer want to offer you a renewal. What does that do? That puts so much stress on the four companies left that are writing new insurance, that it creates a major sort of supply versus demand issue. And we're running out of what's called capacity.
This is all very negative news, but it's factual. I am sure there are some people listening that can relate, which is why I have my phone ringing probably, five times more than it usually does with people asking for help. And then around this information what can I do? Like it's not, obviously, I'm painting a dark picture here, but I would say that at least a good majority of the insurers while they don't write new business right now, they are staying on risk for their loyal clients.
While I did mention about five of the companies are non renewing their entire book, I would say about nine of them are staying loyal to their existing clients. Again, not writing new, but sticking with what they have. And then a lot of questions I get asked from there. What can I do about this? This is obviously a big concern for my business. Anytime an investor wants to cash flow, one of their line items will be insurance. How can I keep it affordable?
At least I'm in a profitable situation. One, I always recommend now I may not have before when you're buying a new property and it's specifically, I would start thinking at four units or more, is this an insurable risk? Don't assume you will have an easy time getting insurance, make sure that you speak with somebody, whether it be me or your current insurance broker or agent or whoever you work with. Just double check. That it is insurable.
For example, if the previous owner left it with knob and tube electrical in it or maybe something less severe, the insurance company did not non-renew that client, but now during a sale transaction, they're going to look to get off risk at that point. And unless the new owner is willing to make that upgrade for them.
Therefore you want to have the conversation with your home inspector insurance broker agent. Because for example, if it's uninsurable, unless you make a $30,000 capital upgrade, you're going to want to know about that before you buy the property.
B, you'll always want to start now with asking the seller for a copy of their existing insurance policy. Again, for example, let's say, I don't know, you're not working with me or you don't have a specialty policy where you can lean on a little bit more into some of the REITE club members. Do you want to first go back to the same insurance company that was currently providing the insurance and see if they're willing to stay. That's a good strategy to start. Because typically, it's more negotiable with the broker to the insurer. You can say, oh, you did it for Joe Smith insurance brokers prior to me, why won't you do it for me.
Three. You have to expect that there will be price increases. So, let's say we get the seller's policy. So, I'm buying off again, I'll use the example, John Smith. I'm buying enough, John said, John, can I have a copy of your insurance bossy? He says, no problem. I see the price he was paying was $2,200. You can't take that assumption anymore. And I would personally, if it was for me, I would want to get a quote so I could get a firmer number.
I would assume it's going up at least 40% off what the previous person was paying for. I think the gentleman prior again mentioned this same thing in our world. We've lots of time because there's only four or five companies that are considering doing realty insurance. Right now they're getting so inundated with requests for insurance, from A. all the new acquisitions and B. all those companies that are non renewing those clients.
Those people need to go somewhere and it's most likely they're going to be going to one of those five companies.
Those companies are absolutely swamped. So, if I get a call, I always try and do my best to accommodate everyone. And I'm sure many brokers in our business do. But if you say, hey, Dan, I'm inquiring about a rental property tomorrow. I forgot to set up the insurance. Before we could pull it off and we still might be able to, but we can't guarantee it anymore. And we want clients to be thinking, trying to act ahead.
A. they can budget better and B. they can be certain that the new property is insurable. And then E. what I would recommend is if you get a renewal end with a significant increase, and you've maybe talked to somebody that you really trust. And really knows the business. You might want to ask, is there a way that we can modify this policy so that I can reduce my overall premium?
For example, maybe four years ago or five years ago when the market was super competitive or six years ago, right? On the starting point where insurers are starting to lose money. The deductibles were really low and maybe they've carried that over. Maybe your deductible is $500, but you could increase it to let's say $2,500 and save 18% off your premium or you're paying for coverage. Like maybe you don't think that tenant vandalism is important to you because you're renting to your brother-in-law.
Those are examples of where you might want to start looking to modify the policy. As before, when you just were used to paying a consistent premium. Now, if you see a 40% jump, you may want to make some adjustments in order to offset the premium increases and just dig a little deeper into your policy.
Then again, the last thing I add, I get asked this question all the time. People are constantly asking me, what is a fair increase in the current market? There's no right answer to that question. It all depends on what somebody was paying previously. Sarah, May have a single family rental property. She might be paying a thousand dollars because she got an excellent deal on it. And there may be Laurel who has a rental property beside her and is paying $1,400. Now they're both going to get scrutinized and Sarah's might go up to $1,500 and so will Laurel. That means Sarah, this has increased by 50% and Laurel's not as much.
Now Sarah is really upset and Laurel doesn't think it's so bad. It's all about having somebody review the policy for you and check to make sure that you're not with a really poor insurance marketplace for the current market to make sure that you're getting a fair price. Any REITE club clients that are on our particular package, we have somehow been able to shelter our clients in this sort of bubble.
Our clients are seeing on average from 3% to 8%, which in the current market is very good. And if I had a gun to my head and you asked me what it was for the general marketplace, I would say 35% to 40%. Our average increases on let's say, 10 to 50 unit buildings. With that I have had a hard time reading along with any of the questions.
I don't know if there are any. I'm sorry to be the bearer of bad news. But I really wanted to get people educated and prepared for what might become. As I said, the smaller. If you just have a single family property, one property, and you're paying, let's say a thousand bucks a year and it goes up 9% $90, it probably won't hurt you too much.
But if you have five 20 unit buildings and they're all going to go up 35%, you need to be prepared for that. And I try and do my best to tell my clients individually, but this is a good stage so everyone just to get out of this awful news, it's not fun for me there. And just be sorta ahead of the curve and at least try and understand why.
The last point I'll make is this has happened before. Yeah, it happened during 9-11 at nearly this impactful, but essentially it's just like any other business that keeps increasing pricing. Somebody eventually is going to make a profit. And then they're going to start back on cutting each other and put themselves in the same position they did all over again. But for now we're expecting this to happen for at least another eight months. Because there's a lot of people, very scared and concerned about how much money is going to get paid out to fight and lawyers on COVID.
Sarah: That's some really interesting information. And just to go through some of the chat questions, I know you were reading a few other things and you were speaking and you might not have a head time to review everything, but can you share some of those companies that are still doing deals right now?
Dan: I really wanted to stay away from it, but because this is positive news, I can't see myself in trouble from any way in any way. Just personally, from my experience, and this may differ from, let's say, if you go to BC, perhaps the insurers out there operating slightly differently, but in Ontario, the ones that I'm finding the most success with are Intact, Echelon, Gore and Wawanesa Mutual. There's one other name, Economical as well, who is still writing, but they're very limited in their size, meaning they don't really want to go higher than four units. Those other four will go up to, I know Intact, for example, will go up to 400 units.
They're one of the most proactive thinking insurers. But, yeah, so those are four and five and one other point I'll make, it's not okay. So, those five say, no, we're screwed. Nothing can be done. You then go to what I call the insurance aftermarket or high-risk market, where there are other options. But again, the price on what they're going to offer you is going to be like three times what normally one of those insurers would have charged you like two and a half years ago.
Sarah: That's a good insight. I do have one more question. I was hoping that you can maybe answer about just as investors. Most of the people tuning in are interested in buying something as an investment property, as a rental. Are there specific clauses that you suggest people make sure that they have in there that may not be the common clauses?
Dan: Did you mean like coverages to look for.
Sarah: Coverages, I'm guessing that's what that question meant just in terms of extra coverage or certain things that we need to have. I know some companies might have flood insurance and some might know certain things.
Dan: And that's why I think you guys, make this point often you gotta have somebody reviewing it for you that you trust to look for it. And second, I will make a point, which is good, depending on how you look at it. A lot of the banks. Now, if you stay away from, for example, more unique lenders like the gentlemen touched on previously, the big banks will review your insurance to make sure it's good enough for them to give you a mortgage, but the main things, in my opinion, that you really want to watch for, because these are the ones that the insurers will try to stress because they're getting so hit so hard on them, anything to do with water.
You want to see water damage coverage. You want to see flood coverage and you want to see sewer backup coverage. And you want to see that they're not capped. What they're trying to do is they'll say, oh, we'll cover your sewer backup for you. The deductibles are 5,000 and we'll pay up to 10. It's yeah, thanks. Thanks for nothing, really, to be honest.
You have to really dig into the policy and make sure. And for example, in my case, if that's absolutely all I could get into, because you bought Sarah the worst property it's tipping over, it hasn't been updated in 80. At least I want to share that with you. Hey, this is the best policy I could find with you. You need to be prepared for these things. And that's what I would say, really be careful with your water coverage.
Sarah: Questions, we won't get to all of them, but Dan, if you could just maybe scroll through them at some point in response, just keep in mind that questions go to all panelists and attendees, but Dan, thank you so much for sharing the grand insight. Unfortunately, some great news, but I think as investors it's important that we know what the reality is.
It's not always, in the upswing. There are going to be networking guys, so don't go away and we were going to have our speakers as well. You'll be able to ask them some questions live. Before we get into that, I'm just bringing Laurel back in. Laurel, do you have any key takeaways from tonight that you want?
Laurel: I think from both presentations it's, do your research, be prepared and have a great team behind you because you need the really good mortgage help. And obviously, you need really good insurance help. And as Dan said, This is a cycle, right? He said, yeah, the trans comments will recover and then they'll get themselves into the same situation. And who knows 8, 10, 20, 30 years from now, who knows.
We always have to be aware that there are cycles and it doesn't matter what we're talking about, whether it's mortgages or insurances or insurance or anything else, and that as investors, we have to ride the wave and yeah. Have the numbers like work the numbers. And be aware because there are always answers. You gotta be careful, you gotta be smart. And that's why we have these great team members to help us. Sarah?
Sarah: Absolutely. For sure. I think my biggest takeaway is that things are always changing. And it's important as investors. And just to go back to what Laurel said, it's important to have the right team members in your key team, that's going to help you grow and get to your goals. A good mortgage broker. This is why I don't go to the bank. A good mortgage broker is going to have a pulse on everything that's happening in the market with a lender and trust companies and credit unions and private lenders and all that good stuff.
A good insurance broker is going to have a pulse on. Which lenders or which insurance companies are doing, what, and based on your strategy and based on the type of rental tenant, whether it's Airbnb or long-term or whatnot. It's good to have people to have a good pulse on that market because ultimately you've got to focus on growing your business and not necessarily being involved in all of the little tiny details of every single part of it.
If you have the right team members that do have for you and that's a great way to do so and keep in mind guys there is going to be some networking. We'll be forming. Get into that Facebook group. If you have not seen our Facebook group, please go ahead and feel free to join. It's going to tighten our community, make it even stronger. We also have our REITE club online community with forums and lots of great things. And we're posting more things each and every single week to that website. It's free to register. We'll go take a look and connect with each other there as well.
We've also got some podcasts. We've been busy podcasting. October 16th, Ryan Carson is going to be speaking about all the legalities when it comes to real estate investing. We've got Sandy MacKay, October 23rd, and Kayla Andrade, October 30th every Friday in the morning, you guys have a new REITE club podcast. And we also have some upcoming events.
Laurel: Yes, we do. this Saturday, October the 17th Claret a new condo investment opportunity and Niagara Falls is having a reconstruction Open House. You'll receive an email tomorrow, if you're on our list because Daniel and I are going, and we know some other REITE club members are going to a special deal for us if you're willing to invest.
It's worth taking a look and so look for your email on Wednesday, the October 21st. We have our FIRE, Financially Independent Retire, Early webinar with networking afterwards. And on that panel is Sarah our own Sarah, Gary Hibbert and Scott Zandbergen. So, I have some markets and professional services updates from across the country.
On Saturday, October the 24th Elevation Realty's Hamilton area street tours happening. So, you can check for that. And then all of our events are on our calendar. Go to thereiteclub.com, sign up, check out the website. You'll be getting emails and checking us out on Facebook.
There's all kinds of ways for you to keep in touch with us. And we'd love to see you so sign up for community. We just love to see people in there and contributing and making contacts and connections and helping us out with. So, Sarah, was it a good evening tonight?
Sarah: It was great. And I really like this format as well. It just gives us a lot of really great content, a narrowed down content and I think some really applicable things. I'm super excited and I want to say thank you to Paul and Katherine, our team and Francois as well for putting all these together.
The other thing I would just say is a very special thank you to our sponsors, our speakers and the REITE club nation. I think it was a success. What do you guys think out there? Did you get some key pieces of information, some great insights from our speakers tonight, some things that you can take back and apply. Awesome.
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