“It seems like the volatility and the frequency of weather events is worse than it’s ever been,” said Danielle Lombardo, chairman of Lockton’s global real estate practice, during Berkadia’s “Navigating Insurance Challenges in Commercial Real Estate Underwriting” webinar.

“If you’re an insurance carrier, every year you’re trying to play catch-up,” she continued. “Just when they think they’ve gotten rate adequacy and used their modeling results to anticipate what their losses are going to be, we get hit with a freeze like Winter Storm Elliot, wildfires, hailstorms, etc.”

Uncertainty is the new normal, Lombardo told moderator Laura Bushey, VP, Insurance for Berkadia Servicing. “We’re in uncertain times in terms of what the losses are actually going to be,” she said. “That causes uncertainty with the lenders, the real estate owners and the insurance carriers. Everyone is just trying to get a hold on what that looks like so that people can continue to transact deals.”

As a result, “insurance buyers are having to look at purchasing insurance very differently,” Bushey said.

Adding to the challenge is what Bushey termed “capacity issues” on the part of insurers. At Berkadia, she said, “we’re seeing, particularly in the coastal areas, limited catastrophic coverage such as wind, hail, and huge storms. But I think mostly what we’re seeing are increased deductibles, where the carriers want the borrowers to take on a little bit more risk,” amid a “decreased appetite” for certain property types, notably mobile homes.

The biggest challenge for real estate owners in the current market is “to know if they’re exhausting all options” for buying insurance, said Lombardo. That means considering the purchase of coverage from publicly traded, global insurers or from smaller, regional carriers. “If you’re not attacking both markets with a process, you could be leaving money on the table and especially on new deals,” she said.

However, commercial property owners shouldn’t assume that a straight-up renewal will still be competitively priced a couple of months later. “You’re constantly having to test the program,” said Lombardo.

This may lead to the world of alternative risk finance, “ a fancy term for taking on risk yourself,” Lombardo said. “We look at your program and we say, ‘where is there an inefficient use of your capital if you’re trading dollars with an insurance carrier?’ As an example, you’re buying your first $10 million of coverage for $8 million. It probably makes more long-term financial sense for you to hold that risk on your balance sheet, set up an infrastructure internally to support for that type of risk, and then help educate your lender as to why you’re doing so.”

Staying on top of the challenges for insurance customers largely comes down to “process and proactive forms of communication,” said Lombardo. A key component of this is making sure you have the most current benchmarking on pricing.

“You really only want to listen to your insurance broker,” and even then, “if they’re not the right insurance broker and they’re not in the business all day, every day, you could be getting outdated advice,” Lombardo said.