Lending requirements for property insurance have come under increased scrutiny following recent natural and manmade disasters. In the past 12 to 18 months, insurance company experts that work in the CRE sector say they’ve seen stricter requirements, particularly from CMBS and securitized lenders, especially as the market goes deeper into this cycle.
Lenders have always required property insurance to cover replacement cost for damage caused by disasters. But, Arthur J. Gallagher & Co.’s Alex Glickman says recent hurricanes and floods have also “made lenders more concerned and conservative.”
While all asset classes may be affected by the increased attention, industrial flex is particularly impacted, especially in earthquake zones because these properties tend to be concrete tilt-up and most vulnerable to seismic activity.
Aon Risk Services’ Jason S. Peery says, “It is important to insure a portfolio as a portfolio, rather than just doing a probable maximum loss (PML) for one asset.” By looking at the larger portfolio picture rather than insuring per asset, it allows owners to see how it might impact the whole portfolio and helps prevent insuring for too much.
Peery says, “… aggregated modeling can set appropriate limits and reduce the chance of overspending by getting a real life view for the whole portfolio. For some portfolio owners, it can save them millions.”
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