5 Tips for Testing the Property Coverage Market

My heart sank when I opened my home insurance renewal. The increase was more than I expected. Frustrated and concerned about my budget, my first instinct was to call my insurance agent and demand he shop for a new policy. I also considered selling my home, but where would I live? Every other home and apartment has gone up in price, but my housing budget hasn’t increased. I felt stuck.

If you recently received a renewal quote on your commercial property coverage, you may have felt similarly frustrated and concerned. You are not alone. From homeowners to commercial property, the insurance industry has seen double-digit coverage rate increases, especially in Texas and other areas prone to weather-related damage. The exodus of insurance carriers from the market is magnifying the problem by widening the gap between supply and demand.

How to Test the Market

Texas schools are not immune to today’s challenging property coverage market. When it’s time to renew your coverage, you should anticipate limited options, higher rates, and less coverage. But how do you know if the quotes you receive are competitive and consistent with those of other schools in your region?

You might want to consider testing the market and demonstrating due diligence before asking your board for approval. Your goal is to get the broadest coverage available for the best price possible. You cannot achieve your goal on short notice, without proper planning. Here are five tips for testing the market.

1. Set a Vision

If you’ve been with your current property coverage provider for years, even decades, the thought of leaving can be unsettling. Start by zeroing in on why you’re putting your business out to bid:

• Do you stay up at night wondering if you have enough coverage?
• Does the price seem too high?
• Are you happy with your provider’s service, especially your claims experience?
• Are you simply demonstrating due diligence to your leadership team by going out to bid?
• Do you want to shop all lines of coverage or just one?
• What are your legal requirements when shopping for coverage?
• Which stakeholders need to be included in the process?
• Have you assessed your risks and identified the appropriate method for mitigating them?

Pro tip: Risk transfer (insurance) is just one method for addressing risk. It is best suited for catastrophic losses such as wind, hail, auto collisions, employee fatalities, and cybercrimes. You might want to retain more risk, which means using budgeted dollars to pay for more-frequent, lower-cost risks. Examples include older, unoccupied buildings, storage facilities, and retired vehicles.

2. Start Early

It’s common for the bid process to take four-to-five months. Start with your renewal date and work backward, noting critical dates and milestones. Coverage providers are asking more questions about school property, especially roofs, as well as loss prevention programs and claims experience. Bottom line: Start the bid process early.

3. Assemble a Team

You’ll hear plenty of insurance jargon when you start requesting quotes, so it’s important to work with a professional who speaks the language. Do you have procurement expertise in house, or will you outsource the process to an insurance consultant who assists with the bid process and acts as your intermediary?

4. Tell your Story

When you’ve selected your team, it’s time to tell your story. Underwriters work for the risk pool or insurance carrier. Their goal is to select good risks while juggling heavy workloads with little time. Make your application stand out by sharing information that shows why your organization makes a strong addition to the provider’s book of business:

• Type, age, and quality of facilities, roofs, HVAC systems, and other property
• Preventative maintenance records, especially on roof systems
• Long-term replacement strategies for expensive items like roofs, HVAC equipment, and electrical system equipment
• Photos of well-maintained property
• Corrective actions taken in response to losses

Your team will then ask the market for quotes and patiently wait for a response. Be ready to answer follow-up questions from coverage providers, including requests for more-detailed information and supplemental applications.

5. Choose the Best Quote

This is possibly the most important step. Leave time to review bids carefully, make your decision, and present it to your board. Your goal is to find the broadest coverage available for the best price, so don’t sacrifice coverage for savings. For example, coverage that costs less might come with higher deductibles. That’s why it is important to know how much risk you are willing to take on.

Remember, just because a pool or carrier is interested in you does not mean they are a good fit. Here are a few questions that can help you choose the right provider for your schools:

• What’s their financial rating? Be wary of providers that will not share independently audited financial statements.
• Have they generated negative headlines lately?
• What are their coverage limitations, exclusions, and other terms and conditions?
• What ancillary services do they offer in support of your programs? How highly do you value those services?

Key Takeaways

Severe weather, inflation, and supply chain shortages are just a few factors driving property coverage costs to historic highs. Schools owe it to their stakeholders to invest the time and resources necessary to test the market. Allow plenty of time to assemble a team, tell a strong story in your applications, and evaluate bids to ensure you get the broadest coverage at the best price possible. For more information about navigating today’s challenging market, see the TASB article titled Districts Face Rising Property Coverage Costs.