Underwriters used to like real-estate clients, according to Kevin J. Madden, managing director of Aon's Real Estate Practice. Speaking at a recent webinar on the market, Madden explained how real-estate portfolios were attractive because of their diversification. In the post-Katrina world, this diversification is giving underwriters fits. Large real-estate portfolios now pose a "triple threat"--wind, quake and terrorism exposure. Real estate is now paying more than other industries thanks to this trifecta.
"It is clearly one of the (industries) most adversely affected by the property-catastrophe crisis," Madden said.
Madden has the background to recognize that his clients face dire straits in terms of coverage, but he also has the experience to prevent widespread panic within the real-estate world. A Risk & Insurance® Power Broker, Madden has two decades of experience, with Aon, Alexander & Alexander and Arthur J. Gallagher. Just as important, the New York-based broker has the buyer's perspective as well. He once was risk manager for a construction company.
Experience or not, Madden and other participants in the Aon webinar--Aaron F. Davis, director of Aon's Terrorism & Property Resources, and Paul M. Graziano, managing director of Aon Risk Services' National Industry and Products Group--have their hands full with this triple threat.
According to benchmarking of Aon clients, the real-estate market has seen some of the most dramatic price increases out of all industries: on average 80 percent.
And the industry has seen catastrophe sublimits that are unlike anything anybody else is seeing--for instance, a wind sublimit that Madden admitted will be "a reality that real-estate companies will have to learn to live with."
With his long view of the market, Madden was quick to reassure participants in the webinar, mentioning with confidence that he expects rates to stabilize after a few low-loss years.
In the meantime, as you would expect from a top broker, Madden offered solutions to the current prop-CAT crisis. One is to collect detailed and accurate data for every property in a portfolio, which, he said, could help insurers model the proper sublimits for a policy.
And when it comes to failing to meet lender requirements because of tightening coverage, Madden recommended being open with the lender, and doing so early enough to negotiate exceptions.
October 1, 2006
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