Copper thieves have fueled an explosion of claims for insurersof vacant and idle properties, but increased loss potential has notdeterred competition in the residential and commercialvacant-property insurance markets, two special-risk expertssay.

During a webinar titled “The New Edifice of Vacant Property: ProtectingAsset Value as Commercial Real Estate Slowly Recovers”presented by PropertyCasualty360.com last week, Jeff Shearman,senior risk-engineering consultant for Zurich Services Corp.,reports that Zurich saw “a big spike in copper claims when theprice of scrap copper went over $3 per pound.”

Referring to thieves as “people who mine resources” inunoccupied buildings, Shearman describes a case in his town—“alow-crime area”—involving someone who climbed up to the roof of astrip mall to remove air-conditioning units of vacant tenant spacesin order to get the copper out of them.

Both Shearman and co-presenter Christopher Zoidis, vicepresident of the Special Risk Division of wholesaler/MGA Burns& Wilcox, say other scrap metals, such as aluminum, are alsofueling a jump in insurance claims from insured vacant buildings.Zoidis adds that while outside air-conditioning units are easytargets, Burns & Wilcox is also seeing claims where there isentry into the building to remove copper plumbing pipes andwiring.

“We have had more than one instance where the thief…actuallystayed…for a period of 24 or 48 hours and literally stripped outevery piece of copper tubing and every piece of copper wiring,”Zoidis says, noting that there is typically a lot of damage done tothe building itself as those are being removed.

More creative thieves will pose as uniformed maintenance people,rather than breaking and entering, he says.

A slide displayed while Zoidis was describing thesevacant-property insurance claims examples indicated that thedollar-figure associated with the copper claims is $275,000 and up.In contrast, claim values for two other common sources of claims—water-damage claims caused by freezing pipes and trip-and-fallclaims for third parties outside insured premises were roughly$75,000 and $30,000, respectively.

VACANT, NOT DELAPIDATED

During the webinar, Shearman discussed various ways to safeguardvacant properties, noting the need for owners to balance goals ofsecurity and curb-appeal for potential property buyers. Meanwhile,Zoidis said vacant buildings—both residential and commercial—havebecome more appealing to sellers of insurance.

“A few years ago, carriers began to pursue vacant property asdesired class”—especially on the excess-and-surplus lines side, hesays. By 2010, both standard and E&S carriers had become “very,very aggressive” in pursuit of this business, Zoidis says,referring to carriers’ willingness to liberalize endorsements tostandard ISO (Insurance Services Office) policy forms that wouldhave otherwise excluded perils like vandalism, theft and waterdamage.

In the post-2010 environment, “in many cases, the market drove avacancy discount,” making it cheaper to insure a building that wasvacant than it was when it was occupied, he adds.

This is the reverse of the situation that hadtraditionally prevailed. Prior to 2010, rating penalties existedbecause insurers perceived a high moral hazard on vacantproperties—in other words, a high likelihood that a distressedinsured would perpetrate a loss to collect policy proceeds.

And many standard carriers would cancel or non-renew an existingpolicy once it became vacant, he recalls.

The characteristics of vacant properties have changed, drivingchanged insurer views of hazard potential, Zoidis says, explainingthat a vacant property is no longer an old, rundown,abandoned-looking building in an undesirable location. Now, thereare vacant buildings that are newly constructed and highlyprotected with automated sprinkler systems and central stationburglar alarms. And “they are located in every neighborhood on bothresidential and commercial side,” he says.

Zoidis cited U.S. census figures for first-quarter 2011, puttingthe vacant homes at 14 million—an increase of two million since2000. Commercial office and industrial vacancy rates exceed 20percent in some metropolitan areas, according to May 2011 researchcompiled by the National Association of Realtors, he adds.

Zoidis reports that there are some signs the insurance market is“tightening up a bit” as losses pick up for vacant properties, butasserts that the class is still aggressively pursued by carrierstoday.

“It is very prevalent to see a special [commercial] form orDwelling Property 3 [all-risk personal] form,” he says, adding thatsome personal insureds can even get replacement-cost coverageinstead of just actual-cash value coverage. But forms vary bycarrier, and some have security requirements (a central stationburglar alarm, for example) before they will add theft, hesays.

For more information:

• A whitepaper detailing vacant property maintenance andsecurity guidelines, outlining potential hazards and providing theISO standard policy definition of vacancy is available on Zurich’swebsite at www.zurichna.com/internet/zna/SiteCollectionDocuments/en/onlineservices/brokerhelpzone/whitepapers/RECold2AvacantpropertyWhitepaper.pdf

• Articles with advice from Burns & Wilcox professional areavailable at www.propertycasualty360.com/topic/vacant-property.

• Links to the vacant property and other recent webinarspresented by PropertyCasualty360.com are available at www.propertycasualty360.com/webseminars/