The sources of financial loss to real estate company owners andmanagers are as varied as they are significant. From natural catastrophes tovandalism to hidden policy exclusions that limit recovery whenlosses occur, a comprehensive risk assessment must leave no stoneunturned.

Here are four solutions addressing real estate risks and howproper execution could save companies millions of dollars.

1. Removing coinsurance clauses

Coinsurance clauses, often found in propertypolicies, restrict loss recovery if the limit of insurancepurchased by an insured is not at least equal to a specifiedpercentage of the value of the insured property. For example, underan 80% coinsurance clause, the owner of a building valued at $1million would be expected to insure 80% of these values, or$800,000. If the insured purchased less than $800,000, he or shewould be responsible for a proportionate share of the loss.

Although some states have passed laws voiding coinsuranceclauses, they remain a source of distress to real estate companieswho frequently encounter the restriction following a loss. Realestate company owners and managers should leverage a process thatincludes negotiating the removal of this restrictive language fromthe property policy to provide full replacement cost following acovered property loss.

This approach can save significant amounts of money. Forexample, a real estate team negotiated the removal of a 100%coinsurance clause from a property program before a major hurricane. Following the hurricane, thebusiness found that increased demand for building supplies andcontractors had resulted in an underinsured amount of $250,000. Asa result of this analysis and removal of the coinsurance clause,this amount was fully covered.

(Photo: Thinkstock/Fuse)

2. Quantification of risk through modeling forcatastrophes

Subsequent to the model of a company's property schedule forearthquake, it was determined that five locations were driving 80%of the loss estimate. Additional information was requested thatspecifically pertained to the earthquake design of those fivebuildings and the model was run again. These additional buildingcharacteristics reduced the loss estimate and corresponding premiumby 40%.

As a result of a careful analysis and negotiation with carriers,the company's earthquake premium was reduced by $80,000.

Related: 4 commercial real estate coverage enhancements that reallymatter

(Photo: Thinkstock/Phototreat)

3. Enhanced vacancy coverage

Many standard property policies contain certain limitations ofcoverage if a building is vacant for more than 60 days. Oftenspecific perils such as vandalism, theft, sprinkler leaks and waterdamage from pipes are eliminated.

Real estate company owners and managers should partner withtheir brokerage firm to identify loss prevention measures forlow-level occupancy locations and have them negotiate with carriersto remove any vacancy coverage restrictions. Reduced coveragenormally applies when vacancy levels reach 31% for more than 60days.

Related: What are you missing? The 5 types of property coverage brokersoverlook

(Photo: Shutterstock/SpeedKingz)

4. Eliminating subcontractor warranties andlimitations

There are many exclusions and restrictions that real estatemanagers and owners must look out for when obtaining generalliability coverage. This important exercise is often neglected.Conducting a thorough review of the general liability policiescould identify any exclusions or warranties relating toconstruction, repair or renovation work for the owner bycontractors. Following that, a request should be made with thecarrier to remove any exclusionary or warranty wording as itrelates to the work. The financial consequences of removing suchwarranties can be substantial.

Take this recent example: A real estate owner asked an employeeon staff who had experience doing carpentry to do some work on thebuilding. While performing the work the employee caused an unstableladder to fall and seriously injure a prospective tenant. When aclaim against the landlord for $1 million was filed, the generalliability carrier denied the claim on the basis that an exclusionin the policy did not permit coverage arising out of anyconstruction work. As a result of an analysis and expansion ofcoverage, this gap is now fully covered.

In today's highly competitive business environment, it'scritical for companies to understand that every policy isdifferent, and not exploring such strategies as the ones outlinedhere could leave a business at greater risk. By addressingvaluation coverage, quantification of risk through modeling forcatastrophes, enhanced vacancy coverage, and the removal ofsubcontractor warranties and limitations from a general liabilitypolicy, financial losses can be mitigated, leaving real estatemanagers and owners to focus on what they do best: growing theirbusiness.

Brian Dove is USI's national real estate practice leader andis based in USI's Houston office. The real estate group leveragesthe USI ONE Advantage™ with prospects and clients across thecountry. USI ONE is a fundamentally different approach to riskmanagement, integrating proprietary business analytics with anetworked team of local and national experts in a team basedconsultative planning process to evaluate the client's risk profileand identify targeted solutions to address those risks. To learnmore about USI ONE, contact Brian at [email protected] or 713-490-4597.Visit www.usi.biz for more information.