Copper thieves have fueled an explosion of claims for insurers of vacant and idle properties, but increased loss potential has not deterred competition in the residential and commercial vacant-property insurance markets, two special-risk experts say.

During a webinar titled “The New Edifice of Vacant Property: Protecting Asset 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 the price of scrap copper went over $3 per pound.”

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

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

“We have had more than one instance where the thief…actually stayed…for a period of 24 or 48 hours and literally stripped out every piece of copper tubing and every piece of copper wiring,” Zoidis says, noting that there is typically a lot of damage done to the 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 these vacant-property insurance claims examples indicated that the dollar-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-fall claims 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 safeguard vacant properties, noting the need for owners to balance goals of security and curb-appeal for potential property buyers. Meanwhile, Zoidis said vacant buildings—both residential and commercial—have become more appealing to sellers of insurance.

“A few years ago, carriers began to pursue vacant property as desired class”—especially on the excess-and-surplus lines side, he says. 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 to standard ISO (Insurance Services Office) policy forms that would have otherwise excluded perils like vandalism, theft and water damage.

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

This is the reverse of the situation that had traditionally prevailed. Prior to 2010, rating penalties existed because insurers perceived a high moral hazard on vacant properties—in other words, a high likelihood that a distressed insured would perpetrate a loss to collect policy proceeds.

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

The characteristics of vacant properties have changed, driving changed insurer views of hazard potential, Zoidis says, explaining that a vacant property is no longer an old, rundown, abandoned-looking building in an undesirable location. Now, there are vacant buildings that are newly constructed and highly protected with automated sprinkler systems and central station burglar alarms. And “they are located in every neighborhood on both residential and commercial side,” he says.

Zoidis cited U.S. census figures for first-quarter 2011, putting the vacant homes at 14 million—an increase of two million since 2000. Commercial office and industrial vacancy rates exceed 20 percent in some metropolitan areas, according to May 2011 research compiled 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, but asserts that the class is still aggressively pursued by carriers today.

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

For more information:

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

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

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

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