Copper thieves have fueled an explosion of claims for insurers of vacant and idle properties, but increased loss potential has not deterred competition in either the residential or 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, 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.

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 these parts 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 losses— water damage caused by freezing pipes and trip-and-fall claims for third parties outside insured premises—were roughly $75,000 and $30,000, respectively.

VACANT BUT VALUED
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 a 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 has 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 nonrenew an existing policy once a building became vacant, he recalls.

But the characteristics of vacant properties have changed, driving altered insurer views of the hazard potential, Zoidis says, explaining that a vacant property is often 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 the residential and commercial side,” he says.

Zoidis reports that there are some signs the market is “tightening up a bit” as losses pick up for vacant properties, but he 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.

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Copper & Robbers: Vacant Buildings Desirable For Thieves&mdash;And Insurers

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Copper & Robbers: Vacant Buildings Desirable For Thieves—And Insurers