Real(Estate) Talk with R+C Team Episode 1: Are you Covered?

Let’s Talk Insurance…. 

A Q & A with Compass Agent Robert Landsness, and ProInsurance personal Insurance Consultant, Sarmad Naqvi

By: Eleanor Lyle 11/12/19 

R: Hey we have Sarmad Naqvi from ProInsurance and thank you so much for being here Sarmad. Just wanted to talk about the market and insurance maybe you can tell us how long you have been in the business and some things you have seen recently in terms of changes. 

S: Yeah I have been in the business for a little over 16 years I’ve mostly been in the broker market and I have actually never seen rates getting this bad and insurability being so difficult. We are not seeing it as much in San Francisco, but it is affecting areas all around San Francisco, specifically the North Bay, the South Bay,  and it seems like the East Bay is actually the most affected by these impacting rates 

R: is that because of all the natural disasters that have happened in the last few years, fires and that sort of thing? 

S: Yeah that's definitely the reason, most of the big time insurance companies have been pretty devastated in terms of losing a lot of money and now they need to recoup the money for their claims reserves because if they don’t they really risk going insolvent or bankrupt. So they want to make sure they basically get enough money back to be able to pay another really big loss. 

R: Right, and so are you finding also with the appreciation in the last few years in the real estate market that a lot of clients are sort of under insured with their portfolio and how are you addressing that? 

S:  Definitely clients are becoming more underinsured, and appreciation in the market is part of it but also because of the fires the cost of materials has increased significantly, specifically the cost of lumber and steel and then also the cost of labor has gone up because there are only so many contractors that can rebuild. I have a client in Oakland who had a really minor fire but could not find a contractor for over a month just to do the minor work because all the contractors were in the North Bay and Santa Rosa rebuilding there. 

R: Yeah that makes sense, and what are some of the initiatives you can provide with your company or how have you been able to take somebody who maybe had a major appreciation over the past few years and have things like art collections, jewelry etc.. do you have any examples you can tell us about in terms of what you have been able to do? 

S: Yes we have a client, who is located in SF mission they have a historic home so there are only certain things they could do on the house but they were able to do a complete remodel of the master bathroom, the guest bathroom as well as the kitchen and that significantly increased their already high cost per square foot on their home. The way we addressed that was doing a detailed review. One thing I do that most of my clients don’t see is that I regularly meet with friends of mine who are contractors and basically we talk about what's going on in the industry what they're seeing in terms of cost of materials, cost per hour. And then I also, just being in the industry for a long time I  have a good idea of this is high end, this is the average, etc… it is all still an estimate and we also add in a lot of cushion with an endorsement called the standard replacement cost to make sure even if we guess wrong there is going to be enough to rebuild. So really the best way to go about that is to do insurance reviews. 

R: And then how because the fear for some people is not only am I underinsured and need to make sure that I am going to be covered in an emergency situation in terms of replacement costs and making sure that that is accurate but they also may be worried about their rates skyrocketing so how do you manage that? 

S: Well people are going to be paying more in insurance now than they have, but the best way to manage it is to also look at other options like deductibles and things like that. For this particular client who was buying in Lafayette, it sounds kind of crazy but we did a $25,000 deductible but it was a 4 million dollar replacement cost house, so it’s all relative, We were even able to add in an endorsement where if they have total loss the deductible doesn't have to be paid. So there are several options and there is a lot of flexibility built in I think for most average clients they could do a $5,000-10,0000 deductible. Yes they're not going to get those small losses covered, but statistics show that most people when their fence blows down they're not usually calling the insurance to get that done anyways, So it's a way to bring the cost down overall while still manning the coverage at the top. Because the last thing you want to do is undercut the top level coverage. If you need 1M dollars in coverage and you get 500,000, but yeah you have a low deductible well what does it matter if you  have a total loss. At the time you would rather pay 10,000 in a deductible and get then get the extra 500,0000, 

R: You had that great case study and we will pull up a few slides for our viewers to look at. Can you explain a little more about how that went down. The mission property, You were able to massively increase their coverage but their rates did not skyrocket. 

S: yeah we raised deductibles and also quite frankly when you have homes like that and they are with captive agents, those policies aren't geared for insuring homes that are beyond 1.5 million in replacement costs, they're just not geared for that, so they're pricing is much higher than it would be if that house was worth say $600,000. If we were competing and that was a 600,000 house that would be much less expensive for that company 

R: So they had not looked at renewing or upgrading in a few years?

S: They had actually not renewed the policy since the client bought that home and that was in 2008 and since that time they did a huge remodel that really should've been a trigger to do a full insurance review at that time, Any time any one does a major change like that they really should be talking to their insurance broker and agent and saying hey I just got this done, how is this going to affect the cost per square foot and I am going to have the right amount of coverage. 

R: That's great and then in terms of Earthquake insurance. Are you seeing people do that, more less? What percentage are you seeing? 

S: So the California statistics are that only 1 in 12 people get Earthquake insurance. For ProInsurance we are more about 50% for people who are getting it. I think the reason more of our clients are getting it is because we present it in a way that makes sense. We typically like doing higher deductibles and making sure they have the right amount of coverage on the structure and then sometimes we don’t even look at personal property or loss of use we do that on that end if the client wants it but what it ends up doing is creating a policy where it is at least something because it’s better than having 0 coverage because if someone is like I can afford to pay $10,000 dollars a year in earthquake insurance and we structure it in the right way where that policy is 2,000 granted it's not as good as the $10,000 coverage but at least they have something. In SF itself you have a much higher rate of earthquake risk, especially if you're built in liquid faction. So It depends on where they are getting their insurance and  that is always done on an individual case by case basis where we look at what is their highest risk and we recommend accordingly. 

R: So you're kind of like a doctor?  It's important to do a health check once in a while and see where you are. 

S: Yes absolutely, it more of a financial health check, absolutely! 

R: Well thank you for coming in today we really appreciate it.