The National Association of Real Estate Investment Trusts (Nareit) estimates a mid-point of $16 trillion between a $14 - $17 trillion range of US commercial real estate's total dollar value in 2018. In this vast market, real estate insurance programs are vital to protect against potential risks, lawsuits, and claims that the businesses and individuals who work or invest in commercial real estate projects face. This guide to real estate insurance products provides insights into coverages available to the commercial real estate (CRE} market, including real estate agents and others allied to the field.
What is Real Estate Insurance & Who Needs It?
Companies and professionals doing business in the CRE market comprise developers, owners, investors, operators, managers, and real estate agents representing buyers and sellers in commercial and residential transactions. Other occupations that require real estate insurance include:
- Property Managers
- Real Estate Appraisers
- Title Agents
- Mortgage Brokers
Types of Real Estate Insurance
There are standard coverages for protecting companies, individuals, and investors against losses and liabilities within commercial and residential real estate business operations. This list of property, casualty, financial, and professional insurance products includes real estate insurance solutions that allow working without fear of suffering from catastrophic losses and liability claims.
Business Owners Policy (BOP)
A BOP serves as a cost savings and convenience bundle of several vital coverages for individual real estate agents and brokers and smaller businesses operating in the market. A typical BOP will bundle general liability, commercial property, equipment breakdown, and business interruption insurance in a single policy. Larger firms with more complex risks require standalone policies to cover their real estate risk management needs.
A general liability policy, sometimes called Commercial General Liability (CGL), protects against risks related to:
- Bodily injury
- Property damage
- Advertising injury
- Copyright infringement
- Reputational harm
Commercial Property Insurance
Depending on the business's nature, it can bundle commercial property insurance covering losses due to fire, theft, and natural disaster into a CGL policy. However, because the real estate market encompasses businesses with extensive real estate property holdings, it is sometimes sold as an individual policy.
Commercial property is like the coverages for property insurance that consumers purchase. Some distinctions are that a commercial real estate business can usually deduct its insurance premium payments as expenses. Typically, losses due to the actions of tenants are not covered in a commercial property policy.
Errors & Omissions (E&O)
E&O is also known as professional liability insurance. It protects against lawsuits claiming malpractice due to errors, omissions, or negligence related to the duties of real estate agents, brokers, and associated real estate professionals. Examples of the types of claims an E&O policy for agents, brokers, residential and commercial property managers, and developers will help pay claims for:
- Wrongful Eviction
- Loss of Income
- Leasing disputes
Employment Practices Liability Insurance (EPLI)
EPLI provides coverage to pay for losses and expenses that stem from employee litigation relating to complaints filed with the Equal Employment Opportunity Commission (EEOC). Various federal laws, including Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination in Employment Act, are prime examples.
EPLI is a form of real estate liability insurance designed to cover businesses against a range of employees’ claims for events and actions occurring in the workplace. A typical policy will help to pay for legal expenses and settlements for such claims as:
- Racial discrimination
- Sexual harassment
- Sexual discrimination in the workplace
- Unlawful termination
- Discrimination for age, disability, or both
- Unequal compensation practices
- Employee benefits mismanagement.
Although hacking at the highest levels has come to rival covid-19 news coverage recently, it is a risk that extends down to small businesses and real estate professionals. Cyber liability perils occur as first and third-party events. The standard policy included in real estate insurance programs covers settlements and judgments for losses relating to data breaches, system disruptions, notification costs, client credit monitoring, and legal defense costs to guard insureds against most cyber-related events.
Examples of what a cyber liability policy covers include:
- Ransomware attacks
- Mortgage or real estate wire fraud transfer
- Phishing attacks
- Breaches due to hacking from third-party vendors and employees
- Viruses, spyware, and malware
- Theft of physical data
Vehicles used for business purposes need the protection provided by commercial auto insurance. Coverage includes helping to pay attorney costs, legal defense bills, medical expenses, and property damage when a business vehicle is involved in an accident or causes injuries.
Real Estate Insurance Costs
Providing costs for real estate insurance programs is difficult to state for many reasons. The industry size ranges from solo practitioner real estate agents to multi-national commercial real estate developers with vast organizations making projecting costs nearly impossible.
Best Real Estate Insurance Programs
When you have needs for Real Estate E&O insurance, check with the Program Business directory. There you'll find listings for Capitol Special Risks (CSRisks). It is a niche specialist for unique exposures stemming from management and professional liability risks. CSRisks services can provide valuable insight into current Real Estate Related E&O issues found in today's Professional Liability marketplace.