Justin interviewed Luke Nelson of RHSB Insurance. They spoke about how to optimize your insurance for your industrial properties, trends in the insurance markets, determining replacement values, and how to deal with claims.
Key Takeaways
- Insurance rates are up across the board right now and causing lots of owners to have to shop around
- Insurance rates can differ quite a bit based on regional influences like weather, flood zones, and soil composition
- Policy exclusions are increasing too, meaning less risk is being insured on the same policy than before
- Often times you have to educate lenders on replacement cost and how it relates to loan value
- Your insurance broker should utilize, and share with you, their replacement cost estimates based upon a third party benchmarking service. Realize that may not be the actual number, but a basis to begin the exercise.
- Carriers appetites for certain types of users can change over time
- Actual cash value is another method of valuing your property when negotiating policies
- Your insurance partner is often the first person people call in times of crisis with their property. Of course, you have to be proactive as the owner to mitigate the damage to the property, but even then, your insurance partner can offer counsel.
- The Big Freeze in Texas effected industrial property too. Fire sprinkler pipes needed to be flushed to avoid cracking when water expands into ice.
- Build a contingency plan to prepare as best as you can for difficult situations
Here is a 2-minute clip from Industrial Insights Podcast with guest Luke Nelson.
Listen to the full episode below and subscribe to the podcast on Apple.
Highlights
- The insurance game – 0:55
- When the expertise comes in – 4:52
- What’s going on in the market – 6:28
- Rates going up – 8:09
- What’s your risk tolerance – 10:47
- What replacement costs are – 14:11
- The demand is the supply – 28:41
- Mitigating the risk – 29:42
- What’s replacement cost value – 31:58
Episode Resources
- Connect with Luke Nelson
- https://www.linkedin.com/in/luke-nelson-4975ab191
- https://www.rhsb.com/about/people/people-commercial-services-lucas-nelson/
- lnelson@rhsb.com
- Connect with Justin Smith
- https://smithcre.com/
- https://www.lee-associates.com/
- jbsmith@leeirvine.com
- https://www.linkedin.com/in/justinbsmith
Justin Smith
Hey.
Luke Nelson
Hey.
Justin Smith
Thanks for joining me. I’ll jump right in if it’s good with you.
Luke Nelson
Yes.
Justin Smith
So you are in the insurance game. How long have you been in the insurance game?
Luke Nelson
I’m going on six years.
Justin Smith
Where you worked before this how is that different from where you are now?
Luke Nelson
Where I started my career in insurance in a smaller shop. It focused more on high net worth personal lines and small businesses, usually an overflow kind of situation there. The guy used to run in everything from the marketing side of things, the quoting process, obviously, the closing and staying on the renewals. In the past, I’ve been forced to do basically every practical piece of the sales cycle of an insurance broker so that’s kind of how I cut my teeth.
Justin Smith
Got it. Then moving to HSB the practice is set up different it’s not so much just a personal and high net worth, it gets more into like corporate or how is it?
Luke Nelson
HSB is an established firm. They’ve been around for over 75 years at this point in North Texas. They’ve got two branches, one in Fort Worth and one in Dallas. A full-service shop, meaning not only property and casualty insurance, but also employee benefits, health insurance and things of that nature. The biggest change though, I would just say is the infrastructure over at HSB. There you have a job title and with that job title come a certain set of responsibilities, but you are in no way expected to cover down on everything. It frees you up to do a lot more, in my case selling.
Justin Smith
Thank the good Lord for that, not having to deal with a lot of things right where you’ve got to run like a small business. That’s awesome. I think that that fits perfectly. So, for me, I’m a broker with Lee & Associates, I’ve been here for 16 years. Half of the work is for investors and half is for users in corporate America. I feel like I get to be on both sides of the conversation sometimes. That’s helped me appreciate some of the challenges when you’re dealing with lease contract and insurance. Last year, I spent a year writing a book that focused on the tenant side. This year, most of these conversations are primarily on the investor side so I figured we would kind of focus most of our time there. It’s all good when it comes to helping people understand these because I feel like insurance until you’ve walked the path a couple times you don’t know what’s in there. You don’t know what to do, what’s negotiable or not? What’s a good one from a bad one and I feel like a lot of people are flying a little blind on that. I figured knowing a bit about how it works with brokers. I mean, you are a broker like me so when such an investor owns a couple of buildings, and they’re looking for policies, this isn’t your firm’s policies, right? You’re going out to the general market or who are you generally quoting business?
Luke Nelson
We’re an agency. We’re not a carrier. We don’t have a proprietary or HSB product, per se. We’re an independent agency so we have access to virtually every carrier that isn’t a captive carrier. We’ve got on any given line of insurance. As far as available markets, dozens, dozens, and dozens. As far as the markets that will match best and will make most sense, it’ll be the best use of everyone’s time. That’s where the expertise comes in. Depending on where we’re writing the insurance and what line of insurance we’re writing. Knowing the markets that are going to be most competitive and being able to leverage the relationships with underwriters and with wholesalers to get there is what we do best.
Justin Smith
I feel like I do that with a loan brokers too, when clients ask what they should do for financing, and they’re used to having one bank that they do work with. The difference you get when you work with the broker that knows all the different shops and who’s good at what makes a big difference. There’s a lot more movement in there than you’d expect.
Luke Nelson
Like you said, the end user, the borrower, in our case, the insured, which is what we call the client, the beneficiary of the policy. It’s a great point, the product gets better, obviously, you would imagine with the more access you have to more markets. You want to talk more about the owner side, the landlord side, the investor side, as far as what I focus on, in my book of business, that’s typically who I’m working with, not so much the tenant, although we do have clients, of course, restaurant groups, etc, that either own and operate or are just tenants at, you know, X, Y, or Z location. Any sort from either side of the table, whatever you want to discuss, we can do so,
Justin Smith
I figured just trends, what’s going on in the market? That’s usually a great place to start because you see it all. What’s going on? Are things changing? It’s an interesting stretch of time we’ve just been through and how things might develop through the last year. What are we dealing with in the insurance markets these days?
Luke Nelson
So historically speaking, 2020 for most sectors, most industries, obviously was a complete unknown, flying blind, and hoping for the best. Insurance was no different. Since the rolling out of the modern insurance market. There hasn’t been such a unique circumstance, I would say, just from a macro perspective. How that was shaking out or how that did shake out and it continues to shake out primarily is carriers, so the companies who are putting out the insurance contracts. They’re underwriting things a little differently because now we’ve got this new consideration, we’ve got this new variable pandemic. Who would have thought like on a multiple choice question, what would cause the next global rift, famine, climate change, or whether you’re in the pandemic. I would have immediately excluded the pandemic.
Justin Smith
Not even on the radar.
Luke Nelson
I guess it could happen, it did and so here we are. Big bullet points, pricing is going up almost across the board now. Certain lines of insurance of course, geographically speaking across different business classes, there’s going to be some variability. You’ve got your property insurance market and property insurance rates are going up your umbrella. So, your excess liability rates are going up, directors and officers. Management liability insurance, that is another line of insurance that seeing tremendous year over year increase. Cyber insurance with everybody being locked down and virtually everyone working from home. Cyber threats, and not only frequency, but severity of the cyber events and of the cyber claims spikes at a level not seen before, understandably so. Those are a few of the lines of employment practices liability is another. A lot of these can follow kind of real understandable and logical trends. At this point in time, on the investor side, when your insurance spend goes up now all of a sudden, that’s affecting your cap rate it just trickles down. It’s becoming a bigger and bigger line item on the P&L and so in addition to just pricing going up, then you’ve got, of course, carriers rolling out these new coverage forms that are even more exclusive, meaning they exclude more things, they’re not as inclusive coverage isn’t as broad. So, you’ve got a reduction in capacity on that end. It’s kind of a double-edged sword here, you’ve got the front-end rates are going up and then on the back end, the coverage is harder to place, in a lot of cases.
Justin Smith
A big squeeze.
Luke Nelson
Basically. It’s a challenging market. Certainly.
Justin Smith 12:28
No doubt. For companies doing business, they rent 100,000-foot industrial building. Rents have gone up so they’ve gone up year over year from 2014 and they continue to go up, the average is 7%. Every market rise is a little different but it’s all along that same trend line. You imagine CEO Joe, rents up and insurance is up both for him and his company. Then if you are on a triple net lease, you are paying your landlord’s insurance, which is increasing. You can see why there’s pressure to make changes to adapt to figure out different ways of doing things to deal with those increases.
Luke Nelson
I guess I kind of take that and run with it a bit. When we come in and we’re introduced to a prospect, we try and take a consultative approach. Meaning we figure out as far as this particular company, or this particular individual. What is their risk tolerance? Are they a riskier person, for lack of a better word? Are they more risk averse? When we are talking real estate investment, do you have a lender? What amount of insurance must you carry? What level of insurance is customary or practical for other companies in your space? What are you personally as an individual as a human being comfortable with on that kind of sliding scale of risk tolerance? Risk tolerance is not binary, obviously, we’re talking in shades. When we’re talking landlord, investor insurance, figuring out the constraints within which you must work. So, if you’ve got a lender that drives pretty much the conversation right there but if you own it outright. Where you have an alternative means of funding outside of kind of just an institution that has these hard requirements, being able to customize your insurance as much as possible and tailor it to what are your biggest exposures and working backward on us from there.
Justin Smith
What kind of lenders? How do different types of lenders change, what’s required?
Luke Nelson
It’s funny, we deal with this all day every day. Every lender is different and it’s funny it’s almost geographically speaking, lenders in California are probably a bit more stringent than down in Arkansas. Some of these areas that don’t have quite as many perils that folks have experienced. Kind of bringing it down to more of a human level and more of just a logical level. A lender, typically on an investment property is going to require replacement cost valuation on the property insurance side. Let me back up. When you think of insurance, you’ve got property insurance, which is physical property and then you’ve got liability insurance, also known as Casualty. You’ve got property and casualty liability and lenders are going to have requirements generally for both of these. Property insurance typically is going to be replacement costs and that’s really where we can get into the weeds as much as you’d like. I think it’s important to understand the differences, because this is what we run into a lot, even lenders having to educate a lender on your loan value might be more than the replacement cost value. Which is a concept that you might understand intellectually, but the bank has to reconcile that in some way. Like it’s their problem.
Justin Smith
I can see that being tough. When it comes to replacement value, I own an industrial property that’s near your office and I get a call out of the blue saying, your policy is up, it’s time to renew, and the underwriter for some unknown reason has changed the replacement value to be $1 million greater than it was. They’ve changed what the use is because it’s a multi-tenant project and your rates are going to double. We should do something about that and what do you think replacement costs are? It’s an interesting to have that experience. Why is there a change that suddenly been introduced by an underwriter? Is that a new one or was their turnover? Why is someone in there moving things around for work for an unknown reason?
Luke Nelson
It costs you more money.
Justin Smith
Yes, and the opaqueness of replacement value because it’s not as if we went through a highly detailed analysis of land costs, hard costs, and soft costs. Does that include the land? It shouldn’t because you would still own the land and getting into that it was much more of like a gut feel conversation. Anecdotally I’m hearing that replacement costs are 75 bucks a foot. When I have an experience like that, it makes me think like as you get in this is small potatoes. As an investor as the investment community goes. There’s 10s millions, hundreds of millions and large players out there, but it seemed oddly subjective. So,, I’m curious when it comes to that, it seems like there’s a lot of room for you to massage a deal to help make sure it fits right, it’s the right size, it’s been underwritten properly, and you’re getting what you paid for and but you’re not doing anything in excess.
Luke Nelson
To clarify one point, when we’re talking replacement cost, we’re never talking the land insurance. Your typical shelf insurance product, it doesn’t cover the land. We’re talking the replacement cost of the building or structures. What that really boils down to is as simple as labor and materials. So, a fire for example, or a tornado wipes the building off the face of the earth. What would it cost in today’s market, not last year but today to hire the labor, to procure the materials, and then to build it? It is funny that you that you mentioned that personal anecdote, and you’re not alone. What I will say is that replacement costs are going up, but that there is no way to say that the replacement cost in Irving, Texas is comparable to Asheville, North Carolina because of course labor markets are different and supply chains for materials are different. What you almost have to rely on other than just having kind of benchmarking from your own experience or gut is something called a replacement cost estimator. This is something you can Google, you could pay, I think 8.99 or whatever to get a replacement cost estimator for your building. You plug in a zip code, there is this massive database of information based on zip codes that determine what a replacement cost is now. Those are slightly elevated in my experience. They take into consideration a margin of increase or decrease. I think they have to probably for professional liability reasons. That being said, when you’ve got a year over year at renewal, let’s say you’ve got a lender that’s now saying, well, no tenant has changed, no improvement, or betterment has been made of the property but all of a sudden, this is now worth, and the limit must be raised to this amount. In Texas, it’s a value policy state, meaning if a tornado wipes it off the face of the earth and it turns out that the replacement cost value for your building is less than what the limit that you carried. The insurance company can’t come back and go, Oh, you’ve been carrying 2 million on but actually only takes 1.75 so here’s a check for 1.75. They’re required to give you a $2 million check. It’s a value policy. If it’s deemed a total loss, you get the absolute max value of that of that contract. There’s no negotiating on the back end after your premiums have been paid. On its face it makes sense. That seems like a good check and balance, to keep insurance companies from essentially requiring you to carry more insurance than then they will ever be required to pay out. Now, there are some states where that is the case. It’s a bit more of a precarious but here in Texas, to bring it back we’re in a value policy state. What I would do if I were in that situation, Justin I would ask my agent to run a replacement cost estimator. Then of course, work backwards in my mind. We’ve got 100,000 square foot warehouse, drill piers, slab foundation and high-tension cement. I have yet to see a tornado displace a foundation. When you’re talking about replacement cost of a building that size, foundation is a significant amount of that limit. Having that conversation with the underwriter oftentimes can buy us play. That’s just an example. Looking at things, again from a practical basis, and working with clients that are in the construction industry. In North Texas, that is always a very good reference, hey, wrong, these guys just built this warehouse, I’ve actually got the budget because I did the builder’s risk for the project. Here’s what this cost and this is two miles from this property that you’re saying. You almost have to have that benchmarking and that sort of submarket knowledge in order to be effective. That’s why we find success when we’re bidding out insurance for local North Texas kind of properties.
Justin Smith
I’ve never seen a tornado much less a tornado that’s taken out of foundation.
Luke Nelson
Commercial Industrial Foundation, these things are pretty solid.
Justin Smith
I’ve seen expansive soils, the DFW area does have that and that does affect foundations. There are certain areas where you have that. There are a million different kinds of risks, but I appreciate you going over replacement cost. Thinking about how much the foundation is as a result of that learning about the value policy states. I think all three of those are things that the general investment community is less aware of when you think of like the high-net-worth people as opposed to institutional. How about when it comes to underwriters? How much is variable? Or how much can change are being negotiated when it comes to dealing with policies?
Luke Nelson
It really just depends on a few factors, the ultimate leverage of courses, what is the carrier’s appetite, because at some level, there might be a class of business or in a geographical area where carrier has either run the cat data and figured it out they want no piece of anything in this area from a product standpoint, From a liability standpoint, we lost a couple of significant claims a couple significant lawsuits in the manufacturing hot workspace last year so we’re not investing anymore. We’re not putting out any more money to ensure those. This is almost cyclical because once someone gets out of an industry, then capacity shrinks, the pricing goes up, and then folks get back into the market to try and glean some of that. It’s capitalism and it’s economics. I would say there is going to be a hard floor when you’re talking to an underwriter. They’ve got their regulations from corporate and they know what’s coming down the pipe to them. I’ll just put it this way, what we start when we get into a conversation with an underwriter, we always try and position our client best foot forward. For example, if you’ve got a riskier class of business where we know that the underwriter and a lot of our partners are ex underwriters, so they came from the carrier side.
Justin Smith
That’s a very great talent to have on the squad.
Luke Nelson
Absolutely. We’re talking like chartered property casualty underwriters, they still carry the designation, in the whole deal. They can anticipate what underwriting is going to have an issue with, well before we even get there, and we can help position the client and set up. For example, if you’ve got an HVAC business, or some sort of contracting business and you’ve got a huge auto fleet and you know that is the highest line-item expense on your insurance spend, well let’s start from there. Do you guys have a driver safety program in place? What is that? I don’t know, let’s make one. Biannual MBR chips, you put in your employee handbook that they agree to hands free devices only, no texting and driving, all of these things, and you just make it part of the company flow. Well, that gives us a leg to stand on when we go to underwriting and they want to charge quarter million bucks for the commercial auto piece. We say no, we need some credit here. This is this is a part of what they’re doing to help mitigate loss and at the end of the day, filing any claims. That kind of leverage really helps us get somewhere with underwriting. It might be 5%, here, 5% there, 55% there, but the aggregate, when we’re talking savings it can add up to be to be considerable and to a bigger point, it sets them up, it sets their baseline spending low enough. Whereas they expand, they’re not going to be paying an inordinate amount for line that they could help control on the front end. So, it limits their spending in the in the future.
Justin Smith
That’s interesting. Putting policies and procedures in place and that’s where you become a little more institutionalized, you can wield that. It’s good for your organization and good for your policy. It’s good practice.
Luke Nelson
It’s intrinsically a positive thing. Call it a best practice, but who would have thought that there would be a tangible discount essentially on the financial and for your insurance for certain things.
Justin Smith
How about environmental issues and insuring around them? Think like a groundwater subsurface vapor, some of the waters in voc dried, some of that stuff I found is like a kryptonite for the investment community. For people that have those issues maybe inherited them. I feel like there’s an arrow in the quiver that nobody can ever find that is trying to ensure around some environmental cleanup. Is that anything you guys are involved in or had success with or play in that space at all?
Luke Nelson
We placed solution-oriented policies. From the investment from the investor side doing your due diligence, doing extensive soil samples, all of these things, even without a lender that you probably should do anyway can help mitigate getting into something that you don’t fully realize. Nobody wants to inherit something or purchase something that’s going to be unsellable in the future. We’re going to drastically reduce your return. So, but that being said, it does happen a lot of especially when we’re talking in the manufacturing space. A lot of these older buildings, a lot of these older companies used to do somethings that would raise eyebrows, I’ll put it that way today. Understanding that and putting that pollution policy in place as early as possible, because we want that retroactive date to go back as far as possible. So having success there, pound for pound pollution, liability is an expensive line of insurance. Yeah. And so being prepared for that or factoring that into your forecasting or your pro forma when you are getting into an investment is key. Especially as we’re transitioning into more of a progressive administration, you have to imagine the trickledown effect there is going to be. A greater focus on climate change, a greater focus on reducing carbon emissions and all of these things. Naturally, I think the insurance industry is going to have to adapt. There is going to have to be a greater offering as far as lines of insurance for pollution. Making that a significant consideration and doing due diligence to avoid possible any sort of contaminated or polluted area.
Justin Smith
It’s a terribly difficult space but I found in the search for yield, because there is so much capital and cap rates are being compressed, people are extending further out the risk spectrum. In search of anywhere else. Where else can we find yield? That is one of the five buckets, if you’re looking for yield and you’re willing to bring on more experienced people or you’re willing to look at different opportunities. I would think that will be something that will be somewhat greater in need just based on investors having to be more creative looking for opportunities.
Luke Nelson
Yes, you are not wrong. The demand is there. It’s the supply that’s the issue, at least here in North Texas. It’s finding something that isn’t too expensive, frankly, to make sense but also don’t have too much hair on it. In terms of issues like pollutant contaminants, etc.
Justin Smith
How about self-insurance? When companies want to do that. I’ve just worked on one where I’m on the landlord side, we’re negotiating the lease that’s more dealing with a tenant that wants to self-insure. How do you look at that? Is that something you deal with very often? Self-insurance is like the anti-insurance. You don’t get a policy to not get a policy,
Luke Nelson
I would just say most people on its face the theory of insurance, most people go, yeah, that seems like a pretty good idea. Again, the level whether you’re trying to just mitigate the risk or whether you’re trying to eliminate the risk, that’s really where that that fork in the road is. When you’re talking about self-insurance a deductible or retention on any kind of commercial policy is essentially the same thing. You’ve agreed to self-insure up to a certain amount. At that point, if a claim gets over that amount, whatever that is then your insurance would activate. It’s not a foreign concept, if you have a deductible, essentially, you’re self-insuring to a certain amount. When you’ve got a tenant, and it really takes a special sort of individual or company to truly self-insure. Typically, it’s someone who’s ultra-wealthy or they’ve been through it all and they would rather take their chances and keep their money working for them rather than pay it to an insurance company bottom line. When you’ve got individuals like that, you can direct them towards a captive. By captive, I don’t mean, captive in the sense of, there’s only this one product. A captive is a way for a group or an individual to park some money in an account, essentially self-insurance up to a certain amount and then buying reinsurance on top of that, with the overall goal of lowering their insurance spend and keeping that money working for them. You can also customize it way more than just your standard insurance product. For most folks in most companies, self-insurance, at least in North Texas, it does not make a lot of sense because it’s just a matter of time before we get crushed with hail. It might be near and it might be a bunch of little hail storms but the aggregate effect is the same. You just don’t want to be left holding the bag on your quarter million square foot warehouse and they’re asking for half a million bucks and you go, well shoot but the roofs leaking, we can’t work here. Then you’ve got mold and the problem can compound and after a certain point, nobody will insure it, at least not a replacement cost value. So, to speak on that, replacement cost value is one way to value property insurance. Actual cash value would be the other. ACV that is replace the cost less depreciation and there is no master depreciation schedule believe it or not. Everybody kind of has their own proprietary step off depreciation schedule there and it turns into more of a negotiation at that point. Which is not a place as a consumer, as a client, as an investor, as a tenant, you ever want to get into a position where the scales are tipped in favor of the carrier when it comes to negotiating a claim.
Justin Smith
Why would someone choose that? Is it purely based on lowering their premium and having a lower payout value if there was a total like catastrophic event?
Luke Nelson
Typically, yes it’s going to cost less pound per pound actual cash value versus replacement cost coverage. Also, some of these distressed assets, which I imagine we’ll be seeing more and more of as these eviction bans etc, are lifted. Yeah. Which is going to be opportunity, but you have commercial spaces, for example, retail spots, strip malls, that have been sitting vacant for eight months. They might have been vandalized and folks might have gone up on the roof and ripped the copper out of the AC units. In a carrier we can’t ensure that a replacement cost because it’s a pile of trash right now.
Justin Smith
Making claims where do people go wrong there? If that’s something you get involved with, I imagine you get the first call.
Luke Nelson
Typically, yes. That’s the thing I love. I love my industry because in times of crises like a claim, I personally thrive on being a part of that solution. I really take that to heart, and we go to bat for our clients. Yes, typically, I am the first one they call. For example, a couple of weeks ago, I guess it was this freeze in North Texas, you probably heard about it, it was on the front page of Wall Street Journal, almost causes catastrophic power grid failure. It was really wild. With that came a lot of the pipes in a lot of these homes, and a lot of these commercial spaces aren’t wrapped. They are not insulated, of course, because we’re in Dallas, it’s a desert. These pipes burst and so we had this massive influx of claims. Fortunately, our agency has a dedicated Claims Department on the commercial side and the personal side. So, we had all hands-on deck. We’re still sorting through those. Frankly, it’s been a lack of contractor availability, too much demand on that side. Where people go wrong with claims I would say initially is waiting. A consideration part of your insurance contract in virtually every insurance contract, if there’s a physical loss like a pipe burst in the wall, you have a duty or requirement as the owner of that property to mitigate in the moment as much as you can. So, if you’ve got a burst pipe, it’s not take your hands off and just dial the insurance company, they want to take care of it. They want you getting out to the street and turning off your water and coordinating with a restoration service to get the water off the floor and salvage what you can as much as possible. Folks who wait, they’re not giving themselves a great starting place with the carrier and with the adjustment process. Do what you would do as if you didn’t have insurance on the front end. As just kind of a knee jerk, handle the problem.
Justin Smith
Stop the bleeding.
Luke Nelson
If the house is burning, call the fire department. If there’s a burst water pipe, turn off the water. Things are common sense but a lot of folks in the moment get panicked. They don’t know what to do or they don’t even know where to start. So picking up the phone, calling your agent, calling your broker and calling your carrier letting them know the situation because when you got to something like we had in Texas few weeks ago with the big freeze, these carriers get swamped with claims. Claims typically are handled by adjusters by carriers on a claim-by-claim basis in first come first served. Making sure that, okay, you’ve got the water turned off. Now your next call needs to be to your agent who needs to file that claim to secure your place in line. Then call a restoration company or call two or three restoration companies and just get them booked because that’s the next thing, you’re going to run out of availability. When we’re talking about getting a company back up and running, I mean, insurance aside, if you can’t operate out of your space now we’re talking about how this has now become a business income claim. Business income claims are not as clean as just a clear-cut property claim and it just complicates it and it draws it out. So, don’t wait to file a claim. Again, in the moment, handle the issue, call your agent insist that they file a claim ASAP, to get in line and be one of those first served if possible.
Justin Smith
I wonder if industrial was affected very much during the big freeze. I know that people weren’t going to work. There was no way to get there for some, depending on where you’re at. Then you imagine all these buildings and manufacturing buildings, it’s not like, water is a huge thing there, but it still goes to all of those. I’m sure they have their own brand of troubles that they had to deal with there.
Luke Nelson
Yes, with the bigger industrial and commercial office space, the big issue was, we’ve got to turn off your fire sprinkler system, because if that sucker blows that really could be a loss. This is an important distinction because it is not just Oh, we’ll just turn the fire sprinkler off and that’s it. You turn it off and as soon as possible, recharge that sprinkler system because a lot of carriers have a provision or some verbiage in the policy that you need to let the carrier know within 48 hours that the sprinkler system has been turned off, there has to be a good reason, obviously. Then you’ve got the duty after letting the carrier know, to turn it back on as soon as feasible and as practically possible. Now with your bigger spaces, those are the first emails, and the first phone calls were going out to our property management clients. Some of our clients with bigger portfolios where you’ve got a half a million square foot building, that’s a lot of water and even if it’s only dumping on a cement floor at some point, it’s going to do some damage.
Justin Smith
That’s a huge consideration and that’s a great way to be a value to your clients to let them know about those kinds of things. I’m sure someone had to be the first person to think, Oh, no, the sprinklers, right? Then once that rippled through the community like, okay, that could be a big problem, we should figure out what we could do about that. What’s our best practice going to be for this challenge?
Luke Nelson
Yes, what is your contingency plan going to be? It was kind of a two prong; it was just getting cold outside, so the pipes were just getting colder but then we’ve got these rolling power outages. We might have the elevated space heaters in every corner at every 100 yards in these huge warehouses but if there’s no power, those aren’t running. We were kind of fighting on both ends there so making sure that folks know. In alarm systems, we didn’t experience it because it was too darn cold for just thieves to be out doing stuff. You got rolling blackouts, on the crime side you’ve got potentially people breaking in and ripping you off. So, having contingency plans for all of those situations, even if it’s just a flowchart. It’s just a simple five-piece flowchart, if this happens, we do this, if this happens, we do this, putting that together on the front end so when something does happen, you’ve been there before in your mind, you have a procedure and it’s not just you are reacting. That’s never a place you want to be at.
Justin Smith
That’s some good insight. For sprinklers I imagine when you upgrade them your insurance probably is happy to hear that and maybe that helps you with your rates if you are upgrading your sprinkler system.
Luke Nelson
A lot of cases with the bigger buildings, it’s code compliance so they got to have them. But if it’s not required by code and you have it, it’s certainly going to garner a credit from the carrier.
Justin Smith
Totally, I meant when you upgrade from a certain rating to a higher class of sprinkler system to a higher class.
Luke Nelson
Setting this monitor that’s heat censored kind of activated one versus just the old school, you’d see in a motel or something. There is certainly going to be some underwriting credit likely thrown your way.
Justin Smith
I think we’ve done our time, but we’ve proven there can be fun in insurance. Now everybody knows that’s possible. It can be done.
Luke Nelson
I’m glad to hopefully break that stereotype. It can be more dynamic than it seems certainly.
Justin Smith
I would think if people need your help, how can they reach you?
Luke Nelson
Through email, phone call or text, whatever is easiest. Phone number 214-604-0031 can always get me there. My emails lnelson@rhsb.com. We’d love to help you. I’d love to talk to you, even if it’s just a conversation. We’re a full service firm and we are relationship driven and we have core values that align with most of our clients, if not all of our clients. We’d love to be a part of your process.
Justin Smith
Well, thank you Luke. Thank you much. I’ won’t keep you but I really appreciate you making the time and going over that. There’s a lot to learn. I don’t claim to be an insurance expert but I’ve got into it enough to know it makes a difference who you work with. People know what they’re doing.
Luke Nelson
Yes and for your stuff Justin just let us know if you want a second opinion, or how we can help if at all?
Justin Smith
Happy too, I’m glad I know you, Now I can pull you in.
Luke Nelson
Let’s do a deal.
Justin Smith
Thank you, Luke. Have a good one.
Luke Nelson
See you Justin, bye.
