Relief from the high cost of wind/hail insurance

In today's ever-evolving commercial real estate landscape, protecting your investments against natural disasters is crucial. 

In 2023 alone, the U.S. experienced 28 separate weather and climate disasters that resulted in losses exceeding $1 billion. Altogether, according to the NOAA Centers for Environmental Information, weather-and-climate-related losses in 2023 exceed $93 billion ― and that was before calculating losses from a December storm that caused wind and flood damage along the entire East Coast.

Commercial real estate (CRE) owners must ensure they are adequately covered, but many face high wind/hail deductibles when renewing their Property Insurance policies. This is where Wind/Hail Deductible Buyback insurance policies come in, providing a solution that meets lender requirements and offers peace of mind during turbulent times.

How buybacks work

Essentially, a Wind/Hail Deductible Buyback policy is an additional coverage option that allows property owners to "buy back" their high deductibles resulting from wind or hail damage, reducing insurance costs to a more manageable level. 

Such buybacks are especially beneficial in regions prone to severe windstorms and hail, where deductibles can be exorbitantly high as insurance companies offset risk. 

In a March 2024 article titled “Insurers Report Rising Hail Damage Claims,” the New York Times noted, “Inflation is driving up the cost of materials and labor to repair roofs and cars. Adding to insurers’ costs is increased development in areas affected by storms.”

By buying back the cost of their deductible, policyholders can mitigate expenses associated with wind/hail risk management, potentially reducing out-of-pocket exposures by as much as half.

As reported by Business Insurance magazine: “Percentage property deductibles in wind-prone areas usually range from one to five percent (1-5%). If a policyholder has a $2 million property, with a 5% wind deductible of $100,000, they could purchase a separate wind buyback policy to cover 4% of their 5% deductible, reducing their out-of-pocket exposure to $50,000.”

3 benefits of buybacks

Wind/Hail Deductible Buyback policies provide a creative solution for CRE portfolio owners in three main areas:

1. Policy renewal solution: In recent years, the CRE insurance industry has seen a trend toward increasing wind and hail damage coverage deductibles to mitigate risk. This can mean facing unexpectedly high renewal rates for CRE owners, significantly affecting a specific property's operating budget. By opting for a Wind/Hail Deductible Buyback policy, owners can effectively lower their out-of-pocket costs in the event of a windstorm or hail damage claim, aligning their coverage costs more closely with their financial planning and expectations for the property.
2. Meeting lender requirements: Most lenders have specific insurance coverage requirements as a loan condition, often including a maximum allowable deductible for wind and hail damage. In cases where an insurance policy's standard deductible exceeds this maximum, a Wind/Hail Deductible Buyback policy can reduce the deductible to meet the lender's stipulations, ensuring that insurance constraints do not hinder financing or refinancing efforts.
3. Peace of mind: Beyond meeting lender requirements and addressing high renewal premiums, Wind/Hail Deductible Buyback policies provide peace of mind by reducing the financial unpredictability of severe windstorms and hail events. Knowing you won't have to cover a steep deductible before insurance kicks in can make a big difference in how you manage your property and protect your investment. Furthermore, these policies can enhance the overall value of your commercial real estate by demonstrating to prospective buyers or tenants that the property is well-protected against natural disasters.

Next steps

Wind/Hail Deductible Buyback insurance policies represent a strategic tool for CRE owners looking to navigate insurance coverage complexities in an era of extreme climate conditions. They not only help meet lender requirements and manage high-deductible renewals but also secure your property's long-term value and financial stability. 

As with any insurance product, it's essential to work with an experienced broker who can guide you through the options and tailor a policy to your specific needs and risks, ensuring that your CRE assets remain protected against the unpredictable forces of nature.

CONTACT AN ALERA GROUP CRE SPECIALIST

About the author

Myles Light, RCIP
Commercial Lines Producer
Alera Group

As a Real Estate Certified Insurance Professional (RCIP), Myles Light has spent his career helping portfolio owners navigate lender requirements and high replacement valuations, utilizing applicable technology to minimize risk and streamline industry services. 

Contact information:

• myles.light@aleragroup.com
• Connect with Myles on LinkedIn