Navigating SoCal’s CRE Insurance Disruptions

Over the last year and a half, the GM Properties team has seen major shifts in the Southern California insurance landscape for commercial properties. In case you have not been informed of such changes, we’d like to update you and make recommendations about how you can prepare yourself for increasing rates, carrier departures, and broker challenges.

Within the past 18 months, insurance rates have soared, with increases exceeding 25 percent. Many policyholders are facing the tough choice of accepting these hikes or are seeing their policies canceled altogether.

To make matters worse, the departure of major carriers like State Farm and Allstate, as well as several smaller carriers, from the California marketplace has left most insurance brokers inundated with requests for new coverage, thus creating a backlog in processing policies. With the surge in demand, insurance brokers are struggling to keep up with the pace of incoming requests, which has created response delays and challenges in finding suitable coverage for clients. The industrial sector, particularly single-unit properties, has been greatly impacted. Tenants are finding it increasingly difficult to secure liability insurance, and property owners are contending with exorbitant premium hikes. Further, property inspections are now becoming more rigorous, with a focus on potential fire hazards, particularly automotive use or woodworking and welding activities. This adds another layer of complexity for property owners, especially when it comes to industrial uses.

One example is a multi-tenant industrial property in Santa Fe Springs. When its policy was canceled in 2023, finding a new one in 2024 proved to be a daunting task. Premiums skyrocketed from $10k to $39k, reflecting one of the steepest increases we’ve observed so far. This 31k sf property had a 100% occupancy rate among its 9 units and had been owned by the same owner for 40 years.

KEY TAKEAWAYS AND RECOMMENDATIONS

While our team continues to keep a close eye on the issue, we can make the following recommendations to help you navigate these disruptions.

• Start your annual renewal or new policy search process early, so you have time to anticipate delays.
• Maintain close relationships with multiple insurance brokers who have access to key carriers in California.
• Encourage tenants to keep up good housekeeping practices to minimize risk.
• Prioritize maintenance and property inspections, particularly for older buildings. In California, fire-risk has become increasingly important, so maintenance should include updating electrical wiring and panels (for example Zinsco panels), installing smoke detectors and fire extinguishers, and addressing potential fire hazards such as the use of extension cords.
• If your property is uninsurable by private insurance carriers, the California FAIR Plan is state-operated insurance program that could provide coverage.
• Given recent market trends, it is critical to budget for higher increases to mitigate the financial impact.

To discuss how these issues may affect your property, get in touch with a member of our Property Management team.