Micah Mattox is the director of both commercial insurance and multifamily at RealProtect, a real estate brokerage operating nationwide. RealProtect helps real estate investors manage their risk and protect their assets using specialized programs designed to fit their needs.
In this episode, Micah shares the top three factors that are having the biggest impact on multifamily insurance rates right now and what investors can do to adapt.
1. Rising Cost of Construction
Micah says the rising cost of construction is currently having the highest impact on multifamily insurance. If an investor owns a $1M property and there is a 20% rise in construction costs, for example, the investor won’t see an increase in coverage until it’s time to renew. If something happens to the building before renewal, however, they won’t have enough coverage to replace the building at that 20% higher cost.
“Construction costs go up and down and there are not a lot of automatic things in a policy that would help with that,” Micah explains. He encourages investors to monitor construction costs in their own MSAs and reach out to incorporate incremental changes into their insurance policy accordingly instead of waiting until it’s time to renew.
2. Crime
Many metros have seen a rise in crime since the pandemic, which is the second biggest factor affecting multifamily insurance rates, Micah says. When it comes to multifamily policies, it can be difficult to obtain coverage for things like assault and battery, firearms exclusion, or sexual abuse coverage from some carriers. However, certain insurance carriers are offering standalone, supplementary products as a solution.
Micah says that crime rates are cyclical, and we are simply at a high point in the cycle at the moment — he speculates that they will go back down. “If starting today, we start to see that drop in crime and things start to improve, [multifamily insurance is] going to take a little bit of time to catch up just due to the nature of the product,” he explains.
3. Climate Change
The third biggest factor impacting multifamily insurance rates, Micah says, is climate change. For example, recent changes in weather patterns have caused Atlanta to be newly deemed a major wind and hail zone, which is driving up the price of coverage in the market.
“The biggest thing that people will see on their policies typically other than maybe some premium change is the wind and hail deductibles,” he says. “It used to be really common to just have one deductible, whereas we’re now seeing a separate wind/hail deductible.” This can range anywhere from 1%–5% depending on the size and value of the property.
Micah Mattox | Real Estate Background
- Director of Commercial Insurance and Director of Multifamily at RealProtect. They help real estate investors and all those involved with the real estate industry manage their risk and protect their assets using specialized programs designed to fit their needs.
- Based in: Atlanta, GA (operates nationwide)
- Say hi to him at:
- Greatest lesson: The importance of networking and community. The real estate industry is so tight-knit that if you are excellent at your job and treat people right, they will tell their friends. The opposite is also true, which is why I always go the extra mile to help wherever I can.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the Best Real Estate Investing Advice Ever show. I'm Slocomb Reed, and I'm here with Micah Mattox. Micah is joining us from Atlanta, Georgia. He is the director of commercial insurance and director of multifamily at RealProtect. Micah, can you start us off with a little bit more about your background and what you're focused on within multifamily insurance brokering?
Micah Mattox: Absolutely. And first off, thank you so much for having me; definitely excited to be here. So we're a real estate brokerage operating nationwide. I've worked with a lot of different carriers, and I've got a special focus in the real estate industry. So we end up doing a lot in the commercial real estate space. We end up doing a whole lot in the multifamily space as well, get to meet a lot of great people and help a lot of great people as well. So I've been doing this now for just short of 10 years, and have just gotten to experience a lot of awesome stuff, and really, really have fallen in love with the real estate industry to focus on.
Slocomb Reed: Nice. Within multifamily - and I know you do insurance nationwide - do you have a particular niche, or is there a space within multifamily where you're seeing that you're able to provide insurance products that are blowing your competition out of the water? Is there a particular size, age of property? Are there particular MSAs that are working better for you than others?
Micah Mattox: Those are all good questions. So in the market right now, we're seeing stuff everywhere. There's not really one specific MSA that we're seeing more commonly than others. A few of them are getting a little bit hotter, a little bit warmer than others, but we're still seeing stuff all over the country. There are a lot of factors that go into insurance, and we kind of develop all those things. We like to think of that final premium, but there's a lot of different factors that go into it on the way to developing that. So definitely age, the type of construction... There's a lot of things. Crime score is a very big one right now, and each carrier or most carriers have their own proprietary models that they're using, things like that. And of course, we're just coming out of the rising construction costs and things like that. I know those got a little bit crazy for a minute, but it seems to be settling out some. So there are a lot of different factors that count into it all. But yeah, we're helping across the board, and we're seeing just anything from brand new, large, large properties, all the way to maybe a little bit older, smaller properties and really everything in between.
Slocomb Reed: Gotcha. You mentioned crime score being an important factor. Micah, we're recording at the end of June 2022, tumultuous times so far as the economy is concerned. We're almost past talking about a worldwide pandemic as if it's-- I think it's not happening anymore, right?
Micah Mattox: Yeah.
Slocomb Reed: With everything else that's going on in the economy. The general consensus is that since the pandemic crime is up, that's primarily focused in certain urban areas. That's just the sentiment that people have. I don't have any analytics behind those numbers. That's just what people are saying. You go to Facebook, you hear about crime. Do you have any numbers you can put behind that, but more importantly, Micah, how are you seeing that impact multifamily insurance?
Micah Mattox: Those are good questions, too. So as far as specific numbers, it's kind of hard to nail that down, especially because each NSA represents a little bit different metrics. Atlanta, for example - that's right in the backyard here - we have just seen an increase in crime, and some of that is just based on the neighborhood, sometimes based on the types of properties in the areas like that, sometimes it's whole zip codes that are experiencing these massive, massive spikes, basically, in crime. And I think you definitely hit the nail on the head. It goes without saying that a lot of people were deeply, deeply affected by the pandemic and the economic situation that we've got going on right now. So unfortunately, there are times where desperate people do desperate things, and we're seeing the effects of that.
The ability to obtain definitely good terms when it comes to things like property coverage or general liability, and especially some of the finer points, if you think about assault and battery coverage or firearms exclusion or sexual abuse coverage when it comes to those policies - it's just really, really hard for some carriers to get them to do the amount of coverage that we're wanting to see. We do have a lot of options, so we've actually got some carriers that are now offering standalone products to kind of step in and save the day there. And there's a lot of fun and awesome and new solutions that we're coming across, but it's definitely a factor. And right now we're just seeing that become more and more of a problem, unfortunately.
Slocomb Reed: Micah, I feel like we could spend this entire interview me going through each of the buzz words of the current economy and the shift that we're going through and asking you how each of those things is going to impact multifamily insurance. I think I'd rather do it this way... I've come up with four things here that I want to ask you about individually. But instead of asking you individually, I'm going to ask you to rank them in terms of how much of an impact they are having on apartment insurance.
Micah Mattox: Okay.
Slocomb Reed: Also, please, Micah, anything that's a big factor right now that I miss - please name it. Let us know what's going on, and rank it with these four. Again, recording at the end of June 2022. I often feel myself in these interviews wanting to talk about the market of the moment, and my gut is telling me to ask you about the market of the moment, Micah, and how things are shifting and where you think that they're headed.
So the four things I've got here - we've already talked about crime. We have not yet talked about inflation, and how inflation may be impacting multifamily insurance, not just premiums, but the different coverages like you were saying about crime and exemptions. There's also, of course, climate change. You go to a real estate conference and you can't not hear about climate change. And of course, whenever someone talks about climate change, they want to talk about insurance and what's going to happen to your rates if you're in Texas or Florida. And the last one I have here is the appreciation and rising construction costs that we've seen, that are the result of a variety of factors. So we have crime, inflation, climate change, rising costs, specific to construction and purchasing current inventory. What's having the biggest and what's having the smallest impact on insurance right now, Micah?
Micah Mattox: Well, those things are all intertwined, and it's kind of funny -- and I'll explain in short order how all of those things are kind of, well, like I said, intertwined, and they all affect one another. Whenever there's change in one, you often see change in some of the others. The biggest I would definitely say right now that we're seeing is the rising construction costs, but all of those things are definitely important, and definitely play a large role in getting insurance and the rates of the insurance, and the terms that you're getting, the quality.
Now, when we think about the rising construction costs, a lot of people don't think about that. So for example, and just to kind of isolate, let's say you've got one building in a complex - just to speak to the multifamily sector - that's worth a million dollars right now, or costs a million dollars to replace it. So over the next 60 days, let's say that we see a 20% rise in construction costs, but you don't increase that coverage; well, then if something did happen, the building burns down, you're not going to have quite enough coverage to replace it. That is kind of hard to work with sometimes, just to be frank. Construction costs sometimes go up and down, and there are not a lot of automatic things in a policy that would help with that. So that relegates most people to sitting there and having to basically review and say, "Okay, construction costs have gone up over the last six months, year", whatever it may be, "and we need to adjust our policy accordingly." And typically that happens at renewal.
There are some changes in that market that happened before renewal, and that does get a bit tumultuous, because if something happens right before that's addressed, especially if there's a big change, there might not be enough coverage in place. So that can be a really, really tricky issue, and really and truly there are not a lot of ways to help with that. At the end of the day, what we recommend is just staying on top of it. If we see market conditions changing, and typically people that are operating in their MSA know it the best. So they know what the construction costs are doing. They know what things to look out for. And my encouragement is if you see something happening or you kind of see that trend starting to go up, that's definitely something we can look into and we can make those incremental changes as time goes along, without having to wait for a big renewal or anything like that.
Climate change is another one that you mentioned. So climate change is definitely a very big factor. So as of now, Atlanta is now considered a major wind hail zone. When you think of--
Slocomb Reed: Wow.
Micah Mattox: ...major wind hail zones, you think Miami, places like that, but even someplace like Atlanta now is now considered that due to some of the convective issues that we're seeing with weather patterns. So all of those things kind of culminate whenever you see climate change; let's say that it is causing more wind and hail issues - well, that's going to drive up the price of coverage in this market. And it's a market that traditionally, of course - crime we know can be an issue in some parts of Atlanta, but traditionally, weather hasn't been a terribly big factor. And then now it's just--
Slocomb Reed: Except for every time it snows.
Micah Mattox: Yeah. [laughs]
Slocomb Reed: I went to school in Atlanta, and I can't tell you how many times I watched a car wreck itself on [unintelligible 00:11:18.21] when I was in Atlanta, just because it was snowing a little bit. But those kinds of weather events are happening much more frequently even in places like Atlanta.
Micah Mattox: Yeah.
Slocomb Reed: So sticking to climate change right here and making serious conversation out of my jokes, when it comes to an MSA like Atlanta, what are the factors specific to Atlanta when it comes to climate change that are impacting insurance rates?
Micah Mattox: So the biggest one is that wind hail issue that we've seen. There are certain storms, the snow storms and things like that that we see once every 5 or 10 years. Those are not having a terrible impact in that small of a timeframe. It's the stuff that we're seeing like the wind hail issues, that can be a month-to-month issue sometimes. And if you go to some of the really, really hot button areas - we'll pick out Miami for a second, like the Tri-county area - most carriers that offer property coverage in that area, right now are operating at a 200% loss. Basically meaning for every dollar that they bring in, they're paying $2 out. So of course, for even some of the insurance carriers, that becomes very unsustainable.
In some place like Atlanta - of course, it's never going to be quite as bad as the Miami area, anything like that, but it's a new hurdle that the insurance carriers have to really analyze, really look into, and figure out how to manage and mitigate. So they're in the middle of that process right now and we're seeing that happen.
The biggest thing that people will see on their policies, typically, other than maybe some premium change, is going to be the wind and hail deductibles. It used to be really common just to have one deductible, whereas now we're seeing a separate wind hail deductible. It could be 1%, it could be 2%, maybe 5% even in [unintelligible 00:12:49.17] larger property, or where there's more value, things like that. So there's a lot of things to watch out for, but yeah, we're seeing it every single day.
Slocomb Reed: Got you. What about inflation, in general, outside of just construction costs?
Micah Mattox: That can be tricky as well. So the most common way that we see that manifest is in construction cost, but there are a lot of different factors that that can influence; for example, the chemical makeup of that area sometimes can be changed. If inflation really sets in, maybe people that do live in certain areas, you start to see changes there. And of course, with changing demographics like that, sometimes you see crime scores go up, you see crime scores go down, so it can lead into other things as well. It just, like I said, gets to be a bit tricky, but the most common way that we see that manifest itself is just increased construction cost's.
Slocomb Reed: Gotcha. So really we've got three things here. We've got rising costs, climate change, and crime. Are there any other factors specific to the market of the moment, Micah, that you're seeing have a major impact on multifamily insurance in general?
Micah Mattox: The biggest overarching theme that I think we're seeing right now outside of those things is just time. And being outside of the industry, I think it would probably be hard for people to know, but a lot of these carriers right now were just so slammed with trying to get things done and offer terms, whether that's renewals or new purchases, it could be across the board... That is unfortunately not allowing the process to take place like it normally did. Normally, we could send things out to market. For example, we work with almost 400 carriers and brokers; it really, really gives us good market access. But typically, we'd be able to send that out, everybody runs it through their systems and all these carriers take a look at it and everybody hopefully brings back terms.
Right now, due to a lot of these factors - and some of that's weather related, some of it's staffing issues in the insurance industry with carriers... There are a lot of different factors, but among all those things, we're not seeing the same volume quotes. And there are sometimes where something that should have taken a week to get a quote on or to get terms on takes four weeks, six weeks, eight weeks to get. Now, the effect that a lot of people see there is that sometimes they're forced to go with an option that they wouldn't love, just whatever they can get their hands on, frankly. We don't always have the ability to go out in the timeframe, if they're closing in a week or two... We don't always have time to go and shop for the absolute best. Sometimes it is, "Hey, here's what we came up with", and this is across the board with agencies and carriers everywhere, "Here's what we came up with and this is really what we have to go with for now, and we can revisit it later once the market settles down."
Break: [00:15:19] to [00:17:05]
Slocomb Reed: Micah, speaking very generally... I am not naturally the squeaky wheel; I'm usually more like the grease, but I've had to be the squeaky wheel a lot more. It feels like even more so in 2022 than when the pandemic was at its height... Nah, maybe more in 2021 than now. But what I mean when I say that is I know, coming from the perspective of a client of an insurance broker and of a mortgage brokerage, and as a client trying to receive services right now, I have to do more in order to get results out of the vendors and service providers that I work with, to stay in front of them, to keep them engaged with me as their client. And generally, the excuse that I'm most often given, but also the general sentiment now that I'm an employer, the feeling that I have - that has a lot to do with the labor market and it has a lot to do with companies... I'm not talking about you specifically, Micah, but companies like yours and mine and other service providers in the real estate industry struggling to keep fully staffed based on the amount of business that they're doing. Is that what you're feeling here, too?
Micah Mattox: So we're seeing some of that internally even... We're growing, and it's just hard to find good quality people. And the labor market is very, very advantageous for the employee right now, which is an awesome thing. And I think that really forces employers to step up and be competitive, do the right thing and just provide the best environment that they can. I hear that a lot that I feel like I have to be more active, I have to manage the process that should be managed for me, and all the kinds of different ways to phrase that. But I think a lot of that comes down to who you're working with. I know in our industry, there are still a lot of things, even with the delays that we're seeing and all of these other issues that we've talked about... For somebody like myself, there's still a lot of things that I can do to help the market, and help my client. And it's really just knowing how to navigate that and then being engaged. Some things like that just never change. Does it make it a little bit harder still? Absolutely, but I still think there's ways to mitigate that that we see every single day.
Slocomb Reed: Yes. Labor market, staffing shortages, time. How long it takes to get coverage bound, how many different carriers you can hear back from in a reasonable fashion...
Micah Mattox: Right.
Slocomb Reed: I feel like that's everyone's feeling, Micah. Every single person listening to this podcast, whether it's just waiting for a bus to get to a park at Disney, or whether it's waiting to get an insurance quote back from a broker or a mortgage quote, or waiting to hear back from your realtor... There's just been a lot more waiting to hear back recently, for sure.
Micah Mattox: Yeah.
Slocomb Reed: That doesn't feel as much like it's infecting insurance coverages and premiums themselves, so I think we've got three things here: inflation and rising construction costs, climate change, and crime. Let me see if I can summarize what you were saying about these things, and then I am going to ask you to rank them in order of how much they're creating volatility in your industry.
Rising construction costs - the main concern here is that as we see periods of rapid inflation and increases in construction costs, you are finding that a lot of people are becoming under-insured quickly, and that sometimes at their renewal period, that's creating issues with their current insurance, because they're not at replacement costs anymore, because replacement costs are going up, which means that premiums need to go up to reflect that.
Micah Mattox: Right.
Slocomb Reed: That feels like a direct inflation, therefore increased premium. The other two don't feel that direct. When it comes to climate change, it sounds like you're seeing special exceptions and special-- using the example of Atlanta and wind and hail, not necessarily exemptions, but special deductibles for specific - I don't know if minor items is the right way to put it, but for specific cases having their own deductible, because insurance carriers needing to adapt to a change in climate.
And then with crime, you're seeing within - maybe particular zip codes or neighborhoods within zip codes, you're seeing that insurance carriers have more exemptions, or they need you to get writers that they did not require in the past that are specific to crime or some form of crime. So we have crime writers, we have climate change deductibles, and we have increasing construction costs, increasing premiums. So Micah, rank those three for me - which one is having the biggest impact on your business? Give me a one, two, three.
Micah Mattox: So number one, I'm going to say rising construction cost. I think that day-to-day in a visible manner, has the biggest impact. Number two is going to be crime. I think that's right on the heels of that issue. And then number three, I would say is our climate change. It's a little bit less direct, I would say. Still an issue that we need to be mindful of, and we'll see how that plays out in coming years, but I think one, two, three would go like that.
Slocomb Reed: Let's start at the bottom... We are running short on time, Micah, but if you could, please, let's give just a quick rule of thumb or piece of advice on how an investor should adapt their investing strategy based on these things. Specific to climate change, would you say that for investors who invest in multiple MSAs and at a distance, should these investors be looking into different markets differently? Should they be looking at different markets based on climate change, or should they just be underwriting an increased cost for insurance where they currently invest?
Micah Mattox: We're seeing different things across the board, but I think a lot of that does have to do with those local MSAs. And you kind of touched on that real quick, but we have carriers who operate at a very local level, maybe specific, in this case, just to Georgia, or maybe the Southeast. Maybe some have a little bit larger footprint, maybe part of the country or more in the South, and then you get your carriers who operate nationally. The bigger that a lot of the investors grow, the more that they're involved with multiple MSAs. Having a carrier that has that flexibility and can offer coverage in all those areas and know what speed bumps and hurdles are to be found becomes increasingly important. It's a very big difference between having a property [inaudible 00:23:23] a couple of units, versus having 50 properties, with thousands and thousands of units. The approach is going to be just materially different,maybe all the way up into including a master policy or portfolio policy type option if you do get into those figures.
Slocomb Reed: Gotcha. Moving to crime, Micah, I hate asking people to predict the future, because I know it's just speculation. I am asking for some opinion here, but maybe you've heard from carriers. When it comes to the increasing crime that we're experiencing right now, specific to the way that it impacts multifamily insurance - is this temporary, is it a blip, or do you think that this is long-term change in the way that carriers underwrite insurance? Is it really just like pandemic equals high crime? No pandemic equals crime goes back to normal and insurance goes back to normal, or are we seeing a change that's going to be in place for the long haul?
Micah Mattox: Right. And a part of that only time will tell. So my speculation is that a lot of things like this are cyclical. I think right now we're just seeing the higher part of that cycle. It will go back down. Knock on wood. I hope it will go back down at some point. Now, how soon that is, that's the real question, and exactly what does that look like? Does it look like a drop-off? Is it a slow phase in, phase out type deal? So there's a lot that we're just going to have to wait and kind of watch get answered. I think for the carriers, insurance is reactive in nature. So if starting today we start to see that drop in crime and things start to improve, it's going to take a little bit of time to catch up, just due to the nature of the product.
And I think another important thing to realize too is that with a lot of these MSAs, as development and other things like that happen, the crime in that area even is cyclical. A zip code maybe will go through certain infrastructure changes and maybe they receive a revitalization and things like that, that may cause crime to go down. And then the opposite happens over time as maybe other areas are improved and developed, and so on and so forth. So a part of that is going to change. The major crime spots that we see today - they may not be there in 10 years. So we could be looking at a whole different zone at that point.
Slocomb Reed: So you expect insurance carriers to continue to adapt to changes in crime rates.
Micah Mattox: Right.
Slocomb Reed: Gotcha. Now, we're going to end on this note, Micah, with rising construction costs, do you have a general rule of thumb or any advice to give to investors who are looking at new development, who are looking at acquisitions, thinking about the historic insurance rates that they've been able to get, what they should expect to get now and what they should expect to get in the near future? Do you have a general advice for how they should quote that? Do they really just need to reach out to their broker each time and see what rates look like?
Micah Mattox: That's a loaded question, and we get it all the time, every single day. "How much should I insure my property for?" is a question I probably get five times a day.
Slocomb Reed: Well, it's not a question of what coverage do I need. Let's assume that our listeners already have some basic understanding of the coverage that they want. I'm talking about the premium that will result from getting that coverage and how much that premium is changing specific to rising construction costs. Is there a rule of thumb for how much I should expect premiums to have gone up or to go up soon based on the coverage that I already think I want?
Micah Mattox: There's not an exact percentage. We see rate increases go anywhere from pretty stable, maybe two and a half to five percent. Some carriers who just really were underpriced before are seeing a lot of those effects now, and some of those are taking 20% to 30% rate increases. So if I had to speak--
Slocomb Reed: Those are year-over-year numbers?
Micah Mattox: For some carriers, yeah. And where we see the market reach of an agency in this instance, where we see that really become important is a situation just like that. If you're with a carrier who, heaven forbid, does go up by 30%, you need to be able to pivot, and having those options allows us to do so. So that really becomes important. As the market changes, somebody out there will be willing to help out. There's a carrier for every risk. So you just have to find out who that is, and a lot of that's relational and negotiation and just pounding the pavement, going and talking with the carriers and seeing what you can make happen, watching the market, just a lot of those things. But I would say, yeah, maybe 5% to 10% is pretty standard, but like I said, it really, really differs property to property, area to area, so on and so forth.
Slocomb Reed: It sounds like it varies most carrier to carrier. And it sounds like you're telling me the investor, that what I may need to do to adapt is be willing to switch carriers and have the conversation with my broker about what I need and what carriers are offering, but then be ready to switch carriers based on how different carriers, including my current carrier, are adapting to the changes in the market, especially construction costs.
Micah Mattox: Exactly right. You've got it.
Slocomb Reed: Awesome. Well, this has been an information-packed interview, Micah. Thank you very much.
Micah Mattox: Absolutely.
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