CA Commercial Property Insurance Rates on The Rise

I had a great conversation with Steve Zisook at The Baldwin Group about commercial property/liability insurance in Southern CA. We have a portfolio of retail, industrial, multifamily, and special use properties, and I wanted to understand what was driving specific premium increases on some (but not all) of our renewals. Here are some takeaways on less obvious items that drive high insurance costs:

• 24-hour operations. One of our shopping centers has a 24-hour 7-Eleven that was the primary reason for an almost 3-fold increase in our premium. It was more impactful than our being in a fire risk area. Oh thank heaven for 7-11?
• Any form of live entertainment
• Cooking at your table (a la K-BBQ)
• Kids bounce-house or trampoline park type operations
• Preschool/daycare uses (ask me how I know)

For one of our shopping centers, we were denied by 9 standard carriers, and had to go to the surplus line market. That is where you get the big jump in premiums. For us finance people, think of it like going from FDIC insured banks to a hard money lender. If you were used to paying $0.20 to $0.35 per square foot, we are seeing rates jump to $1.00 or more.

For my appraiser friends, I asked the owner of an industrial property I toured yesterday about his premiums, and it was right on cue. He went from $30K to $120K on renewal. It's going to be a pain point for a while.

If you're working with a commercial property appraiser, make sure they factor in these rising insurance costs when evaluating a property’s long-term financial viability.