David Moghavem (02:15)
Hello everyone. Welcome to Deal Flow Friday, podcast where we dive deep into the world of multifamily real estate and explore strategies, trends, and stories that shape our industry. Before we introduce our guests, I want to take a moment to acknowledge the devastating wildfires Los Angeles. As someone born and raised in LA, it's absolutely heartbreaking to see the destruction and the toll it's taken.
on our community to see the nostalgic spots, landmarks, hiking trails, all burnt to ashes. It's been especially tough for me and for Max, for all Angelinos. My heartfelt condolences to all and to everyone who's lost their homes, especially those who are grieving losses of loved ones. I also want to express my deepest gratitude to the firefighters and
first responders who are continuing to work tirelessly to protect lives and property during this really challenging time. And their bravery and dedication, it's truly a hope that LA will get rebuilt and LA will get through all this. If you're looking for ways to help, we've included a donation link, a few donation links to show some different organizations that can provide critical support.
to those affected. These organizations are doing incredible work to support those in need and every contribution makes a difference. So take a look at the show notes. This week's episode is extremely timely as we dive into the state of the commercial insurance market with natural disasters of all types, hurricanes, floods, wildfires. They're becoming increasingly common.
and ensuring your property and residence are protected is becoming more vital than ever. So with us, we have Max Sharkansky again. Hey, Max.
Max Sharkansky (04:20)
Hello, hello, thank you for having me on.
David Moghavem (04:21)
Max is the managing partner at Trion our headquarters in LA, and we got an office in Miami and bulk of our portfolio is in various coastal markets. So insurance has always been top of mind for Trion and Max, it's great having you again to provide some insight on this topic. And we also have Michael Brody, the guru in insurance. Michael is managing director at Marsh.
Michael Brodie (04:23)
I apologize.
Max Sharkansky (04:41)
Thank you.
David Moghavem (04:50)
World's leading insurance broker and risk advisor with offices in more than 130 countries. Michael specializes in risk consulting and has spent his entire career in the space, working with clients and corporations on risk analysis and risk financing since 2008. a team leader for several multi-billion dollar global corporations, many large real estate clients, and has worked on over three billion in construction risk.
Michael has also created an incredible master policy for Trion's Southeast portfolio and has performed miracles on some of the deals in extremely volatile insurance markets. So Mike, thanks for joining us.
Michael Brodie (05:24)
Thanks.
Thank you for having me, really appreciate it.
David Moghavem (05:34)
Max, do you want to also kind of say a few words? How did you and Michael meet and how did we get lucky to work with Michael today?
Max Sharkansky (05:44)
I think we met through Michael's dad. I moved from LA to Miami in 2021. A little bit about me. One of the things I'm pretty passionate about and spent a lot of time on and in my off time and in the nonprofit world is AIPAC. I'm a huge Israel supporter. I'm a huge Zionist and Michael's parents are involved in AIPAC in South Florida. And through some of our people at AIPAC we met and we had lunch and I remember
It was still pretty COVIDy at the time and we sat outside and everybody had just gotten vaccinated and we spent most of the lunch talking about Israel and AIPAC and all the politicians that were involved. And then as we got deeper into the lunch, your father was asking me about my business and I said, I'm in multifamily and I'm here to grow out a big portfolio. he said, well, then you have to meet my son.
He needs to be doing your insurance. And it took a while because we were dabbling with some other brokers and our insurance was skyrocketing property after property, month after month, year after year. And after getting connected with Michael in 2023, it took us a while, we timed and built out a master. I'm sorry, 2024, we went, we started working on 2023 and timed it for 2024 for April 1st. And we got a 25 % reduction.
in our premiums and we were all doing backflips and the whole company was just ecstatic and Michael really pulled a rabbit out of a hat for us. So it was a fortuitous introduction and we love working with each other. I hope the feeling mutual. We love working with Marsh and his team and we hope to have a relationship for many, years. And by the way, as we sit here today on January 15th,
Michael Brodie (07:26)
Feeling beautiful.
Max Sharkansky (07:40)
It is a very material day in history. Speaking of AIPAC, we just had a ceasefire and whatever anybody thinks about it. I think we can all agree that there's some good news there that the war is at least temporarily ending. And most of the hostages, hopefully all of the hostages will be going home in short order. So a round of applause for that wonderful news that everybody has been waiting for for 14, 15 months. Let's dive in.
David Moghavem (08:00)
Amen.
Amen.
Yes, definitely. So, Michael, I guess before we go into the state of the commercial insurance market, I think it's fair, given the wildfires, talking a little bit about some of the taxpayer funded programs that some of these properties, not just in California, but what we see in Florida, how they're funded, how these mechanisms work, how is it backed?
and just the facts on the ground.
Michael Brodie (08:40)
Yeah, absolutely. First off, Dave, I just want to mention, I echo all your sentiments to the people of Los Angeles.
how people can put themselves in harm's way to protect others So, you know, what I think is important to know is there is some clear differentiation between California's Fair Plan, as it's called, and the likes of a plan in Florida called Citizens. The first thing to note is the commonality is for both of them, they are insurers of last resort.
So they were both created at different times when there were challenges happening in each of these states relative to the general insurance market and the ability to obtain and get insurance. But I think one key thing to note is actually the fair plan is not a state agency. It is not a public entity and it is not funded by taxpayers.
So the fair plan is a private association made up of syndication of licensed property and county insurers throughout the state of California. So each of these insurers participate in the losses, the profits, the expenses of the plan. And that is how California chose to set up this structure called the fair plan. Whereas Citizens is structured as a not-for-profit government entity.
It is funded by policyholder premiums, but in the event of a deficit, Florida law does allow there to be some type of charge of assessments to other Florida policyholders. So there is a difference in the structures. One thing that I do think is very important to note is I believe both citizens and the syndicated carriers in the California fair plan by reinsurance in an effort to create some level of financial stability.
But one of the things that is a common theme and is going to continue to be a challenge from my perspective is insurers are continuing to exit the states. Insurers are continuing to exit Florida. Insurers are continuing to exit California. From their perspective, the risks of the catastrophic events that are taking place outweigh the reward of the premium dollars that they're collecting, particularly
when the volume and severity of claims seem to be continuing to increase. So the only way insurers will stay, wanna stay in these states is if they can get substantial increases in premium. And that oftentimes has to go through legislation, has to be approved by legislation, can take time to be approved. And I think that is part of what has created this challenge.
of needing these insurers at last resort. And candidly, the policy holders are increasing for these insurers. Citizens and the Fair Plan are both writing more every year. And unfortunately, I think that will likely continue to happen.
Max Sharkansky (11:53)
that note, what are governments, what can governments do from a city level, from a state level in place in some of these states that you mentioned, cities that you mentioned, what can they do in terms of preparedness to help reduce the catastrophic damage to get some of these insurers comfortable?
with staying and not leaving aside from just them like, you know, cranking up their premiums and constantly having these massive claims every other year or every five years or every 10 years. Let's say for example, like Miami in the nineties, they went, they got rid of sick construction and you have to go type one, right post Andrew. And then you had hurricane impact windows added. So it seems to me, and please correct me if I'm wrong, like Miami is a city.
that actually should be very insurable, even though it's known for hurricanes. The name of the college is the Miami Hurricanes and everybody knows Miami for that. like, if you, if as a real estate owner, I'd much rather own in Miami, where I have type one construction, I have hurricane impact windows, versus a place like Tampa that historically didn't get a lot of hurricanes, but it does now. And it's all stick and just not hurricane ready. What do you think?
Michael Brodie (12:51)
You
Yeah, the name of the game is resilience. The name of the game is being smart about how you're investing in your assets, not from a municipal perspective, but from an ownership perspective, how you're investing in your assets and how you're making your assets more resilient. The reality is, to your point, the more confidence you have in your assets, the more risk you're to be willing to retain. The more risk you're willing to retain, the less risk you're transferring and the less you should be buying. So as a result of that...
you know, eventually you get to a point where your comfort will retain more risk and therefore you have to buy less insurance.
Max Sharkansky (13:45)
you
So you basically, well, okay, on the commercial side, that makes a lot of sense because you've got business people who are savvy and they have eight and nine figure net worth and they can do something like take on a $500,000 deductible or a million dollar deductible. And if they're more sophisticated, they can form a captive. But let's get out of the commercial world for a second. What about residential or what about a non $50 million net worth investor who's got like a couple of 12 unit buildings?
Michael Brodie (14:06)
Good.
It's still a matter of resilience. So you look at Miami as an example, which you mentioned, building in Miami costs more than building elsewhere in the state. And that's primarily as a function of concrete versus stick, you're saying, impact versus non-impact, these various things. So, you know, one of the things that led to the challenging insurance market several years ago, one of the many,
Max Sharkansky (14:15)
These poor mom and pop people, what do they do?
Right.
Michael Brodie (14:44)
was what I'll call the inflationary impact of construction costs. So South Florida, while everyone saw that nationally, South Florida saw that even more harshly because of our already inflated costs as a result of the types of construction in which people have to build in the Tri-County areas. So look, it goes back to resilience, Max. I mean, the reality is the storms
Max Sharkansky (14:49)
Hmm.
you
Michael Brodie (15:13)
seem to be getting bigger, they seem to be happening more often. And insurers, from my perspective, are, you know, at end of the day, they're operating businesses. So they have to make sound decisions around where do they want to deploy their capital? And where do they see good returns for their investors in order for the risk that they're taking on? And until we become, you know,
until we become smarter, which I think we have, to your point, I think we've done it in Miami. I think in South Florida, granted, know, a lot of the newer construction hasn't really been tested, because thankfully, on wood, we haven't been hit like the likes of the West Coast of Florida. But there are people who have the financial will with all, not that I'm recommending this, but there are people who have the financial will with all who say, you know what, I have a new roof, I have impact windows.
My building's concrete and I'm gonna have a four or three or 5 % name for deductible anyway, so I'm just gonna self-insure. Now, obviously, again, these are people with financial orbital who don't have mortgages and have the ability to go down that path. That's obviously a few and far between. The people we're talking about, the people we're concerned about, the people that have a three, four, $500,000 home, have a mortgage.
Max Sharkansky (16:17)
Mm.
Michael Brodie (16:35)
and this is the biggest part of the balance sheet. Those people need to have proper insurance in place and we need to make sure that they have the ability to have access to affordable proper insurance.
Max Sharkansky (16:47)
So, yes, as you said, a lot of people, they've got these free and clear properties, they have huge balance sheets. As a solution for people that don't have that, that have leverage and they can't afford a $500,000 deductible, that would be devastating for them. Do you think, do you foresee...
that companies like Citizens and CalFair, even though you said they're different, but they accomplish a lot of the same. Do you foresee that as being a solution in the commercial market as well, where you start to see Citizens ensuring high rises in Brickell?
Michael Brodie (17:27)
So, citizens does today ensure commercial assets. There are some, there are some challenges with respect specifically to multifamily and that is primarily the business interruption exposure. So, you know, I, again, this is my personal opinion. I don't think citizens wants to write, you know, large buildings in, in, Brickle. I don't think that's their desire.
Max Sharkansky (17:34)
without BIR.
Michael Brodie (17:57)
Maybe I'm wrong. Maybe there's something there that I don't know, but I don't think that's really ultimately what the goal of Citizens is. The goal of Citizens from my perspective remains to be the insurer of last resort. They want to be able to make sure that everybody has access to them.
Max Sharkansky (18:18)
Let's talk a little bit about philosophy. I'm just curious because what we've seen happen in California and I have, mean, if you're born and raised in LA, you know somebody who lost a house. I know multiple people who lost houses. I'm sure David does. This has been the number one topic of conversation over the last seven to 10 days, whenever the fire started. What is, and one of the things that has been discussed is,
Michael Brodie (18:41)
you
Max Sharkansky (18:42)
Insurance and coverage and my god a Cal fair and this is palisades where three million dollars Might not be enough and Malibu definitely isn't enough what is your approach and your philosophy and If this is something you're even comfortable recommending and discussing but how do you think about the balance of coverage versus premium?
Michael Brodie (18:47)
Yep.
So keep in mind, most of what I do in my personal career is.
So I'm sharing my opinion on some of the things that you're talking about relative to homeowners and smaller type deals, but that's not what I'm gonna tell you is my bread and butter. Most of what I'm doing is large complex, multi-state, many, many thousand multifamily units or retail, et cetera, around the country. So those buyers have a different philosophy.
Those buyers are right now focusing on modeling, focusing on making sure that they have really, really good secondary construction and occupancy protection information. Making sure that, again, going back to the word of resilience, making sure that they are positioning their assets that as they go through these models to ultimately perform the best they can, because the models are used for two things.
First thing is the models are used by the carriers for pricing, but the models are also used by our clients for limit adequacy. so, you know, the days of, you know, single carrier and multifamily getting $500 million a limit, particularly if you're in a cap prone area like Florida or California, those days are for the most part with a few exceptions are behind us. So a little bit of sophistication around shared and layered programs.
who to share and understanding how the puzzle is put together. People had, you know, buyers, buyers of insurance and CEOs like yourself had to catch up on kind of how all this works. And obviously you've done an exceptional job at that. And that's really our job. Our job is to try to help business owners and real estate owners counterbalance that, you know, we don't want to overbuy. Overbuying is no good for anybody. We want to be thoughtful and methodical about.
our limit purchase, but it goes back to our retained risk. Insureds have been forced to retain more risk. Both windstorm on the liability side, insureds have been forced to retain more risk. So that's a common theme that's happened.
David Moghavem (21:26)
I want to jump in also, I know before we were talking a little bit about South Florida, how construction type has made it a little bit more palatable potentially for insurers to insure versus California. Max, I mean, I would pose the question to you. Do you think mandating some of these more expensive materials in order to get insurers to get more comfortable is worth it with some of the
expenses and housing crisis that Los Angeles and California in general is going through. Is that a good trade-off to make?
Max Sharkansky (22:05)
I mean, I think it is. Listen, if you believe that some of these patterns are here to stay, if you believe in climate change, if you believe that there's only so much that California can do to reduce these catastrophic incidents, then you have to change the way you build. I think it's it's inevitable.
Does that mean more type? Look, again, this is not my area of expertise. Does that mean type one in California building a house type one like we do in Miami where you see houses that are made of concrete? I don't think so. I think that would just be too expensive. Overkill. But I do think you see type three modified, which is for those of you who are not versed in California, wood frame construction, type three modified is what you use
David Moghavem (22:46)
That'd be an overkill.
Max Sharkansky (23:02)
when you go up a little bit taller using wood. if you're building five, six stories with wood, you can't do type five. You have to use a certain type of wood, which is type three modified and it's a more fireproof combustible wood. And I think we're probably going to get to a place where you're seeing that type of construction for houses, materials that are more fireproof. Caruso, right? Like we just saw what Caruso did where he used some sort of a fire gel.
His mall in the palisades and lo and behold the only structure left standing in the palisades is Caruso's mall so Clearly it's doable clearly. It's feasible and it's the future it has to be done What do you think Michael?
Michael Brodie (23:46)
I really hadn't thought much about it, but what you're saying makes sense. You now want these people that have unfortunately lost their homes to be built. And I'm quite sure anybody who's going through that type of devastation, having myself been through Hurricane Andrew in Miami and unfortunately Hurricane Katrina in New Orleans, I know that type of devastation.
and picking yourself back up, granted I was very young in Hurricane Andrew and it wasn't my choice, but picking yourself back up and rebuilding and takes guts. And we wanna see people in Los Angeles pick back up and we wanna see them rebuild. And clearly they've got to
Max Sharkansky (24:36)
Absolutely.
David Moghavem (24:38)
Michael, so I guess moving to the commercial
with all the losses happening, which have mostly been residential from these fires and also the few hurricanes that came in recently that hit North Carolina and hit parts of Tampa have also been mostly residential losses. How is that going to affect
the commercial side of the insurance markets and particularly also on the reinsurance markets.
Michael Brodie (25:10)
So if you ask property brokers right now nationally within our firm, there's a sigh of relief. They're finally able to deliver the good news that they haven't been able to deliver for many years, which is, there's a cooling off of the property market. There were some concerns last year from a lot of our clients. my God, there's Hurricane Helene and there's all these natural catastrophes, not only nationally, but globally, which ultimately the insurance market.
is a global marketplace. And people were concerned, you would there be an impact? We told everyone, stay cool. You know, the good news is that through the hard market of the several prior years came what was a new expected loss trend. so reinsurers and insurers were now able to sustain a larger loss because they were collecting more dollars.
So last year, believe it or not, there was about $140 billion of global insurance loss. And that was able to be sustained by the global market. So as a result of that, know, reinsurance rules were not bad. We are not seeing what we saw two years ago where we were going over the cliff. We're seeing quite the opposite.
I mean, we are going through renewals all over the country right now in several asset classes where we're seeing nice, you know, 15, 20, 25 plus percent decreases dependent upon asset class, geography, whether they have losses. Obviously there's a lot of details in each and every deal, but we are seeing really, really nice results. With all of that said.
Fast forward to what's happening today in California. We expect that the market can sustain about another $150 billion or so of losses this year. So I think the last estimate I read was, keep in mind there's a difference between economic loss and insured loss. But I think the last estimate I read, and don't quote me on this, but was somewhere between $20 and $30 billion of insured loss in California right now.
David Moghavem (27:32)
20 to 30 billion in insurance.
Michael Brodie (27:34)
That's what I
read. And again, that's not economic law. So I just beat the economic law.
David Moghavem (27:37)
That's interesting.
What economic would be like with land value or other items or
Michael Brodie (27:44)
Economic
would include everything that's on or underinsured. It would include far more than what would be included under an insured loss scenario.
David Moghavem (27:46)
Yeah. Right.
Max Sharkansky (27:49)
Mm-hmm.
David Moghavem (27:56)
So that discrepancy
might show how underinsured everything is to begin with. Is that fair to say or?
Michael Brodie (28:03)
Not necessarily because there are also things that are uninsurable. So not everything within economic loss is insurable.
David Moghavem (28:14)
Got it, okay.
Max Sharkansky (28:15)
Well, there's like, yeah. And then there's also like people in Malibu, like there was an article in the Wall Street Journal, the guy that had the 20 million something dollar spec house and it was almost done and he had a $3 million Cal Faire policy. So that's going to be not good. Not good.
Michael Brodie (28:29)
my gosh.
Yeah.
But the reason I say all that is because, you know, we still believe, I still believe that the market can sustain, you know, somewhere in the $150 billion of losses for this year. So if in fact, the California numbers are 20 to 30 billion or thereabouts, you know, there's still substantial capacity for the global market to sustain losses over the course of the next 12 months.
Let it out.
Max Sharkansky (29:03)
You know, I think the perfect case study on that is actually a property that you recently insured for us into our master. It was on November 1st, purse apartments used to be Patterson Court. And it came on. It was a November 1st renewal, which is a very important date because that was right on the heels of both Hurricane Milton and Hurricane Helene. A matter of weeks and days after the two. And we got what, like a 20 % reduction in property?
Michael Brodie (29:32)
Yep. Yep.
Max Sharkansky (29:34)
And
that was, mean, my mind was blown. And I remember you calling me and telling me that everything's already baked in all of these huge, the run up in premiums over the past two, three years, it's 2022. are baked into the premium. So there's room to come down.
Michael Brodie (29:52)
Yeah. So, know, think about it as what the insurers were trying to do during that hard market was called, you know, they were trying to right-size their books. They were trying to get adequate premium for the risks that they felt as though they were retaining. And most insurers that we are meeting with today will tell you that they've successfully done that. They're still in the business of paying losses. So catastrophes are always going to happen. And the intent of insurance is for those insurers to pay the bill, know, to help.
when they do, that's the intent of insurance. So they're gonna continue to pay the losses.
Max Sharkansky (30:27)
What would you say are parts of the country that for insurance purposes are like Park Place and Boardwalk, like AAA real estate where where you have minimal catastrophic losses? Like what is
Michael Brodie (30:36)
No, no, no.
Those are not the places
I operate in. just kidding. Anybody can do those, Max.
Max Sharkansky (30:44)
Yeah, exactly. like how like,
David Moghavem (30:46)
Too easy, too easy.
Max Sharkansky (30:50)
yes, yes, like pack Northwest Midwest, like what are some of the markets where you see minimal catastrophic losses?
Michael Brodie (30:56)
It's the areas where you don't have hurricanes, you don't have earthquakes, don't have fires, you don't have tornadoes.
So, think about that. You used to have, even in like places of Texas before the Texas freeze, there were places that were further inland that, I guess they had some tornadoes, but felt like they were a little more safe. Look, the reality is things are happening all over the country today. There are still the areas that pay less from an insurance rate perspective, but there probably tend to be less desirable areas.
Max Sharkansky (31:06)
Seattle.
this.
I remember as you know, we're from the West Coast originally, right? We have a pretty big West Coast presence. Our Portland portfolio relative to the rest of the nation was always dirt cheap when it came to insurance. We've never obviously never had any claims there that were related to natural disaster. Everything was always like somebody driving into a building or a kitchen fire or something of that nature. So the pack Northwest based on what you just said.
seems to be like a pretty insurance friendly zone.
Michael Brodie (32:04)
Yep.
Max Sharkansky (32:04)
Maybe Midwest. We actually were recently raising money on a deal. And it was with an LP. I was talking to an LP that has a lot of exposure in the Sunbell. And they said, right now we're looking at markets that are insurance friendly and they don't have a lot of landlord tenant issues. And they said, we're looking in the Midwest. So that they're looking at like.
Columbus, Ohio, where everyone's looking and markets like that, very stable, predictable cash flow markets.
David Moghavem (32:39)
Yeah, and I would add to that, Max, that a lot of the equity partners that we talked to that are looking more long term, 10 plus year holds, they write off all the markets that have insurance risk. The Florida's, coastal markets, places that you're seeing not only the high premiums, but the volatility in insurance. They're baking in climate change in their models just as
Michael, you've seen the insurers baking in some of these catastrophic risks in their model.
what kind of trends are you seeing insurers doing to adjust their risk models in response to some of these climate changes?
Michael Brodie (33:17)
you
Yeah, it goes back to, you know, Carriers model just about every catastrophic risk. There's two primary models, AIR and RMS. These models have changed over time, meaning they try to take historic events, geography, construction type, age build of an asset, and come up with an algorithm of what expected losses could
And so if you take the same portfolio today and run it through an RMS version from several years ago and an RMS version from today, the results today would tell you that you need to buy much more limit than you needed to buy several years ago. And it would tell the insurer that they need to charge much more than it would have told them several years ago. So from a...
modeling perspective, this is what they're using to try to be.
diligent in their underwriting, which is why for our clients, and I said this a little bit earlier, we are laser focused on making sure we have as updated information as possible so we can drive down modeling results, ultimately leading to our clients needing to hopefully buy less limit, insurers charging less premium, and us having a better handle over what the actual risk is.
based on the actual characteristics of the assets. Updates are key. mean, you think about like, you know, we talked a little bit about roof, window protection, electrical, plumbing, all these things. They are really important when you think about what your true exposure is.
David Moghavem (35:22)
Yeah, and I think it'd be tough for an owner, both on the residential and the commercial side, to voluntarily take on some of these construction materials that are more expensive. it seems government might not be so keen to just jump all over it. If you're thinking about values of real estate, a lower insurance premium would be a higher value.
Michael Brodie (35:38)
you
David Moghavem (35:50)
translates to higher property taxes. Higher property taxes translates to more revenue for some of these cities and these states. there is a time where you say to yourself, okay, we need these properties insured, but by capping it or by mandating some of these more expensive materials, might also impact, it'll definitely impact values and therefore impact revenue for some of these.
government entities.
Max Sharkansky (36:21)
I have a question.
There are a lot of people listening to this who are in the business, right? And they want to know where insurance is going. And we don't expect you to have that answer. You don't have a crystal ball. But in some of these zones, like in the Southeast, California, who knows over there, but let's say in the Southeast, assuming there's nothing extremely catastrophic over the next few years, what are you, how are you guys thinking about like where premiums are going?
And I know you touched on it. said you guys are feeling like the markets are easing and there's good news and good vibes generally right now. But over the next, you know, call it 2026, 2027, 2028, 2029. Where do you think premiums are going down, flat, up?
Michael Brodie (37:08)
So first off, I would just say it's not just good vibes. Being the largest insurance brokerage globally, we'd like to think we help lead the market, meaning we help dictate to the insurers. If we believe things have gotten out of line, we're going to tell them that, and that's our job. So while at the end of the day, insurance is a game of supply and demand and right now we're finally seeing
more supply. So ultimately, you know, what's happening if you want to think about it from a numbers perspective, rates are coming down. As rates come down, all these underwriters still have new business goals. So, you know, they need to go out and they need to go get new business also.
Ultimately, we want to oversubscribe every single program. So the more capacity that there is, we want to be 130, 140 % subscribed on every program, meaning we have more limit than we need. We have more capacity in each layer of shared layer program than we need. And now we get to be selective about making sure we eliminate the most expensive capacity and we
try to expand the relationship with the cheaper capacity. And ultimately that's how we drive down, that's how we drive down overall cost. Now we are also a little bit unique in that, know, oftentimes we use our Marsh Manager's reform, which has much, much, much broader terms and conditions. You know, let's not lose sight of really the intention of insurance, which is to make sure that in the event you have a loss, there's coverage. You know, we can talk about price all day long, but you know, the price doesn't...
matter as much when if you have a claim it's not covered. So it's really important to stay laser focused on terms and conditions. Now is a market in which because of the softening of the property market, we're able to continue to broaden terms and conditions. So we want to stay focused on not only reducing prices, but make sure we're also broadening the terms and conditions within the contracts. But Max, to get directly to your question, from a property perspective, we anticipate a continued softening of the market.
particularly if there's no material catastrophic events and there are losses that can be sustained within the current pricing parameters that carriers have set, we expect that there's going to be a continued softening. Unfortunately, the same cannot be said for the casualty market. The casualty market has become the more challenging of the two. I think this is primarily being driven right now due to the
severity and frequency of claims. It's very simple. There is a high frequency of claims, not only in multifamily, but in other aspects of commercial property more broadly. And it's worse in certain geographies. And Florida right now is one of the more challenging geographies from a casualty perspective. And that's not just on the primary, that goes up into the excess.
If you think about what happened two and three years ago in the challenging property market, you had carriers that were providing $10 million of coverage that now reduced their capacity to five. And now, thankfully, we're seeing those same carriers expand their capacity back to 10. The opposite is happening in the the casualty market. So in the excess umbrella, in the excess liability market, carriers that may have been providing 10, 15, even $25 million tranches of
of capacity are reducing to five or 10. And as a result, you now have to go replace that with what was already more expensive capacity. So we are seeing a lot of pricing pressure in the casualty market right now and expect that to
David Moghavem (41:06)
Mike, do you think that uptick in casualty insurance is due for just two more claims or is it also philosophy driven, maybe less protection in place, things like that? What's kind of your take on what's driving that?
Michael Brodie (41:25)
I think it's a couple things. I think it is, some of it has been driven by just general inflation over the last several years. And some of it is being driven by large jury verdicts. know, large jury verdicts, the reality is insurers in some instances, and maybe even you guys have seen this, but insurers in some instances,
are hesitant to try a case. So as a result, things get settled. They understand that if they try it could be X dollars and they can settle at Y dollars. So that hesitancy has led to just more broadly claims are more often and they're bigger. And again, that's across the country, but even more pronounced in some certain job.
Max Sharkansky (42:16)
Thank
Michael Brodie (42:24)
And look, we could also talk briefly, just because we're talking about multifamily, a little bit specifically about assault and battery. You think about assault and battery and the coverage. And Max, we've had a lot of conversations about this. And we've had a lot of conversations about the value of making sure that assault and battery coverage goes through your umbrella tower and that you're not sublimated on the primary. Specifically to multifamily.
that has caused some friction
Max Sharkansky (42:56)
Well, I can tell you this much that speaking on behalf of me and everybody, me, the company and everybody in our industry, we're very happy that insurance markets, insurance premiums are starting to ease a little bit, at least on the property side. And we are hoping that interest rates follow suit and hopefully we can, we can get back into a normal operating environment soon enough. Let's get back. I'm not even asking for 2021 with 14 % rent growth.
Michael Brodie (43:15)
I don't even... hear you.
David Moghavem (43:24)
He
Max Sharkansky (43:26)
just give me 2014 to 2019 and we're all very, very, very happy campers. Two and a half to three and a half percent. Yeah, two and a half to three and a half percent rent growth. And let's just create some value with putting in some stone countertops and strong operations.
Michael Brodie (43:29)
Nothing!
David Moghavem (43:32)
from your mouth to God's ears. Exactly.
Michael Brodie (43:43)
No!
David Moghavem (43:45)
The
good old days, the good old days. right, well, Michael, I really appreciate you hopping on again and giving us the breakdown of the state of the insurance market. Thanks again, Max, as always. Thanks again for hopping on. And again, thanks to the audience for tuning in. There's ways to help in the show notes for the wildfires. Take a look and we'll see you next week.
Max Sharkansky (44:01)
Of
Michael, thanks again. We know we did this in very short order. You made yourself available. We made this happen. Thank you. You owe me a text on lunch.
Michael Brodie (44:13)
Thank
We love it. Thank you so much.
Max Sharkansky (44:23)
Alright, see you guys.
David Moghavem (44:24)
Thanks.