麻豆映画

Intro (00:00):
You are listening to the Alliant Specialty Podcast, dedicated to insurance and risk management solutions and trends shaping the market today.

Craig Goesel (00:09):
Welcome back to another Alliant Specialty Podcast. My name is Craig Goesel, with the Financial Institutions team at 麻豆映画 Services. My colleague Jimmy Farkas is here. We are going to be talking about real estate developers and investors and ensuing management liability products. First of all, a quick introduction. We're happy to note this is all very timely. Alliant recently has been ranked within the top five largest brokers in the U.S. by Business Insurance only just a couple of weeks ago. And more recently, and very apropos, our team specifically was designated broker team of the year by Business Insurance just two weeks ago, so we're very proud of that.

My name Craig Goesel, as I said, Jimmy Farkas, we're both part of the Financial Institutions group, and we've always been experts in the asset management space. Long-short equity managers, private equity, VCAP, and a big chunk of our business had historically been real estate. While real estate asset managers and investment advisors and other asset managers face similar exposures, there are very unique risks that face real estate investors that maybe other asset managers don't face. We have found that traditional insurance markets hadn't had the right insurance programs or comprehensive insurance programs to solve all of those problems. So, in this podcast, we're going to be talking about some of those unique risks that real estate investors and developers face, and then a solution that we've come up with to satisfy or respond to some of those risks. Jimmy, just so that I don't speak the whole time, why don't you talk to us if you could, about some of the unique risks that real estate investors and developers face in their industry?

Jimmy Farkas (01:41):
Yes, thank you Craig. Appreciate the introduction. So, when we talk to real estate firms, the first thing on their mind, rightfully so, by the way, are slips and falls and property damage. I think those are some of the most logical risks that a real estate firm faces, and when you talk to your insurance brokers, many brokers will have that well under control. Usually the clients we're talking to who buy the insurance, whether it's the CFO or the general counsel, will have a pretty good grasp on those types of exposures and the availability of insurance products in the marketplace. But those are just two or three risks that exist for a real estate firm.

There are a whole slew of what I'll call ancillary risks that can lead to just as much financial loss as a property damage type event or a slip and fall on an actual premise in which the real estate investor owns. So, the first thing that comes to mind when you're thinking about severity of types of losses are investor claims. If a limited partner, a shareholder, brings a claim against the management team for the decisions around capitalization of the real estate, the disclosures made in the raising of the capital phase, the providing of PPMs, things like that. If an investor brings a claim, those tend to get pretty costly, right? It鈥檚 nice to have a way to mitigate that risk, whether it be various structures of the operating agreement, so setting up LLCs. But also you can transfer that risk to the insurance marketplace. That coverage tends to be pretty cost effective, and it usually makes sense for our clients to transfer that risk. Similar to that risk is regulatory type claims. If you're raising capital with limited partners, the SEC is likely involved in some capacity. You have to follow securities laws.

If you're doing ground up development type activity as your real estate investment strategy, there are zoning violations that can come into play. We鈥檝e seen allegations of civil conspiracy. If something goes wrong in the construction product in itself, a defect from an architect and engineer, and then the architect and engineer just disappears from thin air and all of a sudden the developer of the project is held liable and a whole slew of risks. Funds, transfer type activity, bad actors, penetrating systems, cyber risk. We hear about cyber left and right nowadays. That鈥檚 top of mind for many firms. In fact, the SEC just recently implemented disclosure requirements for cybersecurity for publicly traded companies, and that's also extending to investment managers. And then finally, just property management type claims. Failure to complete a work order leading to bodily injury because of a mold buildup or tenant discrimination type matter, wrongful eviction. We see these types of matters all the time. Beyond your traditional property damage and slips and fall types claims, which again, those can be costly. There are other risks out there that need to be mitigated as you think about managing risk and total cost of risk for your organization as a real estate firm.

Craig Goesel (04:28):
Excellent, thank you. That is appropriate, and you're absolutely right. Our real estate clients and all real estate customers out there do have a focus appropriately so, mostly on property damage and bodily injury because they're dealing in tangible assets, they're dealing in real estate. Clearly, they're trying to protect their investment, which is actually the development itself, which is actually the structure, and protecting individuals that might be guests on the property, et cetera. But financial risk and reputational harm can be as severe, maybe not as frequent, but can be as severe, if not more severe than some of those more traditional bodily injury and property damage claims. Now, Jimmy, you went through a litany of exposures that these customers or these prospects may face. Haven't there historically been insurance solutions that can address those exposures?

Jimmy Farkas (05:15):
Yes, absolutely. The products that come to mind are directors and officers liability, professional liability, crime insurance, employment practices liability and cyber liability policies. But the thing that we run into when we look at if our clients or customers or prospects are already purchasing these products, some of them are not fully up to speed with the organization that we're looking at, right? Speaking of risk, one way for a real estate firm to limit their liability and exposure to risk in their organization is to set up syndicated LLCs by property. So you're limiting and stretching that liability just to a single property instead of an entire portfolio. A lot of our clients will have a large number of entities. At its most basic foundation and core, it's important to make sure that all of the entities in the organization are appropriately insured. If you look at an insurance product off the shelf of those policies I just mentioned, D&O, professional liability, they're really not going to be there. Because they're intended to extend to a general asset manager or a general property manager. Not necessarily the type of organization that you may be, where you're raising capital and developing projects. It鈥檚 very important to have a partner, an insurance broker, with you that is open to understanding you as an individual firm's exposure because when it comes to real estate, there's not an off the shelf product that exists that's going to appropriately cover the exposures for a real estate firm. It really does need to be tailored toward your individual exposure.

Craig Goesel (06:48):
Yes, thank you. You're exactly right. While these insurance programs did exist in some format, they were fragmented. You could buy directors and officers coverage here. You could buy employment practices coverage there, fiduciary, crime, cyber, et cetera, kind of all over the board. It got even more confusing when you had professional liability, and there's different services that these real estate entities provide. This is exactly what our group had seen as a disconnect in the industry. We came up with a solution, and that's the Real Estate Developers and Investors Program. It's really an insurance product that aggregates all of these insurance programs under one heading or under a very few number of policy headings that respond to not only some of that traditional employment practices and regulatory stuff, but also that investor type claim. Whereby some of our customers or prospects or clients that we've talked to were purchasing a directors and officers policy, but that really wasn't responding to that investor claim that Jimmy brought up. Or, sometimes they were buying an employment practices product and a property management E&O product, but they weren't getting that regulatory coverage. With the REDI Program, Real Estate Developers and Investors Program, we're able to cobble all of those insurance products that do exist in the industry, but under one heading with a core group of insurance carriers that fully understand this risk and are underwriting the exposure in the client all in, for all of these financial and reputational potential exposures that they face.

Jimmy Farkas (08:16):
One thing I'll add on that is a lot of times we'll have these conversations with our prospects and maybe they don't currently purchase the coverage, and then we'll talk about what are the next steps to get the coverage. Historically, the process has been very fatiguing for a client to actually buy an insurance program around this. They'll understand that they have the exposure, but when it comes to actually soliciting and getting the insurance in place, that process can be so tedious for some of our prospects that they'll just shut it down anyways and not purchase the risk transfer product, even though they understand it would have a benefit to their business. Another thing we've done in addition to building a consolidated program of policies is really streamline that underwriting process, so it's not as tedious and cumbersome to get the product in the first place. Which again, our real estate clients, we want them out there making money and raising capital and buying real estate and selling real estate to make money. We don't want them to spend all their time trying to buy an insurance product, so it's been another nice benefit of this program that we've put together with some of these key insurers.

Craig Goesel (09:16):
Good point, time is money. Therefore, if they're spending time on submission material and talking to the carriers and back and forth questions, answers, question, answers from the carrier, that's in essence a premium reduction if you're able to save them time. You're absolutely right. One of the other things that Alliant has done for all of our asset manager clients, and frankly all of our financial institution clients, and this also translates to our real estate clients, is reinvesting or investing heavily into data and analytics. A lot of our customers say, okay, we now understand the risks we have, and we understand you have an insurance solution, but what magnitude of coverage should we be buying? What limit profile should we be buying? What deductible? What retention should we take on to maximize this insurance, so that we don't pay too much premium for this low frequency, but high severity type exposure? Alliant has doubled down in our data and analytics, and we have studies that run loss modeling for our customers and then overlays that historic loss trend or those historic loss trends with the cost of insurance, which in essence provides our customers with a return on investment of buying insurance or that risk transfer. It鈥檚 a really helpful value add process for our customers when they say, okay, we understand the risks, but you tell me this program's a hundred thousand dollars in premium. I can't tell if that's a good value or a terrible value. When we overlay these models on top of the costs, we can show the value add proposition that these insurance products actually deliver.

Jimmy Farkas (10:41):
What about, Craig, once we've gotten the policy, we're comfortable with our limits profile. How do we know that this policy's going to be appropriately covering us? The terms and conditions are as we expected, and that if we do get a claim, which we hope we never have, but let's say it happens because claims happen, how do we know that we're going to get this claim payment?

Craig Goesel (11:00):
Yes, so Jimmy's asking a very leading question, which is perfect because it gives me an opportunity to talk about our claims and legal team. First and foremost, our legal team has helped us draft this policy language. On the front end, this insurance contract has been developed by not only experienced brokers like Jimmy and I, but also it's had a legal review. They've helped us with some of the nuance and some of the provisions in the policy and making sure that the insurance contract, indeed, you are entering into a contract here, we are entering into a policy that has the appropriate and market leading language. That same group, claims and legal, they're also our lead claim advocates. These are attorneys that are on our team, and they help us and help our customers when they have claims. Because insurance carriers, they're our trading partners and they're the trading partners of our clients. But listen, at the end of the day, they might have a differing opinion to us as to whether a claim should be paid or at what extent a claim should be paid. We want all the legal help we can get, and we have a team of legal professionals baked into our group that specifically help us with that claim advocacy in working with the insurance carriers. Jimmy, I think I have one last question then before we start wrapping this up. Just talking about the real estate industry, that covers a lot of ground. Can you talk a little bit about the types of customers that the REDI Program might be best suited for?

Jimmy Farkas (12:20):
Yes, if you are a firm that is capitalizing your real estate with equity partners that are not insiders of yourself, whether it's employees of your firm. Utilizing outside money to capitalize this firm, you can be a publicly traded equity REIT, but in most circumstances you'll have syndicated LLCs set up where you're going out and finding capital for a specific project. Or, you may have actual private funds in which you are raising capital from a bunch of different investors and investing into different assets. If in some capacity, whether you're developing or just a fund manager or an investment manager, you're utilizing that outside money. You have these risks that an investor could bring a claim, and in many circumstances, we will see similar clients like this where that investor coverage is not contemplated under their current insurance portfolio. It runs the gamut. This is why it takes an experienced insurance broker to understand your structure because there are a lot of different structures.

Publicly traded equity REIT, public non-listed has a different risk than a publicly traded equity REIT, a private REIT, private funds, syndicated LLCs, 1031 exchanges, DSTs. There are so many different structures as it comes to organizing your real estate firm that there needs to be very small tweaks in the policy to make sure that these insurance coverages are appropriately covering you. It鈥檚 important to make sure you're talking to a partner and an insurance broker who actually understands your business and is a fit for their experience background.

Craig Goesel (13:52):
Excellent. Thank you. Well, this concludes another Alliant Specialty podcast. I very much appreciate the time. Once again, this is Craig Goesel. If you'd like to get a hold of us, my number is (312) 952-6764. My email address is Craig.Goesel@alliant.com. And Jimmy.

Jimmy Farkas (14:17):
Jimmy Farkas. The email is James.Farkas@alliant.com. You can contact me at my cell phone, (330) 604-9683.

Craig Goesel (14:32):
Very much appreciate everyone's time. Thank you. Have a good day.