Multifamily Property Insurance: Same Building, 2x the Price

What is market spread, and how did the test work?

Market spread is the distance between what one carrier charges for a risk and what a different carrier charges for the same risk. In a market where price tracks risk, removing the reasons two buildings differ should shrink that distance. The test removed those reasons one at a time.

The same-carrier column behaves the way pricing theory predicts. It sits at roughly 1x at every step. The different-carrier column moves the other way: as the buildings become more alike, the gap between carriers widens or holds, and never closes.

Tighter matching shrinks the sample, and smaller samples are noisier. Noise, however, does not push a result in one consistent direction step after step. The typical matched pair here is a 45-unit property at roughly $7 million in replacement cost, paired with a building within 25% on both measures. That is the middle of the multifamily book, well away from any edge case.

Where is property insurance pricing most dispersed?

Inland. Territories more than 200 miles from the coast carry a median spread of 4.32x. Territories within 50 miles of the water carry 3.34x.

The top of the table is Saint Louis at 6.92x observed, 557 miles from salt water. Atlanta follows at 6.32x, then Indianapolis, the Bronx, and Chicago. Each market is a three-digit ZIP territory, the geography carriers typically use to build rating areas, so these figures reflect the unit carriers price in.

Two numbers matter for each market. The observed spread compares what buildings actually paid at the 90th percentile against the 10th. The adjusted spread strips out replacement cost, age, stories, unit count, distance to coast, policy structure, and peril coverage, leaving the gap between buildings that should genuinely price alike.

In most markets, adjustment pulls the number down, because part of the apparent spread came from a mixed set of buildings. Saint Louis falls from 6.92x to 4.31x. Atlanta falls from 6.32x to 3.84x. Indianapolis moves the other way, rising from 4.65x observed to 5.50x adjusted. Its building mix was masking carrier disagreement, and once the analysis controls for what is actually insured, underwriters there sit further apart than the raw number shows.

Why do carriers agree on coastal wind and disagree on hail?

Sorting territories by named storm take-up explains the pattern better than distance does. Where fewer than one placement in ten carries named storm coverage, the median spread is 4.60x. Where more than seven in ten carry it, the spread falls to 3.33x. The driver is which peril sits in the policy.

Inland territories are well covered. Wind and hail appears on 90% of inland placements, against 79% on the coast. Nationally, wind and hail take-up runs at 75% and named storm at 47%. Severe convective storm, meaning hail, straight-line wind, and tornado, is the broader exposure across the multifamily book.

The industry has spent two decades building hurricane models, reinsurance pricing, and catastrophe loads around coastal wind. That investment produced a peril carriers broadly agree on. Severe convective storm has had no comparable effort, and it is the exposure carriers price with the least common ground.

[LINK: internal, severe convective storm and rate on line article]

How do blanket coverage and peril triggers distort an insurance price comparison?

Policy structure sits inside nearly every raw comparison. Standalone property placements price at a median of 43.3 cents per $100 of coverage. True blanket placements price at 25.5 cents. That 1.7x spread has no connection to where the building is.

An owner comparing a Chicago portfolio with a portfolio in another market, where one is blanketed and the other is not, will read a structure difference as a geography difference.

Coverage breadth has the same effect. Named storm carries the largest single effect of any peril flag in the data, with flood among the next largest. Two buildings on the same street with different coverage triggers are different placements, and should be compared that way at renewal.

Does a narrow price range mean a carrier prices with discipline?

Not on its own. Landmark American shows the narrowest observed range in multifamily property at 1.39x, which on paper makes it the most disciplined book in the set. Adjusted for what it actually writes, its spread widens to 1.79x.

Westchester Surplus shows the widest observed range at 3.26x, which adjusts down to 2.01x. More than a third of its apparent spread reflects the variety of risk it accepts rather than inconsistent pricing.

The two carriers look like opposite ends of a discipline scale and land much closer together once the book is controlled for. One of them reached its tight range by writing a narrower slice of the market.

For brokers, the raw range does not reveal which kind of business a carrier runs. The adjusted figure does.

What should owners and brokers do with a 2x spread?

Treat it as a signal. The Advocate app sees placements and what they priced at. It does not see carrier appetite, terms, or submissions a carrier quietly declined. A 2x spread means the same building currently has two very different answers in the market, and it is worth finding out which one a given renewal sits on. It does not mean half the premium is available for the asking.

For most of the industry's history, this view did not exist. Owners knew their own renewal, brokers knew a handful of quotes from a handful of markets, and carriers knew their own books. The data sat in a few hundred separate places and little of it was comparable. Consolidated, the first thing it shows is a pricing gap running through American commercial multifamily property in plain sight.

Loss experience over the coming quarters will show which side of the gap was closer to right. Advocate expects the spread to narrow over the next two to three quarters and will report where it sits next quarter.

https://youtu.be/0z6Zuar53GY