Student Apartments – calling all investors, underwriters and brokers – BEWARE!

Why is it so easy to lie (well, I am frank – let’s call it “stretch the truth”) when someone asks a question?  I made a phone call that resulted in exactly what I anticipated and an outright “LIE”!  ‘Who do you have that will insure “Student Apartments”?’  This, after I explained that it was a 4-floor building of 7 units and 5 students in each apartment which I know is a “STUDENT ROOMING HOUSE” description – NOT a description for an Apartment Building.

The office I phoned was a smaller brokerage I know that advertises they insure these exact type buildings (I’ve run into them in my travels) and did exactly what they were expected to do – ask me for my information where I was very evasive since I am a competitor of theirs, unknown to them as John Smith.

Because they have a website and a Facebook page, it becomes easier to document what I need to use in a blog of this sort.  There are “X” insurance “markets” showing in total for their firm – this includes Auto, Substandard Auto, Surety, etc.  This means I can eliminate several and a few more who have expressed to us  (Aviva, for example, does not have the property capacity to exceed $1Million, Intact has withdrawn quotes and Economical refuse to insure) that they do not have an interest in insuring “student housing/apartments” of any sort in our geographic territory (I won’t say they do not in other parts of our country or the world because I know they do have smaller percentages of property on subscription policies available through specialty wholesale markets) – Ontario, CANADA.

I will say the broker stretched the truth, unless they were counting wholesale markets when replying to me.  Why tell me one has 4 or 5 insurance companies that will insure this kind of risk?  Either it is a lie to the caller or to the insurance company when describing the type of business when quoting is requested – OK, I will tell you their firm is also a member of an apartment managers association, and, if they were a larger brokerage, may then have exactly what they told me BUT they are NOT.

I will not accuse the brokerage of misrepresenting to the insurance company – I have only seen 1 policy they had in force where I know this may have happened but if you’re a member of an association, would it not be easier for an insurance brokerage to include this sort of property in their portfolio?

What I do know is that there are several insurance brokerages in my territory of operation who have been misrepresenting STUDENT APARTMENTS to the insurance companies as APARTMENT BUILDINGS – and, for those who are not familiar with the differences, they are huge!  An apartment will house a single family or a couple of unrelated individuals – NOT 5 students who are unrelated in EACH apartment unit.  The risk is greater and very significant to an insurance company so why would any insurance company insure for the same premiums as an apartment and 1/3 or 1/4 what Lloyd’s might charge for Student Rooming Houses?  They would not, knowingly!

I have been researching this a great deal – in both Canada and the USA – and will tell you that there is a good likelihood, in the event of a significant claim, you will find you do NOT have any insurance so why pay for a policy that is not going to respond when you need it to?  If you are paying an insurance premium for “fool’s gold”, do you really believe you can collect for “gold” after the loss?  I am not trying to scare business to my door but being very practical and hope that each of my readers understands that.

It would be easy to document for any company underwriter where the streets are (there are at least a half dozen university campuses – Guelph, Laurier, Waterloo, Western, McMaster, Conestoga – within 1-1.5 hour drive of my home office).  Since I am so familiar with the territory, why not ask?  Even Google Maps will assist if you’re not anxious to contact me.  For those underwriters who are not familiar with this simple fact – Economical and Aviva are presently on risk for many of these buildings that they will not and do not insure – HMMMMM!  How many other insurance companies are insuring “multi-family apartments” within 1-2 kms. of an university campus?  Look at Google Maps and check your building addresses and descriptions!

Knowing that the market in the USA is anticipated to grow (and Canada is following suit) where starts were expected to tally as much in 2011 as in the prior 3 years, I fully understand why insurance brokers are targeting this sort of risk but how long before your reputation is tarnished by not disclosing to your underwriters what is being insured?  How long will it be before loss ratios mount and you risk losing company contracts?

Yes, it may be an impossible task for me to educate everyone involved in the buying, selling and investing in the latest real estate craze but I surely hope to try.  Insurance companies do not have to pay a claim or defend you if there is any known “material misrepresentation” and it will then be up to you to decide how to pursue your insurance agent/broker.  What is the cost – both financially and in time – to you?

Try cutting to the root of the problem and discuss with a professional who is expert in the field of student housing.  I await your comments, mail, calls.  And I cover from Ottawa to Windsor and do know the niche!

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