Enormous monetary losses can result from certain unexpected or catastrophic events. As a result, one of the most critical areas of responsibility for a Property Manager is risk management. Risk management involves answering the question, “What happens if something goes wrong?”
The perils of any risk must be evaluated in terms of options. In considering the possibility of a loss, the property manager must decide whether it is better to
- Avoid risk by removing the source of risk (for instance, a swimming pool may pose an unacceptable risk if a day care center is located in the building)
- Control risk by preparing for an emergency before it happens (installing sprinklers, fire doors, and security systems)
- Transfer risk by shifting the risk onto another party (by taking out an insurance policy)
- Retain risk by deciding that the chances of the event occurring are too small to justify the expense of any other response (an alternative might be to take out an insurance policy with a large deductible, which is usually considerably less expensive)
Types of Insurance
Insurance is one way to protect against losses. Many types of insurance are available. An insurance audit should be performed by a competent, reliable insurance agent who is familiar with insurance issues for the type of property involved. The audit will indicate areas in which greater or less coverage is recommended and will highlight particular risks. The final decision, however, must be made by the Property Owner.
Some common types of coverage available to income Property Owners and Managers include:
- Fire and hazard – fire insurance policies provide coverage against direct loss or damage to property from a fire on the premises. Standard fire coverage can be extended to include other hazards such as windstorm, hail, smoke damage, or civil insurrection.
- Consequential loss, use, and occupancy – consequential loss insurance covers the results, or consequences, of a disaster. Consequential loss can include the loss of rent or revenue to a business that occurs if the business’s property cannot be used.
- Contents and personal property – this type of insurance covers building contents and personal property during periods when they are not actually located on the business premises.
- Liability – public liability insurance covers the risks an Owner assumes whenever the public enters the building. A claim paid under this coverage is used for medical expenses by a person who is injured in the building as a result of the Owner’s negligence. Claims for those hurt in the course of their employment are covered by state laws known as workers’ compensation acts. (A building Owner who is an employer must obtain a workers’ compensation policy from a private insurance company).
- Casualty – casualty insurance policies include coverage against theft, burglary, vandalism, and machinery damage as well as health and accident insurance. Casualty policies are usually written on specific risks, such as theft, rather than being all-inclusive.
- Surety bonds – surety bonds cover an Owner against financial losses resulting from employee’s criminal acts or negligence while performing assigned duties.
Many insurance companies offer multi-peril policies for apartment and commercial buildings. Such a policy offers the Property Manager a “package” of standard commercial coverages, such as fire, hazard, public liability, and casualty. Special coverage for earthquakes and floods is also available.
