Property Protections Pathway - Insurance Insight with guest Jason Pomerantz

Host Eduardo Sigal sits down with expert Jason Pomerantz. Jason explains real estate insurance, covering risk mitigation, the value of specialized brokers, and various policy types essential for protecting commercial property investments and navigating modern industry challenges.

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THE PROBLEM:
School, employment, education, advanced education all teach you WHAT to think but not HOW to think. Todays culture also has been influenced by forces opposite to generating long lasting wealth and financial prowess. 
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THE SOLUTION:
This podcast channel dives deep into the HOW of investing, mindsets for success, and proven success stories using Interviews with industry experts, need to know insights, and real investments. We work hard to bring this unique value to you through what we call the 3 I's - Interviews, Investments, and Insights.
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THE HOST:
Eduardo Sigal is the host of The Signet Podcast.
Using his unique approach and vision of real estate, Eduardo Sigal, MBA, has been intimately involved in the industry from a young age. Growing up in the world of real estate investing has afforded Sigal the knowledge and perspective in making sound and strategic investment decisions. Using this knowledge, Sigal interviews some of the world's most accomplished real estate developers, investors, and other business leaders to learn how they found their success.
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DISCLAIMER:
Signet Investments, Inc is a real estate investment and development company. These videos, images and commentaries are for entertainment purposes only. Although there is wisdom in how others achieved success, everyone paves their pathway, which may not work for all and is highly individualized. Rely on any of this information at your own detriment or benefit. The individuals interviewed on The Signet Podcast may or may not have an affiliation with Signet Investments, Inc. or affiliates.
These videos are not to be construed as tax, legal, or personalized investment advise. Eduardo Sigal, nor Signet companies are not acting as a market maker.

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Transcript

SPEAKER_01 0:00

The short answer to how the industry works is the law of large numbers. So we've got $100 million in insurable risk. Do we need to buy $100 million in property coverage? The answer is no. You don't want to be caught underinsured. That's the day you wish you had an um an umbrella policy or some sort of an excess liability policy. They win, you win. That's what we want to happen.

SPEAKER_00 0:40

Jason, I I'm so happy to have you on the podcast. I've wanted to do this podcast because for me, I've told you, it's something I really want to learn more in-depth. And I think that insurance, property insurance specifically, is one of the more overlooked things in real estate. But sort of before we get into a lot of my questions, why don't you introduce who you are and what you specialize in?

SPEAKER_01 1:05

Okay. Uh well first of all, Eduardo, thanks for having me. I've been looking forward to this too. And you know, we have we've definitely talked about it a long time. So it's just a pleasure to sit down with you and uh happy to take this time. So thank you. Um so my name's Jason Pomerance, as you know, um, I am what you call uh a retail insurance producer. Um so that's a fancy name for for essentially insurance sales. Um and so you know, I I kind of would categorize myself in kind of a like a highly consultative sales model. Um I work, you know, almost entirely in the commercial uh realm. Uh I work with real estate developers, uh property owners, you know, portfolio owners, uh general contractors. So anything real estate and construction related, um I do go outside of that realm as well. Um I have a general counsel practice where I work with general counsel uh from all industries kind of in the middle market range, which um you know, depending on how you how you want to define that, um, but public companies, private companies, et cetera. And so on insurance? On insurance. And so uh again, it's highly consultative. Um really we're an extension, we behave as an extension uh of their risk management department if they have one. If they don't have one, we are the risk management department. And so, you know, I'm fortunate enough to work uh in a fairly large organization, at least by Colorado standards, uh, you know, about 3,000 associates nationwide. And we we are nationwide, headquartered uh in Denver. Um and so we're we're able to address every vertical uh of every industry uh and every type of insurance. And so it's just so wonderful to have this platform of really talented individuals uh behind me, um you know, especially in areas where I I don't consider myself an expert, which are most areas, um, but within real estate and construction, um, you know, I I kind of lean in very heavily.

SPEAKER_00 3:08

The one thing that I really admire about you, and I really I'm I'm a little bit jealous, I have to say, the people that you know they study law, they and then they go and they don't they don't necessarily practice, but they use everything that they learned from their legal background in whatever business they are. Right. Um how did how did that help you do your work?

SPEAKER_01 3:30

Well, you know, I took a strange path to this industry. Um, you know, I was a client. Oh, really? So yeah, so I practiced law here in in Colorado for 22 years. And throughout most of that career, um I was a client uh of of several different insurance outfits, um, but most notably the the the one in which I sit today. And so these are people I've known a very long time and came to to respect uh and and develop friendships. Uh and so when I was looking for a change, um it was it was kind of a no-brainer for me to start that conversation uh with these people. Um and so now here we are four years later. Um I'm totally immersed uh in this world, and it's it's just been wonderful to get to know those people better and then a a really broader swath uh of the industry quite a lot better. So it's been it's been a journey.

SPEAKER_00 4:29

I mean, honestly, whenever we've talked insurance, I always feel like I'm in good hands with your advice and your leadership. So it's always a pleasure to talk to you about you know the other things we have in common, but it when it comes to insurance, there's just so much I don't know that when we talk, it's you never know what's happening. Also, I think it's important to note that you're also a broker, uh insurance broker. So just to give, I guess, the audience a little bit of uh reference, what is real estate insurance? Like what types are there and why should they not get it? I think everybody knows they have to get some, but what should they be looking at?

SPEAKER_01 5:08

Yeah, well if if you have a lender, you have to get it, you have no choice. Uh which I guess from from a sales perspective is wonderful. I don't have to convince you that you ought to buy it. Uh I just have to convince you that that you know you ought to buy it from me as opposed to somebody else. And so, you know, the challenge in that is there's always relationships involved. And so if I get hired, that means somebody else gets fired. Right. Um and and that's something you know I take very seriously, and and it's it's sort of the tough part of this business. Uh, and that's a two-way street. Um, you know, if if somebody else wants to hire their brother-in-law, that means I get fired. Right. Um, and vice versa. And so it's it's challenging. Um but the way the way we win business is really by showing our expertise um and really flexing the broad team that we have. And and you know, in whatever vertical we're in, um the team is is what shines uh for me. And you know, I'm only as good as as our team. And in that case, that I'll take that all day long because we have such good teams uh uh uh in this organization. And so it's it's just been fun exploring externally but also internally uh to meet great people and develop these relationships and you know mate the external relationships with my internal relationships, and that's really been the reward for me. Right. Okay. And so I I do yeah, I do want to, you know, complete uh the answer to your question. And what types of insurance are there in in the real estate realm? I mean, there's the major categories are are property and casualty, you know, casualty otherwise known as liability. And so, you know, if you're a property owner, if you own an office building, let's say, or a retail building, you need property coverage for you know the standard perils of fire, uh, water intrusion, things things of that nature, uh that we can all get our arms around. Anyone who owns a home knows they have to have homeowners insurance, you know, theft, etc. Um, that's what your property insurance covers. And then uh conversely, on the casualty or liability side, um, you know, covering your exposure from third parties. Okay. Um, so we talk, you know, I'll get a little jargony uh in our conversation just so you can understand how we think about these things. But property is what we call first party coverage. Okay. Your building burns down, you are the claimant, no other parties involved. Um, that's first party property coverage uh versus liability. You know, uh you invite a friend over or a business guest, a business invitee comes over um and slips and falls on something, and you know, you were negligent, you left an you know an extension court out or something like that, somebody trips, falls, gets injured. Um that is what liability coverage is for. If they were to sue you, um you you could uh make a uh claim on your uh casualty coverage uh or liability coverage.

SPEAKER_00 8:11

Okay. Um so uh commercial is different from homeowners policies. Yes. So I mean I don't want to jump too much around, but I do want to ask you, because a lot of people they have homeowners insurance and then they rent out their house to somebody else. Why shouldn't they do that? Or is that uh do you see a problem with that? Is it a different kind of coverage? Does that now become a commercial?

SPEAKER_01 8:34

Yes, uh, is the short answer. I mean, you definitely want to talk to your insurance agent. Uh if you have, you know, your primary residence and now you want to start renting that out, you know, whether on a short-term or a long-term basis. Um, you you want to make sure that you have the the proper coverage for the third-party exposures. And so I guess the reason behind that is you know, the carrier underwrote that policy when you bought it as your primary residence, they underwrote it as a primary residence. Right. If all of a sudden now you're gonna turn that into some kind of a business, you know, as an Airbnb, you know, short-term rental or or or long-term rental, they need to know about that because the exposure is different, they're gonna rate it differently, it's probably gonna cost you a little bit more. Right. Um, so that's definitely a conversation you want to have. The, you know, the the thing that you don't want to happen uh in the insurance world is that you're now, based on your behavior, falling into some exception uh in that coverage. Um and so, you know, the exclusionary language can be broad in a lot of these policies. And so always consult with your agent, make sure you have the right coverage.

SPEAKER_00 9:41

I definitely wanted to get into exclusions and inclusions to look for just because you know it's a it's a contract that you're signing and you're making a deal with an insurance and you're buying a protection and a very complicated contract. Yeah. I mean, that's that's why, you know, one of the questions was why do you need a broker? You know, like if people could just find themselves, what is the benefit? And I believe very strongly in having brokers. I use car brokers. I don't, you know, for cars I use it brokers for insurance, even real estate. I'm a broker, I don't represent myself, I usually have a broker.

SPEAKER_01 10:13

Yeah, I mean, you you would not enter into a complex legal contract without consulting a lawyer. Uh so likewise, like anything else, I mean you need uh uh an experienced guide uh to make sure you're buying the right thing. And so uh in every single state, um insurance agents are licensed. Um and that's just the beginning. Um I wouldn't make that your criteria that we all have to be licensed. Um you want somebody with with a certain amount of years of experience uh that and that is hopefully at least in part in the area in which uh you're considering. Um, you know, real estate is is a discipline within the insurance industry. Uh so you want to find someone who's pretty seasoned uh in the real estate world. And so, you know, with the larger company, you know, we have the luxury of all our different teams uh and our specialty practices. And so, you know, if you were to come to me, whatever the need you had, I would be able to tap the right people uh internally and bring that expertise to the table. And so, you know, with a smaller agency, people tend to be a bit broader and for you know basic property risks and things like that, that's fine. As we get into more complex commercial risks, maybe not. Um it just depends on the situation. Um and I'll contradict myself. I mean, there are some you know niche brokers that focus exclusively on say construction, uh and those folks tend to be uh fairly sophisticated and and you would be in good hands. Um but you know, always check references, you know, look in do your diligence on on who you're uh you know visiting with uh for any kind of uh insurance brokerage.

SPEAKER_00 11:55

What are you looking for uh when you do your diligence?

SPEAKER_01 11:59

Years of experience, um you know, perhaps some references from from people that are similar enough to you. Uh ideally someone who's maybe more sophisticated or larger than you in terms of of their real estate holdings, yeah. Uh is might might be somewhere you want to start, um, someone who's been in the in the business a long time, uh, and then you ask that person um who they use and who they might recommend. Um, and then and then go talk to them and see if there's a connection. See if you know what I would suggest is a telltale sign is see if they're interested in your business and learning more about your business and your concerns uh and your plans into the future, as opposed to just simply having you fill out an application and trying to create a transaction immediately. Okay. Um, you know, the transaction is a necessary consequence, but we want to have sort of an in-depth understanding of your business first. That's my opinion. Yeah. That's how I like to do business.

SPEAKER_00 13:02

I mean, uh not to get into trends yet, because I do have a qu uh some questions about that, but I feel like also having a broker, things are constantly changing in the business. You know, hurricanes are picking up in Florida, or there might be more snow in Denver, or you know, there's a lava in Hawaii. There's so many different changes, just natural disasters is one category of changes. That having an expert, as a real estate owner, you can't possibly keep your eyes open in every field that you need to be, you know, capital raising, financing, insurance, everything, the law is changing. There's so many things changing that having an expert within the insurance industry, um, and it's it's a lot of money, I think, if you don't have the right insurance or you don't have the coverage. One thing that, and I'm gonna go back a little bit to what you were talking about, commercial versus liability. One thing that confuses me is is that a different policy? Then you have what categories are there? Because you have like losses of rent, you know, insurance, you have builder's risk insurance, which I don't know if that's an add-on or a specialty. What categories are there within in in uh in real estate?

SPEAKER_01 14:10

Right. So I mentioned before that we have you know the two broad categories of of property and casualty. You know, again, casualty is otherwise known as liability. And and so on the property side, um, you know, there's there's all sorts of sublim and coverages within that. Um and depending on the type of policy uh you buy, their lost rents could be part of that. Um you mentioned builder's risk, you know, that is a a very specific type of property insurance that you would purchase during the construction phase. Uh so that is your property coverage during construction. It is, okay. And then once construction, if you were building from the ground up, let's say, you know, a new building, you would you would have a builder's risk policy during construction. Once construction is complete, you would then transition to a permanent uh property policy. Okay. So, you know, builders risk is its own specialty. There's people here that that's all they deal with. Um and so, you know, again, you know, you mentioned all the different disciplines as a real estate developer uh or owner uh that you need to, you know, at least be conversant in. I mean, likewise, on on the inside in insurance, the same thing is true. It's gotten so complex and so highly specialized. That's why we have all these different uh specialty practice groups that I mentioned, right? And having that ability to uh bring in those groups as appropriate. So, you know, I I almost become an internal navigator uh when we have you know complex clients where they might have uh um you know property risk, they might have a director's and officers concern, you know, if it's a larger company, um, cyber risk, cyber liability. I mean, we have a whole department that that's all they do.

SPEAKER_02 15:48

Yeah.

SPEAKER_01 15:49

And so, you know, I keep mentioning these two broad categories of property and casualty, but there's all these other kind of more niche products like cyber liability, for example, um, that you know are need to be part of the discussion at a minimum.

SPEAKER_00 16:05

It's so interesting to me how so many property owners, being from California and having properties there, a lot of people don't get earthquake insurance. They have all this other coverage, and I understand it's a huge premium, um, and it expires after a year. But what happens if you have an earthquake and your building gets demolished? You know, you uh w what is what kind of recourse does a landlord have if that happens and they're not covered?

SPEAKER_01 16:29

Right. Well, I mean that would be a component of your property coverage, and people in Colorado typically do not buy uh quake coverage um for obvious reasons. Um, but in California, uh I I think you'd be remiss uh to not spend that money. And so, you know, I I encourage people to think about insurance as kind of a a risk finance device. Um, I mean, you could assume that risk yourself.

SPEAKER_00 16:54

Yeah.

SPEAKER_01 16:54

And, you know, in most years you will have no no cost. Um, but when that large, you know, catastrophic loss happens, um, you're gonna wish that you had spread that cost over many years uh in the form of uh insurance premiums that didn't pay you back anything for that one day where where you absolutely need it.

SPEAKER_00 17:16

I mean I think that's key to look at to look at it that way from that philosophy. It's risk financing. Yeah. Yeah. And I see why you would need a specialty group, because they could analyze the I mean they're looking at the risk. If you might not understand the structural needs of an earthquake in California because that's not, you know, there's very specific. Like, was it retrofit? Was it you know, how was it retrofit? What materials maybe affect if it was properly retrofitted? Um, so one thing that I'm also personally curious about is just how does the insurance business work? You know, this is more like if you're a landlord trying to get a policy and you want to look at it, but where does the money come from? I mean, I know they're insurance companies, but what are they looking for? What kind of is it that they're looking for returns?

SPEAKER_01 18:01

You know, yeah, well well, they're they're in this business, you know, truth be told, to make money. You know, it is a for-profit industry uh in most cases, uh at least it's designed to be. Um, you know, for for a number of years, um it was a money-losing uh operation uh industry-wide uh on the carrier side. Um and uh they did not properly forecast all the catastrophic losses they were gonna have, you know, with the Florida hurricanes, you know, the West Western wildfires, etc., um, you know, floods, uh you name it. Um you can imagine quickly in one of these large events, you hear, you know, on the news, you know, these multi-billion dollar losses. I mean, there's only a handful of companies that are eating the lion's share of that loss. And so um, you know, there was a great slide I saw once that showed a dollar bill kind of cut up to where your premium dollar goes. You'd be shocked. A small sliver of that was profit. Um, yeah. You know, the lion's share of it is claims. Um they pay out claims, believe it or not. Um most of that premium dollar gets paid out in claims. And so, you know, there's a concept I learned early on in the insurance industry uh called the law of large numbers. And so very it's a it's a very simple concept where you know we talked about that risk, the risk finance uh of that single catastrophic loss that you're preparing for as an insurance customer. Um if they have enough customers, you know, all the rules of statistics that their their forecast models ought to work, and in most cases they do work, so long as they have sufficient numbers of insureds uh under their program, uh and if they've underwritten properly and excluded you know the unreasonable uh expected losses, then everything should work. They will keep their small amount of profit, they will pay out the claims, you know, within their expectations, and everything works just fine. Uh they win, you win. Um that's what we want to happen. And so um really the the the short answer to how the industry works is the law of large numbers. Uh you know, and then when they have retained earnings in the in the better years, they in invest uh those earnings uh and earn a return, so which bolsters you know their their uh coffers uh for when that that bad event happens um in those major catastrophic years. That makes a ton of sense.

SPEAKER_00 20:33

Um so question about uh I mean this is another thing about being an agent, I think. Is there a lot of competition? I always see my age I love having agents because they're my gatekeepers, they're my communication, they're my presentation to the companies. Is there a lot of competition within the insurance? You know, like at the retail level where I sit? Yeah. Not not brokers, but like providers.

SPEAKER_01 20:58

Oh, on the carrier side. In most cases, yes. Um it depends on the industry. I mean, if you're talking about, you know, inland, you know, property risk, sure, there's there's tons. Okay. When you get into coastal and cat areas, um What's cat categories? Catastrophic, you know, think Florida. Okay. Uh think think coast coastal Florida, coastal Texas, you know, Gulf Coast, yeah, you know, where we have all these these major catastrophic losses. There, you know, the carrier, the the competition has dwindled. I mean, there's only so many carriers that will play in that arena. Um a bit closer to closer to home, um, you know, I deal with a lot of multifamily construction. Um and in Colorado, you know, we get to brag about being the number one worst state for construction defect litigation. And so I can count on one hand how many carriers will write um construction insurance policies for condominiums. Um And you know, we could spend you know two hours talking about condo litigation uh in in in the US, uh particularly in Colorado, it's really bad. Um you know, we could talk about California with the wildfire risk. I mean, you you hear you know large carriers that have pulled out of that state um due to the unacceptable wildfire risk. They just can't do it anymore. Right. And so every time you lose one of those competitors, you know, the premiums go up. I mean, it's it's simple supply and demand, you know, economics. And so it's uh there's a reason why we've seen our property rates climbing in double-digit numbers for the last five, six years. Um luckily this year we've we've seen some pullback um in the property rates, um, which is has been welcome, but we're you know, we're pulling back from you know historic highs and coming down a little bit. Um they're still pretty darn high, so so don't get me wrong, but uh that relief is welcome for our property owners.

SPEAKER_00 22:59

Yeah. I mean the risk makes sense. There's a lot of unknowns that are happening. One thing I I was mentioning when we were by the elevators that uh I wanted to tell a little story. It's not a story. I owned a property, it was vacant. Getting insurance was so difficult for vacant properties that now, and then we had vandalism, and it only covered theft, not damage, or damage, not theft, something like that. And we had that, and I remember it was such a hard experience to get compensated. Why is vacant property insurance? It's something I'm scared of now. Is vacant property insurance difficult to get insurance for it it is.

SPEAKER_01 23:39

Um so I I I I oversimplified the industry in talking about you know the law of large numbers. Um, but it's also the law of small numbers. Um they they are record keepers. The insurance industry is better record keepers than our you know our governmental uh entities uh or anybody else because it's their their bottom line that's on the line. Statistics, yeah. Exactly. And so, you know, they've got actuaries uh and and data scientists involved looking at risk, you know, you know, past performance as a guide. That's all we have, right? And so they look uh typically look, you know, at five years in the in in the past, uh sometimes more than that, um, and they're looking at you as a pr as a property owner yourself, you know, what kind of loss history do you have? Are you, you know, uh you know, um mindful uh of your properties? Um they look at the geography, you know, is that particular zip code uh prone to certain types of of claims? Um and then kind of broadly, what are we seeing trend wise, you know, either in in that in that state or across the country? And one thing that is clear to them uh is that vacant properties see more c claims.

SPEAKER_02 24:57

Right.

SPEAKER_01 24:57

Um we have we have vandalism risk, we have um you know leaky pipes that uh go unnoticed for weeks or months that cause like tremendous amounts of damage. And so, you know, uh vacant properties just are a peculiar kind of risk um just because of their nature. That makes sense. Yeah.

SPEAKER_00 25:16

I mean that answers one of the questions, and it's one of the key questions. What do insurance companies want to see? You know, that's a big part of it because you want to be insurable and you don't want you wanna you wanna prepare for that. Something you have to underwrite, something you need to think of. I really do feel that people are not educated enough on insurance. I think it would help to have insurance or to have you know a good agent that explains a lot of these things to you. Um so a common problem that I've heard about, and this happened in one of my properties, was underinsure being underinsured. And I that probably happens very often because you don't think of construction costs going up. You're not getting a bid every year to see how much things cost or anything like that. Um do you how does that affect a landlord? I mean, when it comes to getting money in return.

SPEAKER_01 26:06

Yeah, I mean, when we're talking about replacement cost, um it's really important that you update uh you know the the uh insured amount for the building um pretty regularly. I don't you know every year might be a little extreme, but I I would say at a minimum every two years, you want to be looking at that. Um, you know, construction costs, uh I don't have to tell you, um they they've they've been going up dramatically, you know, outpacing broader inflation uh for many years now. And so you don't want to be caught underinsured. Um and so you know the industry has has tools. Um, you know, the Marshall and Swift guide uh is is a tool that we use where we can say, okay, you have a uh a retail building and in a certain zip code, uh a certain type of you know masonry construction uh and a certain type of roof, and you know, we can do some some cowboy math and and come up with you know within a pretty decent margin uh of what you know replacement cost for different things is going to be on that building. Um and so but I wouldn't stop there. Um I think you know, especially most of my clients are are seasoned, you know, industry professionals, and so we might use those numbers as a tool to start a conversation. That's not the end of the conversation. And so, and then we we want to talk about well, what's what's peculiar about this building, what's irreplaceable, uh, etc. Um, what sort of you know onerous uh things is the the uh municipality gonna impose on us in the event of you know that we have to do some reconstruction, you know, and bring things uh up to code.

SPEAKER_00 27:45

A lot of people talk about an umbrella policy and maybe getting insurance, one policy for all their properties. Why is that a mistake and is that just not the way to do it?

SPEAKER_01 27:55

Yeah, let me let me address you know the the the jargon. Um you know when you when you're including multiple properties under a single insurance policy, you know, that's that's a master program. Um an umbrella uh conversely is uh sort of an is an excess policy that sits over other policies as your primary. So for example, let's say you have a building and you have you know uh casualty coverage on your building for slip falls, you also have an auto policy for some some cars you have for your business, um, you know, business vehicles. Um you might buy an umbrella policy that would sit in excess over all of those. So you have a million dollars in GL coverage for your building, you have a million dollars in auto coverage, and then maybe you have a five or a ten million dollar uh umbrella policy that sits above that for you know, if one of your employees, God forbid, you know, takes out uh, you know, a carload of people and you know injures or kills them, um, you know, you would have you know millions of dollars in potential claims coming your way. That's the day you wish you had an um uh an umbrella policy or some sort of an excess liability policy. Um so two different categories. So your original question, you know, was about master policies covering multiple properties. I'm a fan of that. Um once you get above about five substantially sized properties, it starts to make sense. Okay, and so most of our clients will buy one-off policies uh until they get to that level. Um, and then we can start talking about a master policy where we can think about loss limits. So let's say I have 10 properties, you know, uh roughly $10 million in insurable value each. Uh so we've got $100 million in insurable risk. Do we need to buy $100 million in property coverage? Uh the answer the answer is no. Um in if we can convince your lender to play along, maybe we buy $50 million. Um unless they're all situated in the same block of the same town, they could all theoretically burn down in the same event. Right. Um, you know, then you'd probably want to ensure the whole value. But if they're spread across, you know, uh geography broad enough geography and we have what we call spread of risk, um, then a master policy uh with a lower loss limit uh makes a lot of sense. Right. And so we can kind of lower it from the top end and really bring your premium cost down and still provide fairly robust coverage. Right. Then conversely, you can think about on the other side, you know, let's say you're you're an established family office, property owner, you know, portfolio company, etc., um, and you've got decent cash reserves, maybe you're comfortable taking on a little more risk. So we can we can look at higher deductible programs and kind of squeeze it up from the bottom end as well. Okay. So we're compressing from the top with a loss limit that I was describing. We can compress it up from the bottom with higher retentions, right? Um aka deductibles, um, and really save you some money.

SPEAKER_00 31:06

Yeah.

SPEAKER_01 31:06

Um, but again, it needs to be a very eyes-open, consultative discussion between you and your agent. That makes complete sense, yeah. You know, so you so you can't have a surprise on the day you have a claim. I mean, we there there needs to be, you know, a a very kind of open conversation with your agent, and that's why that relationship really matters. It really sounds like you have to be educated to understand what you're signing. I mean, it's it's not for everybody what I just described. Yeah. It's just not. And and you know, and I it that is never my opening salvo in one of our conversations. I mean, this this is something that I would tease out of somebody over a long conversation about risk appetite and plans for the future, etc.

SPEAKER_00 31:51

But it's all it's all you kind of should know everything, even if it's standard, because you it's a negotiation with the uh with the provider, you know. You need to know what's covered, what's not covered. I mean, I think it's your responsibility as a landlord to sort of not just to sign and I mean it's good to take the advice, but to understand what is and what isn't. Right. Um so what mistakes do you think landlords make uh when this is where the question is coming from. When I was starting out and I was buying apartment buildings, you would see these proformas, and the proformas would be uh, you know, the insurance for like a six-unit apartment building in Beverly Hills or whatever would be twelve hundred dollars or something. It's like and then I would go to my agent at the time and it would be like fifteen thousand dollars plus another twenty-five thousand for earthquake. I just didn't understand how do you get ten percent less, you know, costs or more than ten percent costs. What what what was I missing? What did people miss?

SPEAKER_01 32:53

Yeah. Um, you're not missing anything. What what the scenario I keep seeing over and over and over again is you know, one of my more institutional clients uh is acquiring a building uh from some family that's owned it for you know a hundred years, and you know, they've got grandfathered insurance with a company that's just kind of kept renewing over time and forgot about them. And you know, that insurance is not really available anymore. Um either that carrier doesn't write that sort of insurance in that sort of geography anymore, and they're just not a player anymore, so we got to go out to the market at today's rates. Um, or or they they're still a player, but just not at those rates anymore. And so um there's plenty of situations where I found that the incumbent carrier is kind of asleep at the switch.

SPEAKER_00 33:45

That makes sense.

SPEAKER_01 33:46

Or maybe that you know the claims history was was clean, and so they left left it well enough alone. And um now that the property's changing hands, you know, the you know, everything's up in the air. Right. And so that is just not available anymore. And so over and over and over again, I see people you know underwriting these things based on the seller's historical insurance cost that is you know one-third what today's market is. Right. You know, maybe sometimes worse.

SPEAKER_02 34:14

Yeah.

SPEAKER_01 34:15

And you know, they're just in for a rude surprise. You know, my my my more savvy uh clients, they call uh while they're underwriting, you know, before their earnest money goes hard. Um, and they're vetting those numbers. And you know, I I usually have to, you know, give them the bad news that hey, that that rate is no longer available, you know. And and then the challenge becomes convincing the seller that that rate is no longer available. And when his reality is, well, it's absolutely available, I renewed it a month ago.

SPEAKER_02 34:46

Yeah.

SPEAKER_01 34:46

Um, so what the heck are you talking about? You need a better agent. Talk to my agent, in which case that agent's like, yeah, no, I can't repl replicate that. Um so it's there's this kind of tug of war happening between buyers and sellers that you know everyone knows about the tug of war where, you know, where the seller's anchored at this high price on his building and the buyer is anchored at, you know, uh a more market-driven price. But the same thing happens with insurance. Um, and when you apply cap rates, you know, it has you know an outsized effect, it really matters uh on the bottom line.

SPEAKER_00 35:21

Yeah, that makes a lot of sense. Um I mean it it's a business that's that's kind of correct. So speaking of the the business and all these, you know, typical things, do insurance companies get creative with what they provide? You know, if you go to a a broker or an insurance company and represent you want some kind of rental income protection or something that's kind of not typical. Are they creative?

SPEAKER_01 35:46

Are they flexible, or is it pretty much set in stone the types of it's well, I mean, rent rental income protection is available and and and so but but the the answer to your question, do they get creative or do they think out of the box the answer is generally no. Right. Um, you know, they work on the law of large numbers. So if you have this really neat kind of niche idea, um that doesn't work. Right. Uh if they can't sell, you know, a hundred thousand of those those policies uh to a hundred thousand very diverse uh customers across the country, then it does not make sense for them. And so, you know, just by its very nature, you know, the industry kind of shuns creativity in a kind of a perverse way. Uh I mean, I think I'm thinking of it in a perverse way, but it but it does make sense when you think about the actual world science that has to undergird their underwriting. Um, it makes a lot of sense. Now, if you're big enough and you have a huge enough risk with a huge enough premium, um, you know, we can we can work with Lloyd's of London and things like that to uh come up with you know very creative solutions.

SPEAKER_02 36:54

Yeah.

SPEAKER_01 36:55

But for your typical property owner, that is that's out of reach. Um, you know, we've done some major projects um so for some you know marquee like stadiums and things things of that nature where creativity is allowed on that kind of a scale. Yeah. Um and you know it's it's a monumental effort and um it is doable. But if if you've got a uh you know a typical office building, you know, retail building or warehouse or something like that, it's n it's just not in the cards.

SPEAKER_00 37:28

It makes sense because you're you know, you're asking a company to put their resources into something that's not typical. Right. And it's gonna cost money, so you have to make it a convincing argument that it's worth them investing into looking into that.

SPEAKER_01 37:42

Right. But I I will say that you know the creativity does come in on the margins.

unknown 37:46

Okay.

SPEAKER_01 37:47

Okay, so so if we go back to your vacant building example, um if you came to me and said, look, I have this vacant building, it's in a high crime area, you know, we would run some crime scores and things like that to vet that, first of all. Um, and then we would we would come up with a plan, or I would encourage you to work with us to come up with a plan. So we would bring in our risk control team and we would come up with this a series of recommendations, you know, some of which might be fairly cost effective, others might be, you know, out of reach, you know, expense-wise. Um, but we would come up with those recommendations, figure out what was economically feasible for you and do a plan. So let's say we we want to install security cameras, we want to hire a company that does active monitoring, that's you know, they're watching those cameras, they're not just waiting for an event to happen to address after the fact. That doesn't work. Um, you know, we can put uh water leak detectors in the building and try to, you know, and and then maybe some fencing and lighting solutions and things like that, uh registering you know that with you know with the local police that it's a vacant building, and you know, maybe they'll do a little more drive-by's uh than they otherwise would. Um and then they'd be alerted if they saw human activity at night, let's say, uh that hey, that's not supposed to be there. Um and so by implementing these things, we can proactively work with the carriers to show how you kind of rise to the top among amongst other risks and hopefully get some more quotes for you and have a more competitive process for you that hopefully yields a better outcome for you. So um I think there's room for creativity between property management, property owner, and insurance agent uh to work together to come up with a plan that works.

SPEAKER_00 39:36

They just want to be taking, you know, their risks to be mitigated by some level, which makes complete sense.

SPEAKER_01 39:41

Yeah, it's it's the difference between just filling out an application and and really being proactive to try to rise to the top because they get a lot of submissions. Yeah, and they all tend to look the same.

SPEAKER_00 39:51

Yeah. You don't want to look the same. Right, right. No. That makes sense. Do you think that there's so one question, and I think this could apply to a lot of people looking to invest in real estate, is there a specific kind of property that maybe has more risk than another? You know, I was looking at a house in Evergreen, for example. I think that it's very hard to get fire coverage there if it's a wood-built house because it's wood and the you know, fire. So is there certain types of properties that you would think to stay out of as an investor?

SPEAKER_01 40:20

Well, I mean, residential tends to carry more risk.

SPEAKER_00 40:24

Okay.

SPEAKER_01 40:25

I mean, you've got human occupants there, many things can go wrong. Um, however, you know, from as from an investor's standpoint, it's very attractive. I mean, people need to live somewhere, we have a shortage of housing, etc. And so, you know, I'm not here to to make your investments decisions for you, but I ought to be at the table. Right. Um, and so so you can make an informed decision. Um so what we can do is if if you're you know in the property selection phase, uh, we've got a lot of tools at our disposal. I mentioned crime scores. Yeah, I could run a crime score for you and see if it's a high crime area and how the insurance industry is looking at it. Right. Uh that might inform your decisions. Likewise, I I can run wildfire scores. So you you mentioned Evergreen, Colorado. Like let's let's run a wildfire score, right? Uh see how the industry is looking at that particular property.

SPEAKER_02 41:17

Yeah.

SPEAKER_01 41:18

And granted, you know, those scores are driven by these maps that are very low resolution. Um, and you know, we have people on staff, we have a certified wildfire mitigation specialist on staff. And so for some commercial projects where we had, you know, the wildfire scores are rated one to a hundred. I mean, we were at in, you know, anything north of a 65 or so is considered bad. Um, and so I mean, we were getting scores in the high 70s on on a project we were looking at up in the mountains, and uh we were able to create a wildfire mitigation plan and really make a presentation um to the carriers that look not only are are we going to be proactive in in X, Y, and Z ways, but this property is really well protected. We have you know an interstate on one side, we have a local road on the other side, you have all these other natural and man-made barriers uh for the wildfire risk. Really, that score that score was unwarranted in this case. We made this case strongly. Enough carriers accepted that case, uh, and we had a competitive bidding process that turned out well for the client.

SPEAKER_00 42:25

Uh that sounds so interesting to me because you know when you think broker, you think that they they know the carriers, I guess that's the the technical term. We do know the carriers, but um, but you also do your own analysis, which in a way you're like an insurance company in this sense. Maybe you don't provide the insurance. But if you're underwriting these different variables of properties, then you're acting in a way on behalf.

SPEAKER_01 42:50

Yeah, but I would I would think of it as pre-underwriting. Right. We want to pre-underwrite the risk, anticipate what those care because we know them well in most cases, you know, we want to anticipate what their concerns are going to be and head them off.

SPEAKER_00 43:03

Yeah.

SPEAKER_01 43:03

And address them and say, all right, you know, you're right. This property is risky for these reasons. Here's what we've done to mitigate it, here's why you know your you know, the the you know, the canned wildfire scores, etc., are wrong in this case, and uh make the case.

SPEAKER_00 43:20

And you're representing on behalf of your clients, so it makes sense what you're doing. I mean, to me it's it's fascinating how different comp different um businesses within real estate, they're on the same page. The owner doesn't want the house to catch on fire, the insurance doesn't want the thing, you know, the house to catch on fire or property or whatever it is. So it's you're on the same page of wanting to mitigate. If you have a vacant building, you want you don't want somebody to break in. So what are you gonna do to be on the same page? I mean, the profit maybe and the value going up, that's maybe more on the landlord's better better more in the landlord's interest. But in terms of like risk mitigation, it is very similar.

SPEAKER_01 43:59

Well and And and selfishly, you know, as as as a an insurance broker, um you know, I want my clients to be long-term insurable. And that means not having a ton of claims. Right. You know, the frequency and severity of claims are, you know, are is is the the path to becoming uninsurable. Right. And it and when that happens, I have no client, you have no insurance, nobody's happy. Um, and so it's in my interest to keep your nose clean. So that's what we do. That's why we have a risk control team.

SPEAKER_00 44:31

Yeah, that me, I mean, uh that reminds me, I don't want to go too much into the Los Angeles fires, but a lot of people didn't make claims with you know smoke damage because they just didn't want higher premiums, they didn't want to be uninsurable because it it was kind of a mark on their and something that isn't a big mark, still they just didn't want the mark on their record, I guess.

SPEAKER_01 44:52

Right. Well, well, and and like our our risk control team, we have a claimed claims advocacy team.

SPEAKER_02 44:57

Okay.

SPEAKER_01 44:58

So when that you know unthinkable event happens, which is totally thinkable, um, you know, we we have a team that will guide you um in either making the claim decision to to make the claim or not, uh, how to make the claim, you know, how to c properly characterize the claim, what background research needs need needs to be done to support uh the investigative effort. Uh and we're there throughout the process. And so that part is critical. And you know, anyone in in investigating a you know a new insurance agent ought to ask about you know, what do I get in the event of a claim? Right. You know, what sort of advocacy do you have? What does that team look like? What is their experience in dealing with these carriers in my type of industry?

SPEAKER_00 45:44

You know, that's a huge value.

SPEAKER_01 45:46

Particularly if you're in a high-risk industry, manufacturing, construction, etc. You know, yeah. Any kind of real estate.

SPEAKER_00 45:52

I mean, having that backup and having that confidence, I think, from a broker is it's in value, it's worth its weight in gold. Because you need to have that communication also, because the carriers trust the broker to a certain degree, you know, because they want to keep doing business. Some more than others. So yeah, I'm sure. It's the so what's the most satisfying part of your work? I'll give you two answers to that question.

SPEAKER_01 46:16

I mean, number one is sort of the consultative approach, and kind of it's it's a it's a collective problem solving that we do with our clients. Um, that's very rewarding, but really and so that's the kind of the intellectual side. Yeah. But the the real reward for me has been the relationships.

SPEAKER_00 46:34

Okay.

SPEAKER_01 46:35

Um and and that goes two ways. Um, you know, the first way is is outwardly, and that should be pretty apparent, where I get to work with people that I like, um, that I seek out and want to do business with. And you know, someday hopefully they choose that they want to do business with me. And so I develop those relationships both before they engage me and after. Right. Um, and I get to know their business and kind of live vicariously through the interesting and creative things they're doing. So that's rewarding. But likewise, internally, you know, what I work for a large company and we have these industry experts in all these different disciplines that are just wonderful people, really good at what they do. And so I've enjoyed, you know, getting to know those folks on on the inside as well. And the best part is when I get to, you know, marry those two together.

SPEAKER_02 47:30

Yeah.

SPEAKER_01 47:31

And introduce people I like on the outside to people I like on the inside and watch those relationships blossom. And then I just kind of, you know, take a backseat, you know, uh, at least temporarily, uh, to watch that flourish. I mean, it it doesn't get any better than that. I mean, that's that's really been what's the it for me.

SPEAKER_00 47:51

I could see that being a good life sort of enjoyment, you know, connecting people.

SPEAKER_02 47:56

Yeah.

SPEAKER_00 47:56

So uh I don't know if you guys do bonds and and securities like that.

SPEAKER_01 48:02

We we we do. We we have a uh a surety group here that's dedicated to that practice. I mean, we do payment and performance bonds for contractor clients. That's a that's a big part of it. You know, we do fidelity bonds for you know our employee benefits clients, um, and the list goes on. Um, but I think payment and performance bonds are probably the most common. Uh, and we it's it's a tremendous practice. We have a whole team that that's all they do.

SPEAKER_00 48:26

I almost didn't want to touch on that because uh because it's so different and it is very niche, but it's extremely, you know, there's so many risks in construction and having performance bonds and all these. I mean, there's so many different types of bonds, but I don't know if it works in a similar way. It is an insurance, it's just a different name for it for a specific type. Yeah. So is it the nature of the business similar?

SPEAKER_01 48:50

It's it's actually very different. Okay. Um, I liken it more to a lending relationship than an insurance relationship because they're really underwriting the balance sheet of the company and in most cases the balance sheet of the principles of that company because they need to guarantee it.

SPEAKER_02 49:08

Yeah.

SPEAKER_01 49:08

Um, except in you know, in the case of very large companies with a lot of liquid assets. And so um that it's it's I mean, you know, we have you know our property and casualty business, which is very large. We we have you know our employee benefits business, um, which is a whole other side of the insurance uh that we haven't even talked about. Um but then surety is is kind of its own unique beast. And so um it's very much like a like a lending underwriting process uh where they can get comfortable you know to a certain bonding capacity uh given the balance sheet uh of the you know the principles behind it.

SPEAKER_00 49:47

Yeah, I mean just with litigation and construction, I've had to educate myself a lot more on it. And it it is a solution for a lot of issues that landlords may have if they if there's potential Liz pendances put on properties or liens put on properties, how do you get out from under that? You know, if you're in the middle of a construction project, right? Life, right? You're well, you can't sell it, you can't refinance it, which is you need the money to pay the contractor. That it's it could be a major problem. So that's one answer to that kind of problem.

SPEAKER_01 50:18

Right. Well, that so everything I was just describing about the relationship, you know, multiply it by ten when it comes to the surety relationship. Yeah. Um, you know, because it's necessarily intimate and personal because we're getting into you know the principles of the company and their and their personal assets. Um, you know, and and in certain cases their spouses have to sign as well, you know, depending on on how their assets are situated. And so um it's very personal, very intimate, very confidential, um, which just elevates the trust factor um that just becomes that much more important.

SPEAKER_00 50:57

So just so that people watching, if they don't know what bonds are, because I was in real you know, I've been in real estate since I was a kid, I didn't really know what a bond was. How do you define what what that means?

SPEAKER_01 51:07

Well it's c it's classic risk shifting. I mean, just like insurance, you know, you're shifting the risk of of a fire, let's say in property insurance, you know, from party A, you know you as the property owner, to party B, the insurance carrier. Um, you know, likewise, likewise with bonding, if I have some obligation, you know, to a municipality, let's say, to uh install some public improvements. I need to install some sidewalks, let's say, uh adjacent to the apartment building I'm building, um, you know, the the the city wants to know darn sure that you are going to perform. And how do they get that guarantee? Well, they want you know a big bad insurance company to step in to say, well, if Eduardo doesn't perform or Jason doesn't perform, we will hire somebody and perform. Right. You know, and so you know, depending on the municipality's requirements, you know, we'll set a number of double of dollars of of what that obligation is, and that surety company will step in. Right. Um, so it's it's incredibly valuable.

SPEAKER_02 52:08

Yeah.

SPEAKER_01 52:08

Um, but you could see how you know that relationship might be, you know, super personal and fraught um just because of the very intimate nature there.

SPEAKER_00 52:18

Oh, the huge liability. Not liability, but I could see the interest there, and then you're gonna be bumping heads with agreements or disagreements there with people, possibly, and and you need to have the wherewithal to be able to I I totally understand the reasoning behind it, but I think it's important to touch on because that's another type of insurance that um it's it's the one thing people don't think about until they have to.

SPEAKER_01 52:39

Yeah, yeah, and then they're scrambling. That's not the way to do it. I mean, you really want to be ahead of that and build this relationship over time.

SPEAKER_00 52:45

Right. Yeah. I mean, besides performance bonds, the the one that that I think I think of is uh like a payment. If you own a sub, uh owe a sub some money and they put a lien on the property. You bond around the line. You want to you want to make sure, yeah, you bond around the lien and it'll get taken care of. It's just not a lien on the property anymore.

SPEAKER_01 53:05

So it gives you the freedom to just in in that case, you know, it's a bit more transactional, but it still gets pretty personal uh, you know, for for you know, looking into your personal finances, depending on you know the structure of the landlord. And so, you know, in most cases those are much easier to get. Yeah. Um the process is is a bit shorter, but um, it depends on the size of the lien, of course.

SPEAKER_00 53:29

Yeah. Well, Jason, every time I see you, you're always reliable, you're always professional, you always look so well put together. What are your three key daily habits to like keep yourself sort of always kind of ready for I don't know, not business, but just ready for life. Yeah. Good key daily habits.

SPEAKER_01 53:50

Wow, what a good question. You know what, what one of those things well, a lot of coffee. Um tremendous amount of coffee, that's first. Um, but you know, vigorous exercise for me uh is what keeps my head straight, believe it or not. In the morning or in the morning, okay. It's the first thing I do because I'm I'm outside in the dark running, usually, you know, or or or something else. And um, you know, I gotta do something every day. Uh and so I'm out at you know, 5 36 in the morning most days, um, just getting after it, and then you know, I can kind of get into my business with with my head straight. Um and I think number one, I think it by doing something hard first thing in the morning, it makes the rest of the day seem easy. Not easy, but easier. Yeah. Um, you know, secondly, you know, there's just the general health benefits, um, you know, but but really it it just helps set the stage by having an accomplishment. Um, it just makes my outlook more positive um and makes me feel better throughout the day. So I would say the exercise, coffee, um, and then just I expect to learn something new every day. Usually it's from my colleagues uh, you know, in in the industry, um, whether they be in in my organization or wholesalers or carriers, what have you. I mean, I learn something every day. Um, I learn from my clients every day. Yeah. Something about there's a there's always a new problem I'd never heard of. Yeah. Um, and then I can go investigate and talk to the smart people I work with and you know, do that creative problem solving part. So that's that's what I would say.

SPEAKER_00 55:37

I love that. Um, and definitely eating a frog, that's a statement I heard from my my buddy Adam uh Gower. He had a guess. He would say, call it uh eating a frog for breakfast. Yeah. That was what he would say.

SPEAKER_01 55:50

That's that's a good one.

SPEAKER_00 55:51

Um, which is the hard doing the hard thing. Right. Um let's see. What uh what advice would you have to somebody who's trying to get into real estate, who's you know, young or not young, whatever, that but they want to get in in the real estate game. I don't like calling it game, but be humble.

SPEAKER_01 56:07

Have have the humility to ask the dumb questions. Go seek out the smartest people you can find that are seasoned in the industry, find some people that are successful in the industry, find some people that have been unsuccessful in the industry. You can learn from them too. Um and learn from other people's mistakes. Um people are it's really easy to get people to talk about themselves. Um and you can learn so much, so do not pass up that opportunity.

SPEAKER_00 56:39

What's the hardest lesson you've learned in your career that helped you grow the most?

SPEAKER_01 56:44

Oh my.

SPEAKER_00 56:45

That's a tough one. Yeah. We can skip that one if you want to. I don't know. There's a lot of good lessons. Sometimes the hard ones and painful ones are the best ones. I'm going through a lot of those right now.

SPEAKER_01 56:59

Yeah, I I've I've had plenty of humility pills over the years. Um or humble pie. Yeah. Um, I mean, just too many to even get into. Um, but you know, again, learning from my own mistakes instead of somebody else's. Um, it would have been a lot less painful learning from somebody else's. But, you know, we grow. Yeah. Uh, and you know, there's nothing like accelerating your growth through painful lessons like that. So, you know, we learn from pain.

SPEAKER_00 57:30

Well, thank you so much for being on the pad, guys. Thank you for what you do. Thank you. Uh you helped me a lot. It's been a great conversation. I appreciate it. It was really fun. Thanks. Well, see you tomorrow night.

SPEAKER_01 57:41

All right. Well, trying to make insurance fun.

SPEAKER_00 57:44

This is great. This is very educational.