Protect Your Assets: Understanding Insurance with Nico Iannelli

We've all seen a huge rise in insurance costs this past year. Why is it so hard to find insurance brokers who will work with you to obtain insurance for your commercial properties?

Meet Nico who has been around the block in the insurance and risk management game, spanning over two decades. From tackling tricky real estate deals to launching his digital platform, Insureio, Nico brings a unique, insider's perspective on the insurance landscape.

Some highlights from today's show:

• Dealing with Rising Costs in Real Estate Investment
• How to underwrite for insurance in today's market
• Understanding replacement costs

Nico Iannelli is a seasoned Insurance Advisor and Risk Management Consultant with expertise in multifamily real estate portfolios. He specializes in providing personalized risk management solutions to investors, optimizing insurance strategies and mitigating potential risk.

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Transcript

Ciaara: 0:00

Hello, everybody. Welcome to Commercial Real Estate Bosses, where we interview badass investors who are crushing it in the commercial real estate space. I'm your host, Ciaara Hoffmann. And on today's call, we have Nico Iannelli of Insurio. So thank you so much for being on the show today.

Nico: 0:14

Ciaara, thank you for having me. It's such a pleasure and honor to be on here.

Ciaara: 0:18

Absolutely. So I would love for you to share with our listeners about your story. So tell us your background and how did you get into doing what you do today?

Nico: 0:26

Yeah, absolutely. Love to. And again, thank you for having me on. So for those that don't know me, my name is Nico Iannelli. I've been in insurance and risk management for going on 20 plus years. I had a background in doing Commercial mortgages and financing for about a decade and then got caught up in the whole, 2006, 2007, financial mix. So I made a lateral move into doing risk management and insurance. And for those that may be part of multifamily mindset and other networks, you might've heard the names of Lisa Parrish and Ryan Woolley and Tyler Devereaux. So Lisa, for those that haven't heard, she moved to North Carolina, 15 plus years ago. And I bought a small property and, she was, went to her local state farm agent who I was good friends with. And when I made the move into insurance and risk management, I became known as the guy that if it had any hair on it or if it was difficult to do, I would get all the difficult stuff to get placed. So Lisa reached out and I did her first, 20 unit that she did here and. It's been amazing to see her journey along the way and grow into thousands of units. And then, me and Ryan and Tyler, when it came to North Carolina and really started, their portfolio started blowing up and growing and picking up 400 units, 200 units to, they got several thousands. So it was amazing to see that. And then also sharing that through their program, multifamily mindset. So I started not only managing theirs and as well as, a lot of other investors and portfolios. And along the journey for the 15 years that I've been doing stuff with Lisa and Greg Parrish and seeing the boys grow up and get into the business. And I think Adam was on the podcast, recently too. It's been great seeing everybody's journey. So that was kind of me. Continuing to give back. And I've been with a bunch of large firms would have international NFP and lastly with Marshall McLennan. So I was able to gain such a large amount of knowledge, not only in the marketplace, as far as what insurance companies were able to do, but, the variety has been, scaling, whether it's a couple units to several thousands of units plus and what we're able to do. So I'm able to share that with all different investors. Fast forward to today, after leaving Marshall McLennan left to go do outsourced risk management, essentially acting as the insurance and risk manager for select the investors and negotiating with the brokers, because I know it was available that was out there. And then that led me into, launching Insurio because I knew we needed to kind of like a digital platform where investors and others can kind of go to, to get information as well as how do we streamline the whole process to, get insurance on all these buildings. Because face it, we're all going through it. There's been a lot of changes. I want to say it's been going on for the last 20 quarters, but more so for 2023, it's become really challenging.

Ciaara: 3:10

Absolutely. And. So you mentioned, Tyler and Ryan and those guys and multifamily mindset, which is a great group. That's where I, learned myself. And my husband has known Tyler and Ryan for 18 years. They're definitely like not just mentors, but also great friends to us.

Nico: 3:25

They're good, solid people. They got a heart of gold on, Like a lot of us, we look at what our why's are and I wear mine on my wrist. I have a bracelet that says impact and inside of it, it's inscribed. It's the connection between our lives and the lives that we can change. And these guys went through a lot, and their lives have changed and we get fueled by helping others. Money's great. It solves a lot of problems. But, seeing others being successful, that's really where, I know I thrive and as well as those guys and several others.

Ciaara: 3:55

Absolutely. And so that kind of takes me into, my next question here, because, I do work with a lot of new investors that are. Trying to get their first deal done, and a lot of them are just reaching out to different insurance brokers, trying to get quotes, and they're finding it very difficult. They either won't respond, or I don't know what the issue is. They maybe have some insight as to why is it so difficult to get insurance brokers these days to help you and get, insurance for your multifamily properties.

Nico: 4:23

Yeah. And great question. This is a conversation that I have with many understanding that commercial real estate is different than, the Geico commercials that we're seeing. It's not a commodity. You can't make a call and save 10 or 15%. We're looking at, properties and there's a lot of different plays that go into it. There's, risk as far as for the residence as falls, fires, and they do have them You know, we have health and safety risk. As far as if there's mold asbestos in the buildings, we have a future responsibility, not only to our investors, but also for the tenants, we want them to feel comfortable and safe. And for those that have been in the business, we know when the residents feel like their home, they take care of properties which then in turn helps us so it's a win-win for everybody. So when you're looking at and doing the initial underwriting and going through everything, one, so you can't just pick up the phone and call somebody to go online, do a couple of clicks, and you're going to get a quote. Okay. It's not your car. It's not your home. And then also the market segment, there's only so many carriers, which are insurance companies that will even do habitational or the apartment buildings that we're looking at. And for those that, might be, looking at certain niches, which is like maybe your B or C properties that are aged or vintage we're looking at seventies, eighties, nineties construction, and we're always looking for properties that. There are emerging markets the properties have been mismanaged or, they haven't been given the love that they need. And so we can, do the value add to these, which will help increase the appreciation with it. But, and there's a lot of those properties that are out there. With that You can't just call up and get a quote. And also it's not something that you can just do online because the underwriters, especially with all the properties out there. And let's say that if there's about a dozen insurance companies that are entertaining these right now, one of the things that we're facing rates are going up. Okay. And the reason why the rates have been going up. As one, obviously we're all facing going through what inflation, but also there's been so many losses over the years. And we look at every year, the hurricanes, the tornadoes, the flooding, everything that happens, we're now looking at losses that, cost billions of dollars where, we look back 5, 10 years ago. There were several millions, up there, but now we're exceeding a billion dollars plus. When there's fires that are occurring and everything else, there's not enough money out there that are being collected for insurance dollars, which, force, everything going up and then we're looking at. Replacement costs, all that stuff is going up there and even the insurance companies have to get what's called re insurance and we saw a significant increase in that in January. So taking all these things into play. There's only, it's a select few that really understand, habitational multifamily properties. So one, I think I encourage everybody, when you reach out to, whether it's your local insurance agent or broker that's there, ask them. Questions. If they actually understand what the marketplace, what it's going into. The other thing that's different with commercial insurance versus your home and auto is you got to pick your broker. Your broker should works on your behalf to really send it out to the marketplace, to the different insurance carriers and, working for you. So it's like you pick one attorney, you pick one SEC attorney, you pick one, one accountant, all that. You don't call everybody in the books. So you want to build up those relationships because with commercial insurance on our end, it's first in. So meaning if I send something out to the insurance carriers, I do a lot of stuff with nobody else can get a quote because the underwriters don't want to work. With multiple people, because, everything that they're putting, that they're getting involved with, they're spending time on it. A lot of it is because of relationships and they don't want to do things just to do things. They've seen a lot of these properties, the underwriters, if they've been to different companies at one point or another, I think every insurance company has seen every single habitational property that's out there. And we've seen it through the years to some underwriters when they move to, different companies these things are coming up and they're sharing, things that might've happened five. 10 years ago on them. So anybody that's new, definitely, find somebody that is a professional understands what markets, what carriers are they able to go to, for you. And a lot of times, like I can't, we can't send anything out to get a firm quote. And into underwriting until the LOA is signed, usually your due diligence is done because when you send it out, there's things that you need to know, you need to know this type of construction, whether it's frame, in parts in the South, we start seeing what's called Joyce and Masonry, the, concrete walls with wood truss, we have steel buildings we need to know when the electrical was updated if there's aluminum wiring in it or not, roofs. Okay. All these things go into play as well as the losses. If you're doing your initial underwriting on it. You don't have any of that info, so I can't tell you Ciaara, how many times that somebody sent over a quote, and it might be a new student that's coming in and it's their first piece that they're going to be a GP on and so they go off on their own and get a quote back and we're looking at it going, all right, so whoever, if you put junk in, you're going to get junk out, right? So if they're going to put in that it's a masonary, it's a, yeah. Brick concrete building that was built in 2000 with sprinklers on it. You are absolutely going to get a much better rate than the 1969 aluminum wiring with two fire losses. That's all wood that the property really is. So there's a big variance that's there. So typically my rule of thumb is, definitely look over the financials. Look at the T12 the OM, I ignore the numbers that are on there because we know a lot of times from experience that. The OM doesn't really match up, but when you look at the financials, look at the T12, look at the last few months on what was reported from the seller for the insurance. And I usually take that number and, pad it by 20 to 35%. That gives in most markets, what we're seeing as far as rates going up. Now, when we're looking at like the Southeast or for in Texas, like Houston, Florida, New Orleans. We're seeing rates going up 200%. It varies down there a lot, but typically, that 30% is just my rule of thumb. And the reason for that one, the increase,two, we don't know what the seller has. We don't know the limits of insurance that they have. We don't know if it's part of a larger portfolio and what kind of deductible. I mean, they might have a hundred or$250,000 or a million dollar plus deductible, which on a larger portfolios we do because we're able to self insure it. But if you're starting off and you're doing an agency loan through Fannie or Freddie, they're going to cap you. They're going to, they're going to max you out at about 25. 25, 000 or 50, 000. So like Fannie Mae and Freddie Mac, they're going to max you at 25, 000 or 50, 000 dollars. So that's going to be a big increase as far as where the premiums can be. And I've had this conversation with Ryan Tyler several times looking at it and the seller was paying this. The seller was uninsuring the properties. We're missing three buildings. Like we can't pick and choose what we want to insure and not insure. So we saw, that a few times. So the big thing is really making sure that we're not over insuring or under insuring the properties. That's been another big problem in the marketplace. Why rates have gone up. There's a lot of properties that have been undervalued That there's not enough money there to, do the replacement costs. So the property is underinsured. So we, we take time going through really doing the schedule values to make sure that, we have adequate insurance there. And listen, we can have enough money in the bucket to say if the building burns down and they do happen. And if you haven't heard stories, there's been times where, two days before Christmas, I'm going through a building that burnt down that are. That they bought two days before because something happened. So we want to make sure that there's enough money that's there, but when we're underwriting these loans too, we're looking all about the cashflow. So keep in mind, if we have a building that's down, it may take 12 months, 18 months to rebuild it. But we still have the note from the lenders, right? We still have all the things to do. So I'm really focusing on the cashflow, like the loss of rents, which is part of the policy. That nobody really talks about it for me. That's the most important because we want to be able to make sure that, we have, revenue coming in. So we continue paying, our expenses. Yeah. So the big thing is just to have everybody, We'll talk around, you're not going to get solid numbers. We can get ballparks, but you won't get anything really solid until you have the due diligence and you can submit a full package out.

Ciaara: 13:33

Absolutely. That makes sense. So you mentioned, you know how we can underwrite these deals basically we want to increase Whatever the seller's cost is increase that by 20 to 30 percent for underwriting I think that's a big key for us because you know as investors a lot of times it's hard to estimate right now with the cost of insurance going up so quickly, like you said, 200%, it's just, we want to make sure that we have that insurance cost pretty close to accurate because once we get, under contract and we close on the deal and we get, and we have the LOA accepted, at that point

Nico: 14:07

you're in,

Ciaara: 14:08

we need to have, make sure our numbers are good and we're getting those returns that we need for our investors and we're able to create cashflow.

Nico: 14:14

Yeah. And I would just say there's a word of advice too. So when we go through that and depending on the market so not everywhere across the country, it's going up, 200%, but like again, down in Houston, we're seeing large increases and depends, if. They're on the old program, grandfathered in or not, but, we're seeing increases there, but you want to have that ballparking and doing that cushion helps. And I can say when you're doing the numbers, like saving a dollar or two on insurance shouldn't be, the deal maker with it. So really look at it. The givens are insurance going to keep going up. Taxes are going to keep going up on the property. Follow the program, do your underwriting on there. I've had to be conservative and be a little bit higher. And if it comes in lower, great. We don't want it the other way where, you know, back in the day, I remember the rule of thumb was 250 dollar a door. Those days are long gone because when I start seeing two thousand a door when we're in Texas, it's, it varies so much and it's really based upon square footage and, the cost per million that we need in the marketplace.

Ciaara: 15:15

I heard this from a property manager. He wasn't an insurance broker, so I just want to verify this information, see if it's true or not. But he said south of the I 10, insurance costs are way higher.

Nico: 15:25

Are you talking about specifically like, Texas, Oklahoma, like that whole area?

Ciaara: 15:29

He said Houston and he even said it was across the whole country, but specifically he was referring to Houston and he said pretty much across the country, south of the I 10. It's like a rule, he said.

Nico: 15:40

Yeah, it's not even such a rule when we look at we look at Houston, we look at New Orleans, those, especially in for 2023, those are the areas seeing the largest increases. And it's because of, again, it was mild last year for 2022 as far as hurricanes, but we also have one of the costs, the costliest or the most expensive, storm come through the first time in 35 years that it broke all the records as far as, how much, how to get paid out and, Even things like flood in those areas. They've seen humongous increases. So yeah, Houston's a high dollar and why everything's been going up the capacity, the amount of insurance that's available, the carriers of the markets that were able to offer terms, we're seeing them pull back. So we have less capacity on what we can ensure. It's not uncommon in my world when we're looking at some of these portfolios that we have several different insurance companies kind of laddering or stacking. Right? So we might be able to get first 5 million from 1, 2 million, 3 million. We need the 5 million. And we're getting coverage from different people to. So they want to spread it out, but when we look at areas like Houston and if you want to use south of it, it is significantly more. So you got to factor it in. We're also looking at an area where there's a lot of older properties, there's some great deals out there cause we're still seeing people picking them up, but you just have to underwrite for them and be prepared. The deductibles have been going up.

Ciaara: 17:08

Absolutely. And so why is it that the replacement costs, like it's showing up as more than the purchase price of the property?

Nico: 17:14

Yeah, so understand, so you're not insuring the ground, right? So we can't replace the dirt. But if we bought a property today, and we want to get it for the lowest amount of square foot we can get it for, right? It doesn't mean that we necessarily, we can rebuild that tomorrow. When we look at how much insurance we need to do, it's based upon what the replacement costs and there's engineering software that we use and all the insurance carriers do. When you get your appraisal, which is usually right before The closer to when you get to closing, so you can see it on there and, based upon the square footage to make the composition, what we have, that's hype of shingles. This is how much it would cost a square foot. And we've been seeing that go up as labor costs, material inflation, all this stuff has been going up. Yeah. So folks were insuring properties for 70, 80, maybe 90 dollars per foot. I'm sorry, but you can't, you, you can't rebuild it. So that's 70, 80, 90. We're now seeing 120, 135, 150 in certain parts of the country, like even on the West coast, we're seeing, 150 to two, which is, again, it's not uncommon. It's the cost of material. So we're just looking that if a property were burned down tomorrow, how do we bring ourselves whole to rebuild that today. So that's how they're coming up with the replacement costs with it. And some of the lenders, sometimes they want you to over insure the property and we've had a negotiate with them and have them, push back and let them understand and show the documentation on this is, why we're insuring it for this amount. And we feel totally comfortable because we have the data to prove it. And there's also times where the lenders, they want you to insure less because they only want to cover, maybe the amount that they're financing. So if you're buying a 20 million property and just say you've got 50% equity in it so they only want coverage for 10 million. I'm sorry, but you're still at 20 million worth of property. So something burns down like. You need the coverage for it. So that's when we started looking at really, we have adequate insurance for those but we have been seeing, the replacement costs going up and, more so now, we're pushing back on those from what the carrier wants because, they think everything is custom built and, we got marble countertops and it's really we got pergo down. And we're, getting these on large quantities, we're able to do it and not that like they're builders or economic grade on it, the CapEx that we're doing, it's great material that's being done, but we want to have it in line to really what the, what it's costing.

Ciaara: 19:45

All right, Nico. So I want to switch gears a little bit here and go through maybe a deal, one of those hairy deals that you described that you helped a client get through and was able to close on something or provide insurance for a deal that maybe other people couldn't even do.

Nico: 20:00

Just trying to narrow that down, like I mentioned the story earlier on, getting one where, we didn't have the true history on it and, somebody brought in and it wasn't rated correctly, but, specifically like in the Texas market when we're looking at those, and we had some times where, rates were going up and we had to get things done. Or, initially we underwrote one piece of it I think about two years ago. So I keep a constant eye on the marketplace on what's going on. And, there was a couple of insurance programs where folks were, they were putting every type of portfolio habitational property in there. And the rates were very good. Like, Hey, like if you can get it done you will save some money on it, but watching what was going on, like with the reinsurance, it kept going up a lot of these programs, even with the property management companies and some of them are great, nobody's looking at, Hey. There's a hundred million dollars worth of properties on it, or, and this is how much the deductible is. And if something happens, like there's not enough money for like us to get paid on one property when somebody owns like 25% of the allocation that's there. We looked at those but with those other programs, I was keeping an eye on it. I'm like, we got to prepare. So when we did the initial underwriting, we started padding it even more. Just for the worst case, because I knew when. That master program was going to renew and which I'm at thousands of properties were with this company or this program. And I knew the renewal was coming and I had, friends that were in the wholesale space. And I was hearing some rumbling going on. I'm like, this program is going to blow up and coming back from, the being in banking for years, like I've been through it. So you start seeing certain signs. And then, so we prepared for it short enough. I think that was in March or May and all of a sudden everybody gets noticed. Everybody that's on that program they now have 60 days to go out to go get it replaced. So we're already talking about in an environment where Texas, where insurance rates are going up. There's limited capacity on who wants to play in that space. And now you have thousands of people. So we start looking at supply and demand rates, start shooting up even more because everybody's picking and choosing, thankfully, we were able to, foresee that, get it locked in. We had it in underwriting and we hadn't set. And even with that program, we had to have multiple insurance companies participate on there. But, that's just an example that if we went on the lower end and. Would be anticipating to participate based on historically on what people are paying. We were all in at that point. I mean you can't walk away. They would have lost money in turn where, you know, we were able to get it done. They didn't initially like seeing how much the price of Dor was, which if we look at a year or two later. It's low compared to where it's at now, but it's just having that foresight. We were able to get that done and on time we didn't have to do an extension. That was just, being able to understand the marketplace and really like where it's going.

Ciaara: 23:00

All right, Nico. Thank you so much for being on the show today. Now, what is the process if someone wants to connect with you and just learn more about how they can work with you and the insurance you provide?

Nico: 23:10

Yeah. If anybody wants to reach out, especially if in a program, I'd love to be a resource. They can reach out to me, I got a new line set up. It's 877 87 MYRIO. So M Y R I O for Insurio. And then like my email, they can do it. Uh, I try. I'll try to get back I might be on the East coast. I have plenty of clients in the West coast, so my hours are sporadic. I'll get back. I can help walk you through the process. And even if you work with somebody now and you just want some guidance happy to do it.

Ciaara: 23:44

All right. Thank you, Nico. And thanks everybody for tuning into today's episode. If you guys enjoyed today's show, please write us a five star review on Apple podcasts or Spotify. Every review helps us to reach more and more people looking to get involved in commercial real estate.

23:59

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