Skip to content
Risk Mitigation

Lender Insurance Requirements

The Baldwin Group
|
Updated: April 24, 2024
|
1 minute read

In today’s dynamic real estate landscape, it has become increasingly crucial for property owners and developers to meticulously examine, understand, and potentially negotiate their lender’s insurance requirements. The paramount objective for both the property owner or developer and their lender should be aligned—safeguard the asset with proper insurance coverage.

Key considerations

Here are some common negotiation topics to consider when reviewing your lender’s requirements:

Umbrella limits

The cost per-million remains high. Some previously executed loan agreements include excess/umbrella limits once more readily available and cost-effective limits that are now more difficult to secure and potentially cost prohibitive.

Catastrophic weather (CAT) limit

It is essential to work with your advisor to obtain CAT modeling data. Despite increasing weather events, not all geographies and assets pose the identical risk for earthquake, windstorm, flood, and convective storms. The goal should be appropriate CAT limits commensurate with your geography and construction type.

Deductibles

The once ubiquitous $10k-$25k all-risk deductibles are increasingly more difficult to achieve, especially on wood frame, residential, and industrial assets. If available, they may come at a significant cost. All owners should prepare for higher deductibles on all-risk, water damage, and CAT events that may require lender negotiation.

Phased construction policies

Some construction lenders do not readily accept a phased policy approach, wanting the totality of a project’s risk insured at once. Their concerns are not without merit and can often be quelled with proper placement, negotiation, and accurate policy limits.

Key takeaway:

A borrower must comply with their lender’s insurance requirements—this piece by no means suggests noncompliance. However, challenging market conditions coupled with often boilerplate lender insurance requirements may create an insurance situation that warrants discussion and possible variance from standard issue lender insurance requirements. Your advisor should assist you by collaborating on the proper due diligence and negotiation needed to achieve satisfactory resolution and continued compliance.

We’re here for you with more tips and information regarding lender insurance requirements.
Authored by: BRP Construction Practice Group Sarah Shepard McGuinness, Partner


Tags in this resource

Construction construction insurance developer lender lender requirements
Related Insights

Stay in the know

Our experts monitor your industry and global events to provide meaningful insights and help break down what you need to know, potential impacts, and how you should respond.

Provide a Safe Working Environment
Preventing workplace violence Workplace violence is an unfortunate reality for many businesses, and it can take many forms, including physical...
Risk Mitigation
You’ve Decided to Repurpose Your Commercial Property – Now What?
Know and protect your evolving risk We’ve talked about the risks associated with repurposing your commercial property and how vital...
Navigating Coverages
Managing the Loss of Homeowners Insurance
Manage the potential loss of homeowners insurance A homeowner’s insurance policy helps provide financial security against damage to your home...
Management Liability
Instill Confidence with Thorough Due Diligence
Private Equity Insurance and Employee Benefits M&A Due Diligence Navigating the art of the deal As the economy continues to...
Strategy
Are Your Business Insurance & Employee Benefits Teams Talking? They Should Be
Build an effective insurance strategy with confidence Ensuring the long-term success and safety of your business means regularly managing multiple...
Let's make it possible

Partner with us to build solutions that align with your business, individual, or employee needs and open new possibilities for your future.

Connect with us