One of the most prominent trends in the investment property insurance market is the increasing reliance on data analytics and advanced technology by insurance companies – and it’s no surprise why.

According to research by APE Analytics, insurance companies that actively use AI and machine learning have seen loss ratios improve by 5% through reduced claims and premiums rise by up to 15% due to better risk assessments.

“Insurers are using third-party data, including drone imagery, to detect excess debris and roof concerns on properties,” said Michelle Aflalo (pictured), a broker and agent at Ives Insurance. “One of our insurance companies has infrared technology that can detect moisture on a roof, so it can tell you if there is mold growing on the roof, which can lead to other issues.

“Basically, they use this technology to go and inspect properties before the actual underwriting starts. What used to happen was we would write the policy, the insurance company would do an inspection, and then the client would have a certain amount of time to address any issues. Now it’s different; everything happens pre-underwriting.”

This technological integration into underwriting has led to a more rigorous approach on the part of insurers, who now have access to more detailed risk assessments even before a policy is written.

“We are seeing more declines, unfortunately,” Aflalo explained. “Carriers are becoming more conservative because they see all these red flags; they are taking advantage of the data they are getting, which allows them to better assess risk and be more selective about certain things to help them mitigate their losses and enable them to stay in the market.”

“The hope is that as these technologies continue to evolve, they will lead to a more dynamic rating system, where risks are more accurately priced rather than simply discounted by preferred markets. However, the current state of the market is one of caution and restraint. Having faced large losses from natural disasters and other unforeseen events, insurers are wary of taking on too much risk – leading to a rise in policy declines, especially in high-risk areas.”

On the client side, these trends are transforming how property owners approach their insurance needs. With rising prices and fewer policies, there is a growing demand for more customized insurance solutions.

“Before, it was very easy, we knew what the insurance company wanted, so we could say, ‘Let’s put you in their preferred condo or property program; you fit into their box; you’re going to get comprehensive, comprehensive coverage,’” Aflalo added. “Now, people are getting turned away, and we have to go to more unacceptable insurers with more exclusions and higher rates. So now customers are saying, ‘Well, wait a second, can I reduce coverage? Make changes? Can I increase my deductible?’ So we’re starting to move toward creating more customizable programs/policies.”

One of the most pressing issues Aflalo faces as a broker is balancing providing comprehensive coverage with keeping premiums reasonable. But the industry’s response to rising risks has been to cut or limit coverage, a trend Aflalo finds troubling. This trend toward reduced coverage has significant implications for policyholders, especially those with large portfolios. Such restrictions can leave investors with significant coverage gaps, especially as construction costs continue to rise.

The devil, as they say, is in the details, and Aflalo knows this all too well. She stresses the importance of understanding policy wording, especially when it comes to including new limitations in policies. Aflalo also points to the increasing prevalence of water damage exclusions as another area of ​​concern. “In the past, water damage coverage often extended to the maximum limit of the entire building. But now some companies are saying they will only provide a minimum limit for water damage claims.”

Litigation is another factor driving up costs in investment property insurance. Aflalo notes that the rise in lawsuits between tenants and landlords has prompted insurers to exclude habitability from liability coverage, a critical area of ​​protection.

“The increase in habitability-type claims, whether or not they were well-founded, has prompted carriers to say, ‘We have to put a stop to this, and one way to do that is to stop offering habitability coverage,’” she said.

Despite these challenges, Aflalo and her team at Ives Insurance Services are finding ways to navigate the increasingly turbulent landscape. This approach includes working closely with insurers to develop sensible coverages that provide the necessary protection without compromising affordability.

“As a property insurance broker, it’s very important for me to understand what’s going on in the ever-changing world of real estate and property management,” she said. “I always say it’s a balance between having coverages that make sense versus just trying to get the cheapest rates out there.”