11/16/2020
Crime scores. This new metric is now being employed by liability carriers to price rates. And, depending on the outcome, the results can be devastating.
In this article, Pathfinder Multifamily delves into the issue of crime scores by answering several questions.
How Are Crime Scores Influencing Liability Carriers?
Early 2018 marked the first time Pathfinder Multifamily noticed that insurers started paying attention to (and inquiring about) crime scores. At the time, we lacked visibility into the impact on liability coverage because the sample size wasn’t large enough to make the data meaningful.
Today it's clear that if you own assets in transitioning areas, crime scores will have a significant effect on liability insurance rates.
Independent data companies are monitoring crime statistics closely and selling information to insurance organizations. Carriers, in turn, use that data to predict the probability of a crime occurring, paying particular attention to violent crime, which often results in liability demands against apartment owners. Insurers are penalizing locations with “undesirable” crime scores, and the impact on renewals can be felt. Rates are doubling—or even tripling.
What Is a Problematic Crime Score?
Different carriers have different requirements, so no single number marks the line between an acceptable crime score and one that triggers ineligibility.
However, there is a general threshold that indicates trouble.
On a scale of 1 - 100, a crime score of 60 - 70 is concerning. If you have a property that falls within this range, don’t be surprised if your insurance company declines a renewal, forcing you to purchase coverage from carriers with higher rates.
Which Owners Are at Risk for High Crime Scores?
High crime scores generally tend to have the biggest impact on two types of multifamily property holders:
Those who leverage a value-add model, purchasing assets in need of renovation and/or repositioning
Those who own older communities located in transitioning areas
The commonality between both groups is location.
In general, assets located in transitioning areas tend to have higher crime scores. If your property was built in 2000 or later, based on what we’ve seen thus far, you’re less likely to be negatively affected by this metric. However, if you have assets in your portfolio built before 1990, liability rates may become steep.
What Should Multifamily Professionals Do?
At this point, the path forward is adaptation.
Adaptation in your underwriting. Adaptation in your budgeting.
This is where a true risk management partner like Pathfinder Multifamily is invaluable. We help clients get ahead of materially impactful changes, empowering our clients to better manage asset performance.
Insurance companies will never unlearn the benefits of incorporating crime scores into decisions. Carriers have improved their modeling and can expect better financial performance.
What Are My Assets' Crime Scores?
Ignorance is not bliss. Once you know your crime scores, you can prepare for potential changes in your liability insurance rates. Having access to crime-score information is also valuable if you’re considering a new purchase.
If you’re curious about where your assets land, please reach out. I can provide crime scores for your communities and review the results with you to estimate the impact going forward.
Should your scores break 60 - 70 and trigger ineligibility, I can help you find options.
This is a new, but crucial, metric. It’s time to start talking about it.
