December 16, 2022

JF3025: Industry Insights from a Commercial Risk Advisor ft. Robert Band

Robert Band is Vice President of Commercial Insurance at AssuredPartners, one of the fastest-growing insurance brokers in the U.S. that uses risk reduction tools to reduce property and liability risk and premiums. In this episode, he shares his insights on the insurance industry, what drew him to become a risk advisor, and why he is so passionate about his work.

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Robert Band | Real Estate Background

  • Vice President of Commercial Insurance at AssuredPartners, one of the fastest-growing insurance brokers in the U.S. that uses risk reduction tools to reduce property and liability risk and premiums.
  • Based in: CO and FL
  • Say hi to him at: 
  • Best Ever Book: The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
  • Greatest Lesson: When I was CFO, I only knew 10% of what it takes to save real money and time on insurance.



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Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with today's guest, Robert Band. Robert is joining us from Fort Collins, Colorado. He is the vice president of commercial insurance at Assured Partners. Robert is going to share some insights on the insurance industry, as well as risk and premium reduction tips. Robert, thank you for joining us, and how are you today?

Robert Band: I'm great. It's nice to be with you and your audience.

Ash Patel: Robert, great to have you. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?

Robert Band: Sure thing. I am in Miami, Florida native, I went to University of Florida, got my accounting degree, I practiced as a CPA for about 10 years, and then was a controller, then CFO of a few companies, some public, some private, and a couple real estate companies.

Ash Patel: And how did insurance play into this career?

Robert Band: Well, risk is a major part of being a CPA and an accountant, and I just decided after so many years of financial background, I wanted to do something in the risk and insurance arena, and just made the switch, and learned a lot of lessons when I made that switch.

Ash Patel: Why would somebody want to go into risk? You came from real estate, you came from other industries - what was it about risk that attracted you?

Robert Band: Well, part of it was I wanted to take advantage of my financial background, but also be in business development, and out from behind the desk, and in front of the desk, and in front of people, and felt like I had the ability and the background... And I had been a buyer for 20-25 years of insurance, I had the base knowledge, and I said "Well, let me go become a risk advisor and specialize in real estate."

Ash Patel: There's a lot of good books written on flipping houses, syndications, multifamily... Why is there no good books written on how to get the right insurance, how to get the best premiums, how not to be over-insured, or under-insured? Why are these all secrets?

Robert Band: It's a great question, and I'm gonna guess it's two reasons. One is the insurance industry is opaque. It's not an area that people have an appetite for; if there was a book, maybe a few copies would sell. So that's probably the two reasons. But the insurance industry - and you touched on something that is close to my heart - it's not transparent, and we don't know how underwriters do what they do, except that they like low losses, and they like newer construction, and they like new roofs, and new wiring, and things like that. But beyond that, in terms of how to buy it better, how to get your best deal - that's got to come from a broker who's willing to open the kimono and say, "Here's the process that you need to follow, and these are the 40-50 financial levers we need to pull for you in order to get your best deal.

Ash Patel: What were some examples that you later found out, but you got screwed on throughout your career? So when you learned all of the magical insights, looking back, you're like, "Man, why did I do this?" or "They got me on this one."

Robert Band: I've got to believe that in my CFO career I could have saved a lot of money if I knew then what I know now. And when I made the switch to risk, I learned that as a CFO and a detail-oriented CFO, I knew about 10% of what I needed to know. So I didn't know about the warranties, and protective safeguards; I had never read my policy. I'm going to venture most people don't. And there are tricks and traps that benefit the insurance companies in there.

I literally did what most people did - I filled out apps, I gave my insurance broker an SOD, and they came back with quotes. And in between, I had no visibility of what they did. I never even saw a marketing report of who they went to, and what those carriers said. Most carriers decline, a few quote, but there's a process that starts -- it's a year-round process; in my case, we follow a timeline, and everyone's got their roles and responsibilities.

Six months out, there's a loss review, where we go through any losses, and we update the lender requirements and the names insured list, and that begins the six-month renewal process with various milestones. And when you follow that methodical process, and the insured sees what the broker's work is along the way, then the insurer can be confident that they're getting the best deal; because the best deal doesn't come from having multiple brokers running around

and getting quotes.

Ash Patel: Interesting. So what are the mistakes that most people make when identifying a broker, or picking an insurance carrier?

Robert Band: Well, the broker is probably going to pick the carriers based on relationships, knowledge of market, who has an appetite for what. Selecting a broker - I think the best way is to focus on the process. Don't ask them much more than "Tell me about what the ideal state of your process looks like. I want to know what it's going to feel like, what it's gonna look like. I don't want last-minute quotes at the end, 11th hour", and listen to that process... Because just like you underwrite a deal and your listeners underwrite a deal,, there's a discipline process. What does that look like? Is it thorough, is it detailed? Is it transparent? Ask questions, and review their work.

So the beginning of the process is the submission. You will prepare a statement of values; that statement of values needs to be complete. It's not often complete with proper construction replacement cost values. Business income is often misstated; sometimes square footage is even misstated. So these details that are in the SOV are meant to give the insurer a clear picture of what they're insuring, how old it is, what type of construction... The more details, the better. And if you review the submission, then you're approving what your broker is going to market with. When they start marketing it, you want to have weekly meetings. Tell me 60 days out what my initial rate looks like, so when we plan my cash flow, I am not going to get surprised. And then four weeks out, every week should be an update on that rate and what's going on, and the improvement that the brokers made to that rate. And a couple of weeks out should be the deadline for the quotes. So details is something that's often missing.

So what's important to an underwriter - they want a good submission. If you imagine a shoebox with a bunch of papers in it, versus a submission that's tied up with a ribbon, the beautiful one's going to get their attention, and their best effort.

Ash Patel: So what should we be providing to the broker?

Robert Band: I'll give you the list. Let's say that this is a first year on an account. I as a broker am going to ingest a lot of information, starting with the statement of values. Because the statement of values will have every property on it, and then that gives us a picture that we're gonna go to the underwriters with, which will tell us, once we slice and dice it, whether a master policy will make sense, whether maybe a master and a couple of separate makes sense, the separate ones being high-risk states like Florida and Texas. The lender requirements... Sometimes the capital stack has four, five, six players; we need to know their requirements, and we need to decide whether we get a master policy at the highest of those limits, or whether we get separate policies to placate certain of those partners and lenders.

The names insured list is very important; so the corporate chart, who owns what, so that the entities that own the property and the entities that own those are insured. Loss runs - always a nuisance for insurance, but it's the number one thing that underwriters are going to start with. [unintelligible 00:09:49.27]

Ash Patel: What are loss runs?

Robert Band: When an underwriter starts on an account, they want to see five to seven years of loss runs. So that means going back to the insurer's property, liability, whatever the policy was, and going back to those carriers and getting updated loss runs, which is going to reveal what claims there were, whether they're open or closed, how much was paid, and how much is reserved if they're still open. And when you take the historical losses and divide it by the historical premiums, that becomes a loss ratio. The insurance companies want that to be below 50%, because if they're paying out more than that, they've got the expenses of running their business, of adjusting claims, and if they're running higher than 50, they're going to view that as a high risk account.

So loss prevention is a big key; loss runs, keeping track of who your insurance companies were year over years, and who the broker was. Because you're gonna go to the broker of the fifth-earliest year and say "I need loss runs from 2016 to 2022." And then you go to the next one; if you had the same broker all the way through, you get it from them. So tracking and keeping loss runs and knowing who to go to every year for updated loss runs is good.

Break: [00:11:20.13] to [00:13:21.24]

Ash Patel: Robert, I've got a lot of fellow investors in Florida, and they're expecting a 75% to 100% increase year over year in their insurance rates. What's going on with the future of coastal areas?

Robert Band: Well, until climate change reverses, it's probably here to stay. I don't think we'll see that level of increase-year-over year... So what are the hot buttons right now for insurance companies? Replacement cost estimates, roofs. We just came back from meeting with 16 carriers; those are the two hottest buttons on their list.

Replacement costs... Why? Because prior to the pandemic, replacement costs and inflation was low, there weren't supply chain issues, and replacement costs didn't migrate year-to-year materially. Now, we know what wood and steel are doing their way up, they're down a little, but clearly, the replacement costs are higher, and insurers should accurately cost out the replacement cost, because that's what insurance carriers base their premiums on, and that's what they're going to pay out when there's a claim; they're going to replace what's there.

So with climate change and weather events, these are catastrophic areas - Florida, Texas, California. Even the Midwest, with convective storms, tornadoes, hail storms etc. are worse than they used to be. So property rates are probably not going to go down anytime soon. The insurance costs companies pass off some of their risks to reinsurance companies. And those reinsurance companies have paid out claims that they never expected to pay out in recent years. Why? Because replacement costs are higher, and when it comes time to pay a claim, they thought they would be paying over a $10 million limit, and the property was insured for 4 million, way under-insured, and it comes in at 18 million replacement costs... So now this reinsurer is paying 18 minus the 10 that they attached that. So now they're increasing the rates on the insurance companies, and the insurers are passing that on to the policyholders.

Roofs - now, insurance companies are demanding newer roofs, at a much younger age. They have new technology, they have drones, they have Google Earth, they have many ways of looking and seeing the condition of a roof, whether there's puddling, whether there's decay, and they don't want to insure a bad, old roof. So they'll change from replacement costs to actual cash value, which is way less than replacement cost. So essentially, an insured with an older roof, that's not acceptable to an insurer, is virtually self-insuring their roof, if in fact the insurance company gives them [unintelligible 00:16:24.08]

Ash Patel: Man, that's a lot to deal with.

Robert Band: The two hottest buttons is rates are going up, the reinsurance treaties that renewed in the summer of this year didn't go well rate wise... So going into Q4 and early 2023, insureds can expect material rate increases.

Ash Patel: Yeah, we're seeing that. With the financial industry, a lot of brokers get kickbacks, depending on where they deploy your capital. Is that similar with the insurance industry?

Robert Band: I have never heard of any kickbacks in the insurance industry.

Ash Patel: Okay. So it's pretty legit.

Robert Band: We are brokers; we are accountable to the insured and the insurance company. So we have to play by the rules. And we get commissions for placing a policy... We can charge fees, by the way, and not get commissions, but the insured is going to pay us the fee.

Ash Patel: So do different insurance companies pay different commissions? And does that sway the decision of the broker?

Robert Band: I've never seen it sway a decision in our real estate vertical in our company... Because there's so few carriers now, especially in Florida, Texas, California, we've got to go to the ones that we know have an appetite, and we're always meeting with new ones and updating the old ones' appetite... So we've got to get coverage; it's not so easy anymore to get coverage.

Ash Patel: It's not Wolf of Wall Street.

Robert Band: Generally, the condition percentage is within one or two points. So maybe this one may pay X and the other may pay X plus 2%. It's not material, and it's not the driving force for our decisions.

Ash Patel: Understood. What does Assured Partners focus on?

Robert Band: Well, Assured Partners is the fifth-largest property and casualty advisor in the country. So we have numerous verticals; the biggest are real estate, transportation, energy, senior living, construction... There's others, but those are some of our largest. And we're in all 50 states, obviously, and lots of resources.

Ash Patel: Is there a minimum asset value to come on with you?

Robert Band: No, because like any large broker, we have the property and casualty side of the business, there's the employee benefits, which is life, health and disability and 401k, there's personal lines, so homeowners and auto, and then there's small business. So within the property and casualty, at least in our company, there's the small business unit, which handles smaller accounts, and any size, real estate portfolio or assets... And then there's the core PNC, which are larger accounts.

Ash Patel: Your thoughts on umbrella insurance for personal and business?

Robert Band: You need it. But it's also much more expensive than it used to be. And why is that? So there's a term called social inflation, that we hear a lot in the insurance industry. It means that plaintiffs are getting more favorable judgments. So what used to be under a million dollar judgment is now piercing that and going into the umbrella layer. So with that, if you have a general liability limit of a million, a million isn't that much anymore. So if you're an individual, maybe you look at your assets and your net worth and you say "Well, if they depose me and they know what I'm worth, they go after a bigger judgment, so maybe I need a 2 million umbrella, 5 million umbrella." And similarly on commercial property; one just needs to assess what their risk is, and what their risk tolerance is. Some people have a high risk tolerance, some have a low risk tolerance. Loss prevention though is the number one. So on liability, if you walk around your house, or you're outside of the house, or your commercial property, what could go wrong? Whatever you think could go wrong, and sticking up out of the ground, or whatever - that should be fixed. Because if it could go wrong, it probably will at some point. So the goal is never have a loss, but if you have one, have insurance in case.

Ash Patel: Robert, what is your best real estate investing advice ever?

Robert Band: Well, I think beyond location, follow a disciplined process, don't overreach; the money is made on the purchase, not the sale. Run the property well, maintain it, protect it, and follow an underwriting process and follow a management process; once it's an operating property, use good contractors and professionals. Trust them, but hold them accountable. Blind trust can be a dangerous thing.

Ash Patel: Good advice. Robert, are you ready for the Best Ever lightning round?

Robert Band: I'm sitting down. Let's roll.

Ash Patel: Alright. Robert, what's the Best Ever book you've recently read?

Robert Band: I loved Snowball. It's a biography of Warren Buffett.

Ash Patel: Robert, what's the Best Ever way you like to give back?

Robert Band: I'm a Philantro investor. Philanthro investor is a movement to awaken the philanthropists in all of us. But it's not giving to charity, it's investing for a return, but investing in businesses that help people and the planet. So it's using our money to do good, and in the process do well, and I am a founder in Colorado and an ambassador. I help turn other people onto Philantro investing.

Ash Patel: And Robert, how can the Best Ever listeners reach out to you?

Robert Band: My email is [at], and my phone is 305-467-5909.

Ash Patel: Robert, I've got to thank you for your time today, giving us some insights on the insurance industry. You were a CPA, became a CFO, and were drawn to risk, you're passionate about it... So thank you for sharing a lot of that insight with us today.

Robert Band: It was my pleasure, and it was nice meeting you, and your audience, and thanks for having me.

Ash Patel: Thank you again,. Best Ever listeners, thank you for listening to us. If you enjoyed this episode, please leave us a five star review, share this episode with someone who you think can benefit from it. Also, follow, subscribe and have a Best Ever day!

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