Latest / Own More Doors / #12 Why Insurance Rates Are Skyrocketing in California (Michael Leone)

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#12 Why Insurance Rates Are Skyrocketing in California (Michael Leone) · Own More Doors

0:00
SPEAKER_01: If you're a property owner, what's been happening is either your insurance has been uh expiring, they've called you, they're not going to renew your insurance, they've raised the premium, and you're panicked.
0:13
SPEAKER_01: Tune in to today's podcast where we'll do a deep dive into the world of insurance.
0:18
SPEAKER_01: Why here in California are insurance rates going up?
0:22
SPEAKER_01: Why are insurance companies leaving?
0:24
SPEAKER_01: And what should you do as a property owner to put yourself in a position to navigate these insurance waters because it's been very difficult.
0:36
SPEAKER_01: Um, I have my good friend Michael Leone here with Fuller Insurance.
0:40
SPEAKER_01: And it's been interesting, Michael.
0:41
SPEAKER_01: So I'm gonna um thank you for being here, by the way.
0:43
SPEAKER_01: Oh, thank you as well, Well.
0:44
SPEAKER_01: I appreciate it.
0:46
SPEAKER_01: A lot of my clients are calling me and they're like, hey, Juan, uh, I need an insurance guy.
0:50
SPEAKER_01: Um, my current insurance, they're gonna cancel my my property insurance.
0:55
SPEAKER_01: Uh, they told me that on this date it's done.
0:58
SPEAKER_01: I need insurance.
0:59
SPEAKER_01: Who do you have?
1:00
SPEAKER_01: And Michael, you and I have had a relationship for many, many years uh in the world of insurance, but also in the world of real estate.
1:06
SPEAKER_01: Uh, you're a friend, you're a client of mine.
1:09
SPEAKER_01: Uh, tell me what the heck has gone on in the insurance world because I'll tell you this.
1:16
SPEAKER_01: Up until this point, when I sell a building and we need to determine the gross income, we need to determine the operational expenses.
1:26
SPEAKER_01: The insurance was just a small line item, no big deal.
1:29
SPEAKER_01: Hey, yeah, you got to pay insurance.
1:31
SPEAKER_01: Um, you know, it was just kind of no one cared about it.
1:35
SPEAKER_01: It was very boring.
1:36
SPEAKER_01: Now I'm going into escrow's and buyers are saying, hey, my contingency is my ability to get insurance on that 12-unit building.
1:46
SPEAKER_01: Otherwise, I'm not buying it.
1:48
SPEAKER_01: And there's this big fear like, oh my gosh, like all of a sudden people are worried about can I insure my property or not?
1:54
SPEAKER_01: That was never a concern.
1:57
SPEAKER_01: What the heck happened?
1:58
SPEAKER_01: What got us to this place?
2:00
SPEAKER_00: Yeah, I mean, obviously, uh, some excellent questions.
2:04
SPEAKER_00: So, you know, kind of going back, I would say, uh roughly about three or four years ago, right?
2:10
SPEAKER_00: I mean, we started seeing uh a couple scissors a little bit kind of with the market, right?
2:14
SPEAKER_00: I mean, uh, you know, it was, you know, normally kind of going to rates and in premiums at first, uh, you know, premiums would increase.
2:23
SPEAKER_00: Normally, you know, three, five percent.
2:25
SPEAKER_00: Everyone's kind of used to that.
2:26
SPEAKER_00: And then all of a sudden it'd be 10% or 12%.
2:29
SPEAKER_00: And and then you'd hear maybe one or two carriers would cancel, no big deal.
2:32
SPEAKER_00: You know, maybe they weren't major, major carriers.
2:36
SPEAKER_00: And then all of a sudden it was kind of like, okay, well, now I have this recommendation.
2:41
SPEAKER_00: I I'm in a I'm an apartment owner in in Long Beach here.
2:44
SPEAKER_00: And now why am I being canceled?
2:47
SPEAKER_00: Because my electrical panels uh, you know, the wrong type, or my building's too old, or so you know, everything was just kind of slowly culminating and coming to a head.
2:59
SPEAKER_00: Uh so you know, the rates were going up.
3:02
SPEAKER_00: The rates were going up as a function of a couple things, right?
3:04
SPEAKER_00: So kind of going back to that a little bit.
3:06
SPEAKER_00: So, you know, claims right now are just more or less through the roof, right?
3:10
SPEAKER_01: Um so, Michael, for our listeners, let's let's try to simplify that.
3:14
SPEAKER_01: What what does that mean that claims are through the roof?
3:17
SPEAKER_01: Like what is exactly happening that makes you say that?
3:20
SPEAKER_00: Yeah, so uh I'm kind of dating myself here, but if we go back a little bit to the 70s, there was a lot of claims on apartments, rental properties for mold.
3:29
SPEAKER_00: This is obviously before I was in the business, but uh so that was a big hot hot topic.
3:35
SPEAKER_00: Uh, you know, land uh landlords were being sued by attorneys for mold, and that was a big thing.
3:39
SPEAKER_00: So then insurance companies started excluding coverages for mold and then having some coverages or limitations for water damage and things of that nature.
3:46
SPEAKER_00: And that was the thing at that time.
3:48
SPEAKER_00: And then kind of fast-forwarding a little bit to like the 90s, then it was water damage claims, right?
3:52
SPEAKER_00: Every, you know, uh uh water damage claims became a lot more prevalent, broken faucets.
3:58
SPEAKER_00: Uh, if you have a condo association, right, there'd always sometimes be a claim uh where the unit owner is fighting with the HOA because there's a pipe that burst.
4:08
SPEAKER_00: Well, who owns the pipe?
4:10
SPEAKER_00: Is it the condo owner?
4:11
SPEAKER_00: Is it the HOA?
4:12
SPEAKER_00: You know, and then that just created a bunch of problems for the insurance companies.
4:16
SPEAKER_00: And then they started having uh a lot of exclusions pertaining to water damage and things of that nature.
4:22
SPEAKER_00: And then kind of fast forward even 10 years on top of that, where you're starting to see tenants file major, major lawsuits.
4:32
SPEAKER_00: I mean, we go up around Long Beach, we go off the 405-710.
4:36
SPEAKER_00: I mean, if there's an uh an attorney on every billboard, right?
4:40
SPEAKER_00: Uh, you know, slip and fall claim, call this attorney.
4:43
SPEAKER_00: Hey, you're you're having a problem with your landlord, call this attorney.
4:47
SPEAKER_00: And at the end of the day, I mean, there's some culpability both ways, right?
4:50
SPEAKER_00: I mean, yes, landlords should be responsible.
4:53
SPEAKER_00: They're providing housing, they should keep the units in very good condition as best as they can.
4:57
SPEAKER_00: They're providing housing to the public, that's their responsibility.
5:00
SPEAKER_00: Okay, that's no problem.
5:02
SPEAKER_00: But obviously, with any business, you have a couple bad characters and a couple bad apples, and then right or wrong wrong, you know, they're they're causing these nuclear claims, and the insurance companies can't just pay 300, 500, a million dollars when the client's policy is say 3,000 bucks on a 12-unit apartment.
5:25
SPEAKER_00: Well, obviously that does not become you can't operate a business when you have, say, four of these a month, five of these a month, and then eventually it becomes sometimes 15, 20.
5:35
SPEAKER_00: I mean, I've talked to some carriers, I'm not going to name the names.
5:37
SPEAKER_00: I mean, they've had, I know one carrier that had literally um more than a handful of million-dollar claims on their books on policies that they were literally charging$3,000 on or less in some cases.
5:49
SPEAKER_00: So uh kind of fast forward that to say 20 years later, and that's why you have a carrier such as maybe State Farm, kind of just say, you know, enough's enough.
5:58
SPEAKER_00: We can't make a profit.
6:00
SPEAKER_00: We can't stay in business in California.
6:03
SPEAKER_00: We're having problems with the state.
6:05
SPEAKER_00: We're not being, we're not able to negotiate with the Department of Insurance to collect the right premium to charge the consumer.
6:12
SPEAKER_00: And then you're getting pushback from the Department of Insurance that's selling State Farm and other carriers as well.
6:17
SPEAKER_00: Hey, you can only charge so much.
6:19
SPEAKER_00: This is the law that we've set.
6:20
SPEAKER_00: Sorry, Charlie, this is what you're gonna have to do.
6:24
SPEAKER_00: Well, if you're not able to negotiate that correctly, then any carrier, whether it's state farm or someone else, and I can say state farm, I think, because you know, obviously it's in the public's uh domain that they've had uh unfortunately 43,000 policies that are apartment policies that they're obsessively having to cancel here in our state.
6:43
SPEAKER_00: So that's creating a lot of pressure, that's creating a lot of scissors, creating a lot of issues in the market.
6:48
SPEAKER_00: And then the carriers that are left, uh, which is not very many anymore, are having to raise their rates because they're gonna say, well, if we are gonna stay in business and we are gonna be the ones that are basically gonna, you know, run towards the house that's burning when everyone else is leaving, well, then obviously you want to get compensated for it.
7:04
SPEAKER_01: And for the carriers that are left, the Department of Insurance is allowing that premium to go up now?
7:10
SPEAKER_00: I mean, yes and no.
7:11
SPEAKER_00: I mean, the some of them, so you have what are called, without going into too much grave detail, you have what are admitted and non-admitted carriers.
7:17
SPEAKER_00: So the admitted carriers have a lot of limitations.
7:19
SPEAKER_00: Some of the non-admitted carriers can still do certain things because they're maybe not uh exactly domiciled in the state of California, but they're still under the umbrella of insurance of the United States or in the world, so to speak.
7:31
SPEAKER_00: So uh, but no, everything more or less still has to get approved.
7:35
SPEAKER_00: It's just um, you know, certain carriers have certain levels of flexibility that maybe your more house name carriers, your mercury insurances, your state farms, your farmers that can't uh that can't uh um offer the right uh or or offer a more competitive premium to.
7:55
SPEAKER_00: And uh it's just create a big mess.
7:57
SPEAKER_00: Um, I mean, literally I have clients that are sometimes going from a three or four thousand or a five thousand dollar premium on their apartment to being canceled.
8:05
SPEAKER_00: And whereas before it was like, okay, I have an option for you, Mr.
8:08
SPEAKER_00: Client.
8:09
SPEAKER_00: It's still good insurance, it'll take care of the lender, it'll get you where you need to go, and now it's six thousand.
8:15
SPEAKER_00: Well, now it's eight thousand, ten thousand.
8:18
SPEAKER_00: I mean, uh, you know, I mean, we have a mutual friend and client whose premium literally went from, I want to say, twelve or thirteen thousand to almost fifty thousand.
8:26
SPEAKER_00: I mean, can you imagine?
8:28
SPEAKER_01: That must have been a huge building to go from twelve thousand a year to fifty thousand a year.
8:32
SPEAKER_00: Actually, you know, I don't know if it was that huge.
8:34
SPEAKER_00: I mean, I want to say off the top of my head, it was maybe thirty or forty units.
8:37
SPEAKER_00: I mean, it wasn't something astronomical.
8:39
SPEAKER_00: Um, but at the end of the day, it's it's it's it's it's all a portion in in relation to your costs and to what your income is.
8:48
SPEAKER_00: But, you know, no one's used to this.
8:49
SPEAKER_00: No one's used to having your insurance guy have to, you know, tell you, hey, your premiums have gone up this much.
8:56
SPEAKER_00: Oh, and by the way, you have to upgrade your plumbing, upgrade your electrical panels, fix your roof.
9:02
SPEAKER_00: I mean, they're just not used to that.
9:04
SPEAKER_00: They're not used to that conversation.
9:07
SPEAKER_00: Clients are used to saying, hey, I still want what I want and I want my premium less.
9:12
SPEAKER_00: And it used to always be one, nine times out of ten, you can do that for your client.
9:16
SPEAKER_00: You can go to that for them if you're a good agent.
9:18
SPEAKER_00: But now, when there's so few options that are available, there's just a lot less places to go.
9:24
SPEAKER_00: You still want to help your client, you can still come up with options.
9:27
SPEAKER_00: But I mean, literally, as I'm standing here talking to you today, there's agencies out there that were in business a year ago that are not in business now.
9:36
SPEAKER_00: And it's not because they don't want to be, it's because they either got forced out, they didn't have enough markets, they were a single broker or agent that had one carrier, and now they're gone because that carrier left and they couldn't either get the right carrier in time, and then you have a lot of agents that are retiring just through the attrition of the business, and a lot of agents are older, and it's just creating a lot of messes right now for everybody.
9:58
SPEAKER_01: Michael, um, you mentioned State Farm.
10:01
SPEAKER_01: Who who else has left California?
10:03
SPEAKER_00: Oh my gosh.
10:04
SPEAKER_00: I mean, one, I I'm kind of dating myself here, buddy, because I've been doing this for a little while.
10:08
SPEAKER_00: Go down the list.
10:08
SPEAKER_01: I just I want for folks who don't know, and I think people do know because again, this year has been all of my clients are calling me, which is weird because typically I'm calling them, but they're calling me saying, I need an insurance person.
10:26
SPEAKER_01: Who do you recommend?
10:27
SPEAKER_01: And I'm like, Oh, that's cool.
10:29
SPEAKER_01: That gets us back on the phone.
10:30
SPEAKER_01: Hey, let's talk about your property.
10:31
SPEAKER_01: So it should be the other way around.
10:33
SPEAKER_01: I should be reaching out to them, but but but they are calling me and they do need my help.
10:37
SPEAKER_01: And it seems like for my just listen, I'm not in the world of insurance, you know.
10:43
SPEAKER_01: It was it, it was like it did not play a big role in my world.
10:47
SPEAKER_01: It does now.
10:49
SPEAKER_01: It does now.
10:49
SPEAKER_01: So sure.
10:50
SPEAKER_01: Going back to my question, what go down the list of uh the ones that you could think of that just are no longer in California.
10:57
SPEAKER_00: I mean, just for one to four units, especially.
11:00
SPEAKER_00: Well, let's let's start for with uh you know, five units and above, right?
11:04
SPEAKER_00: So let's start with apartments.
11:05
SPEAKER_00: I mean, Dongbu, um, now state farm, uh CIG was a big player for a while, CSE, uh, farmers select, farmers.
11:16
SPEAKER_00: Uh I mean, it's just, I mean, it's on and on and on and on.
11:21
SPEAKER_00: I mean, if I had my uh my broker and my owner here, Matt Fuller, I mean he could probably name 50 in the time that it takes me to name five or ten.
11:27
SPEAKER_00: But at the end of the day, it's just it's unbelievable.
11:31
SPEAKER_00: Uh KB insurance is another one.
11:33
SPEAKER_00: There was a lot of ones that were from Korea or from overseas that just, I mean, even recently too, uh, Guard, which is a Berkshire Hathaway company owned by Warren Buffett.
11:43
SPEAKER_00: Warren Buffett, who's one of the richest people in the world, thought he could make a killing getting into property and casualty insurance for apartments and for, you know, uh one to four units.
11:55
SPEAKER_00: And he came to the conclusion when he was looking at his books, I'm sure, with his directors, and he said, there's just no way we're gonna make it.
12:01
SPEAKER_00: And he got out.
12:03
SPEAKER_00: Um, so if that tells you anything, that's that's smart money, right?
12:06
SPEAKER_00: That's more and buffett, that's Berkshire Hathaway, that's public money, that's the stock market.
12:11
SPEAKER_00: And he just said, Adios, I can't do it.
12:14
SPEAKER_00: So uh obviously it's like birds of a feather, right?
12:17
SPEAKER_00: When that starts happening, and then obviously the carriers that have led up to that and the ones that came after all kind of followed into the same fold.
12:25
SPEAKER_01: And so you said your broker could name 50.
12:28
SPEAKER_01: I mean, is it possible that there's a hundred carriers that have left California?
12:32
SPEAKER_00: Oh, uh yes, easily.
12:34
SPEAKER_00: I mean, if if if you know, um if I was probably perhaps more prepared and I came here, I could probably have generated a list.
12:42
SPEAKER_00: And it's not just the carriers, and then you gotta remember too, these insurance carriers own carriers and subcarriers underneath those carriers.
12:49
SPEAKER_00: So they have pairing companies.
12:51
SPEAKER_00: They have there's there's, you know, I you you think of farmers, and farmers is huge, right?
12:58
SPEAKER_00: Farmers owns a plethora of companies.
13:00
SPEAKER_00: Well, farmers is also owned by Zurich, which is one of the largest insurance companies in the world.
13:04
SPEAKER_00: They're based in, I believe, in Swiss or Switzerland.
13:07
SPEAKER_00: So, I mean, everything's interconnected, right?
13:09
SPEAKER_00: It's like the tentacles of of one octopus connect to the other, and it's just created, just and then it puts pressure on our state, right?
13:17
SPEAKER_00: Because then our state, the California Fair Plan is kind of now the kind of go-to option for a lot of clients.
13:24
SPEAKER_00: Well, then you're dealing with another set of problems, right?
13:26
SPEAKER_00: Because the California Fair Plan is so busy, it's state insurance, nothing against the California Fair Plan, of course, but it's just the pipeline of any company that is left, whether it's the California Fair Plan or it's someone else, like like the the few other insurance companies that remain, they're so backed up and they're so inundated.
13:45
SPEAKER_00: It's not a question of meeting the demand, it's a question of having enough boots on the ground and underwriters, and then dealing with the state in terms of how can we come up with a solution in which we can profitably serve these people, help the public, and at the same time handle all the volume that's coming in.
14:03
SPEAKER_00: And it's and it's something truly I could say in in uh almost 20 years of doing this, I've never ever ever witnessed this because the problems that are happening now in the property properties insurance for the one to four units in the apartments is now starting to manifest and it's starting to create problems for auto insurance and home insurance.
14:22
SPEAKER_00: So, you know, if you're only making a dollar and you're losing two, it doesn't take too long before you either go out of business or you have to change gears.
14:29
SPEAKER_00: And that's kind of where we're at now.
14:32
SPEAKER_01: When you're talking about the fair plan, tell us what that is.
14:36
SPEAKER_01: Because I think a lot of people, obviously in your industry, you know exactly what that is and who that is.
14:44
SPEAKER_01: If you could explain that to us.
14:46
SPEAKER_00: Yeah, the California Fair Plan, it's it's state insurance, it's you know, they have a they have a board, it's governed.
14:52
SPEAKER_00: I mean, it's basically it's it's it's paid by taxpayer dollars, and it's also partially subsidized by a handful of insurance companies that kind of you know, kind of backfold the monies into paying in paying into it as well as uh taxpayers like us.
15:06
SPEAKER_00: And it's kind of viewed as the insurance almost of last resort, right?
15:11
SPEAKER_00: So you had a lapse of coverage, you just had a nasty claim.
15:15
SPEAKER_00: You need someplace to go because your career that you're heading now is canceling you, and then most often than not, that would be the next logical option.
15:23
SPEAKER_00: Now, the problem is this is because someone, so many people are being canceled and so many people are being non-renewed, so many more clients with their brokers are going to the California, or brokers with their clients are going to the California fair plane that then they're now they're inundated.
15:38
SPEAKER_00: Like it's literally sometimes taking me months and months just to get a quote on a simple duplex in Long Beach or in Los Angeles, whereas it never used to be like that because they're so backed up, they're so inundated, and it's just it's creating a separate set of problems too for those that just got to find coverage.
15:54
SPEAKER_01: So originally, um, I would say that the lawmakers probably thought, you know what, we're gonna press the Department of Insurance, you know, we're gonna we're gonna press them to make sure that we protect our the residents and we're gonna limit them to the to the increases, and I guess what's typical in politics, it backfires.
16:14
SPEAKER_01: And that's what it's sounding like to me.
16:16
SPEAKER_00: Yeah, I mean, I mean, there's there's there's a little bit of culpability all around, right?
16:20
SPEAKER_00: I mean, could maybe the insurance companies, maybe five or ten years ago, been maybe collectively more proactive.
16:26
SPEAKER_00: I mean, certain ones were more than others, but at the end of the day, it's like, you know, politicians that are going to protect us, right, that are with taxpayers that are voting with with with their with their votes and with their dollars, they don't want the insurance companies to raise their premiums.
16:44
SPEAKER_00: I understand that, but there needs to be some sort of a happy compromise, right?
16:48
SPEAKER_00: Because it's like when you take when you don't applesque a little bit and kind of just make something uh that's feasible or that makes sense cost and business wise for the insurance companies to stay in business to offer the insurance, and now they all collectively make the decision to leave or to stop offering coverage for how long we don't know, right?
17:10
SPEAKER_00: I mean, you always be able to get insurance mostly, but at what cost?
17:15
SPEAKER_00: I mean, who how many people can support a 3X, 5X, 10X premium increase in literally one year?
17:22
SPEAKER_00: It's like you can't almost as an agent, and my world is strictly, I would say it's 70, 80 percent multifamily, right?
17:30
SPEAKER_00: So we can blast email, we can call clients, we can tell them that the wave's gonna, the tsunami's gonna hit the shore.
17:37
SPEAKER_00: Nine times out of ten, they're not gonna swim out to the beach to leave the ocean, right?
17:41
SPEAKER_00: They're gonna stay in the water and they're just gonna say, Oh, we'll just work on it, we'll do it.
17:44
SPEAKER_00: Because that's what they're used to doing.
17:46
SPEAKER_00: Now it's like, no, it's this is like this is Hurricane Five, guys.
17:50
SPEAKER_00: Like you, you, and then you give them solutions, right?
17:54
SPEAKER_00: And then, you know, sometimes your really good clients will listen to the solutions.
17:57
SPEAKER_00: They'll, you know, to kind of kind of segue, like, what's the solution?
18:01
SPEAKER_00: What can clients do?
18:02
SPEAKER_00: What can they do to help their insurance premiums not go astronomically high?
18:07
SPEAKER_00: Well, for probably, and I know a lot of your listeners probably aren't going to want to hear this, but for probably the first time in a very long while, they're gonna have to be a lot more proactive.
18:17
SPEAKER_00: Um, and it's not just the guys that own five units and above, anybody that owns any rental property, whether it's LA, Long Beach, Orange County, anywhere in California, and even those of your clients that own apartments or properties outside the state.
18:31
SPEAKER_00: There's just gonna be a lot more responsibility of the owner to prove that they're worthy to some degree.
18:36
SPEAKER_00: And I hate to say that word worthy, right?
18:38
SPEAKER_00: Because they're paying the premium, they want options, but they're gonna have to show the insurance company that they are a good risk.
18:44
SPEAKER_00: And they're gonna have to prove it.
18:45
SPEAKER_00: And they're gonna have to prove it by having things such as pest control, perhaps property management, professional management of some kind that oversees the properties.
18:54
SPEAKER_00: Um, if they have an older electrical panel, that's maybe I mean, I do so many site inspections, I can't tell you how many times I've seen an electrical panel that's literally the age of the apartment building.
19:07
SPEAKER_00: The apartment buildings built in the 30s, I know that electrical panel is the same age as when the building was built.
19:12
SPEAKER_00: And those are what the insurance companies are trying to stay away from, because they cause fires or they could cause fires.
19:17
SPEAKER_00: Anyway, and it's creating it's creating a mess.
19:20
SPEAKER_00: So now the insurance companies are saying, okay, well, if you want to keep your policy, even if it's gone up, you got to replace that electrical panel and get this.
19:28
SPEAKER_00: As before, we'd sometimes would be able to give the client 12 months to do this.
19:32
SPEAKER_00: Now the insurance companies are saying, sorry, you got 60 days.
19:36
SPEAKER_00: One, it can sometimes take 60 days just to get a permit.
19:39
SPEAKER_01: Right.
19:40
SPEAKER_00: Just to get a permit.
19:41
SPEAKER_00: And that's if you even A get the permit, and then B, your electrician hopefully has the parts to replace it.
19:48
SPEAKER_00: And then C, you're on top of it so much that you can make this happen.
19:52
SPEAKER_00: But so many people are just kind of running their day-to-day lives.
19:54
SPEAKER_00: And if it's not done within 60 days, maybe, maybe you might get an extension, maybe not.
19:59
SPEAKER_00: But then if you get an extension for 30 days and it's not done within the 90th day, maybe if that's the time that the insurance company gives you and you're canceled, now you're trying to find insurance on a canceled policy that's lapsed, and that's creating another set of problems, right?
20:15
SPEAKER_00: Because not a lot of insurance companies want to insure a building that's had a lapse of coverage.
20:19
SPEAKER_00: Now you're dealing with the electrical panels.
20:21
SPEAKER_00: So a lot of the calls that I'm getting now, whereas before it used to be, hey, can you help me lower my premium?
20:26
SPEAKER_00: I'm I'm doing a loan transaction.
20:29
SPEAKER_00: Uh, my loan agents are saying, hey, I need to lower the DCR.
20:32
SPEAKER_00: Call Michael Leon.
20:33
SPEAKER_00: You know, I'd have so many guys at Marcus and MillerCap and and all these guys are great agents.
20:37
SPEAKER_00: They know what they're doing.
20:38
SPEAKER_00: And they'd call me and a lot of the brokers, whereas before it was, hey, help my client lower his premium so he can get more loan dollars to buy his property.
20:48
SPEAKER_00: Now it's like, hey, can you just call my client?
20:50
SPEAKER_00: He's being canceled, just help him out.
20:52
SPEAKER_00: His other agent's not even calling him back.
20:55
SPEAKER_00: His other agent retired, left the business.
20:57
SPEAKER_00: I had one guy call me very recently, a guy that I've known for many, many years.
21:01
SPEAKER_00: His agent apparently didn't even send out a cancellation notice.
21:06
SPEAKER_00: And he didn't even find out that he was without coverage for three months.
21:09
SPEAKER_00: And then he called me.
21:10
SPEAKER_00: Of course, I helped him.
21:12
SPEAKER_00: Took a little time, took about maybe a couple weeks.
21:15
SPEAKER_00: And it's just like it's almost like Mad Max and Thunderdome.
21:19
SPEAKER_00: I mean, I'm dating myself here, but it's just become that crazy and that chaotic where it's like people are just looking to get coverage at a price that's hopefully not 3x or 5x or 10x.
21:29
SPEAKER_00: Maybe it's 2x or it's one and a half, and and it's just, and it puts a lot of strain and tax on the agent and then the staff to you know try to navigate options with everything else that's going along between all the other counsellations and the people.
21:40
SPEAKER_00: And I'll tell you one for every client that calls me, and I'm getting multiple calls per day, calls, emails, texts, referrals, or I have people call me up in Oregon needing insurance in their buildings.
21:54
SPEAKER_00: I mean, just you know, places that never would call, states that never would call, back east, the guy in which the guy in Wisconsin called me the other day.
22:02
SPEAKER_00: It's like the the problems are just Michael.
22:05
SPEAKER_00: They're so astronomical.
22:07
SPEAKER_01: Michael, is this I um I was under the assumption this was a California problem.
22:12
SPEAKER_00: It is, but now it's starting to spread to uh other states a little bit.
22:17
SPEAKER_00: The the big problem, yes, is California, but I'm having, I guess to backtrack, I'm having owners that are in other states, right?
22:25
SPEAKER_00: Wisconsin, Oregon, where they're so used to just calling their local guy or their, you know, and now the local guy that they used to call near the next to where their buildings are is uh is out of the market and he can't help.
22:36
SPEAKER_00: So somehow they just get called the they just land on my desk.
22:38
SPEAKER_01: Those guys are out of state, but they own here is what you're saying.
22:41
SPEAKER_01: Correct.
22:41
SPEAKER_00: Okay, yeah, yeah, yeah, yeah.
22:42
SPEAKER_00: Maybe I should have backed up.
22:43
SPEAKER_00: Yeah, but that's pretty much what it is.
22:45
SPEAKER_00: And there's also buildings that are outside the state in which those guys are calling me too.
22:49
SPEAKER_00: So it's just, yeah, it's creating a little bit of anxiety.
22:52
SPEAKER_00: I I don't need to come into the office in the morning one and have a cup of coffee to uh ease my jitters.
22:57
SPEAKER_00: I need to uh, I don't know, uh become a a wino and maybe drink more good red wine to cause my nerves.
23:04
SPEAKER_01: Sure.
23:04
SPEAKER_01: Uh some people might wonder why would there be any carriers left in California?
23:12
SPEAKER_01: I mean, the majority have left.
23:14
SPEAKER_01: There's some here.
23:15
SPEAKER_01: I know you're in contact with them because you're seem to be the guy that people call when they need insurance.
23:21
SPEAKER_01: Why are they still here?
23:24
SPEAKER_00: So, like with any business, right?
23:25
SPEAKER_00: It's like sometimes you can, I hate to say this, almost you you try to profit or you try to you try to take your hits to eventually get to a softer seal, right?
23:37
SPEAKER_00: So what I mean by that is like right now we're trying to work with certain carriers that maybe never did insure apartments, never were in that market.
23:46
SPEAKER_00: Maybe they had a great product for, say, warehouses or for um certain types of consumer businesses.
23:53
SPEAKER_00: And we're talking to them.
23:55
SPEAKER_00: And again, I credit our our our broker owner, Matt Fuller, who's been doing this for many, many years and who's helped uh uh God for I think 30 or 40 years with uh Agla and uh which is the uh apartment association greater Los Angeles, and he's done a lot of work with them and their owners and their board members where we're trying to bring carriers in that maybe weren't in the apartment business before and going, hey, look, let's come up with something that tries to make sense.
24:21
SPEAKER_00: Maybe we omit certain coverages, maybe we have, you know, maybe we have a stripped-down apartment policy that doesn't give all the exact bells and whistles, but gives just enough.
24:30
SPEAKER_00: And then maybe we can then bring that to the Department of Insurance and go, hey, look, we have a solution that we think will help everybody.
24:37
SPEAKER_00: It'll help the, it'll help the landlords, it'll help the insurance companies, it'll help hopefully you, the politicians, to understand that, you know, obviously the public needs insurance, especially those that own properties, because it's not just the landlords that are affected, it's the tenants that live in those buildings, right?
24:52
SPEAKER_00: It's it's it's everybody that's linked into that chain, right, that gets affected.
24:57
SPEAKER_00: So with that being said, we're hoping that if we come up with a solution that maybe they'll you know open their ears up to listen and we can bring some carriers in that uh maybe weren't doing apartment building insurance before or insurance on one to four units, and uh come up with something that's maybe not got all the caveats we had before, but still some solutions, and hopefully the cost is still you know relatively affordable.
25:20
SPEAKER_00: It's like interest rates one.
25:21
SPEAKER_00: We're probably not gonna go back to 3% interest rates, but obviously 7% or 7.5% is too expensive for most people, especially those that are trying to buy a home.
25:30
SPEAKER_00: Well, uh, you know, to kind of make my analogy, maybe we can find something that's like 5%.
25:35
SPEAKER_00: Well, in our case, maybe we can find something that's in the middle cost-wise, but still give them enough coverage to where they can ensure their buildings properly.
25:41
SPEAKER_01: You know what's interesting is um we primarily represent mom and pop independent apartment owners.
25:48
SPEAKER_01: Sure.
25:49
SPEAKER_01: And the perception is that um they have tons of money, tons of cash flow, lots of equity, lots of wealth, and all they want to do is raise rents and put people out on the streets uh when it comes to eviction, right?
26:04
SPEAKER_01: So there's there's there's this narrative that the um landlord, and by the way, we're now calling them housing providers, which I'm perfectly fine.
26:14
SPEAKER_01: Is that the new is that the new current uh word that we're supposed to use to anyone could use whatever word they want.
26:19
SPEAKER_01: We're choosing to use housing provider.
26:21
SPEAKER_01: And so, and so as a housing provider, there's a lot of things happening.
26:26
SPEAKER_01: So insurance rates, I mean, you're using uh two times, three times, five times the insurance, right?
26:34
SPEAKER_01: So in some extreme cases, we had this happen.
26:36
SPEAKER_01: But it's happening.
26:37
SPEAKER_01: I mean, you just said, hey, someone went from$3,000 a year to$8,000 a year, right?
26:42
SPEAKER_01: So people don't understand how difficult it is to be a housing provider.
26:47
SPEAKER_01: Oh, of course.
26:48
SPEAKER_01: And so then so because then you're telling me, hey, insurance premiums are gonna uh go through the roof, and on top of that, they're gonna make you do repairs.
26:58
SPEAKER_01: Those are expensive.
26:59
SPEAKER_01: You know, when you're looking at a 10-unit building and they're saying, hey, you gotta replace a per panel and you're maybe$5,000 per panel or more, yeah, and you're on a time constraint.
27:11
SPEAKER_01: And oh, by the way, Mr.
27:15
SPEAKER_01: Housing, Mr.
27:16
SPEAKER_01: and Miss and independent housing providers, we have statewide rent control.
27:20
SPEAKER_01: You cannot go past those costs.
27:22
SPEAKER_01: Correct.
27:22
SPEAKER_01: You don't don't even think about passing that cost on to the tenant.
27:26
SPEAKER_00: Yes, and they can't.
27:28
SPEAKER_01: And they can't, and it's very unfair, 100%.
27:31
SPEAKER_01: And then what what ends up happening is um there's certain formulas that we use to come up with value on a property.
27:39
SPEAKER_01: Yeah, and like any other business, we want gross income to go up, we want expenses to go down, and then we come up with a net operating income, and through that we come up with a value using a capitalization rate.
27:51
SPEAKER_01: Um, our gross is limited, expenses are going up, and it forces our NOI down.
27:59
SPEAKER_01: That will then force the value of the asset down.
28:02
SPEAKER_01: Eventually, it doesn't seem like it's happened too much so far, but I know eventually it could.
28:05
SPEAKER_01: It's definitely happening, Michael.
28:07
SPEAKER_01: I mean, I'll tell you right now in the five plus market that we're seeing um um across the board easily 15% reduction in values.
28:15
SPEAKER_01: Um properties are sitting on the market longer.
28:18
SPEAKER_01: Why?
28:19
SPEAKER_01: Well, there's a couple of reasons, right?
28:21
SPEAKER_01: Oh, inventory is up.
28:22
SPEAKER_01: Why would inventory be up right now, Michael?
28:24
SPEAKER_00: Oh, sure.
28:25
SPEAKER_00: Absolutely.
28:26
SPEAKER_00: Interest rates, combination with uh costs going up, you know, limitations on rent control, uh the viability of financing isn't the same as it was before.
28:34
SPEAKER_01: Yeah.
28:35
SPEAKER_00: So people are scared, right?
28:36
SPEAKER_00: I mean, it's the bottom line.
28:38
SPEAKER_01: Okay, so then you have uh more inventory, they're sitting on the market longer.
28:42
SPEAKER_01: And oh at the commercial level, this is the five plus market level.
28:47
SPEAKER_00: Loans are resetting.
28:49
SPEAKER_01: Loans are resetting.
28:50
SPEAKER_01: So five years ago, you got a 3% interest rate.
28:52
SPEAKER_01: Well, now you're being told that it's gonna be different, it might double.
28:56
SPEAKER_01: And so that's resetting.
28:59
SPEAKER_01: You knew that was gonna reset.
29:00
SPEAKER_01: You signed up for that, so that that was a business plan.
29:02
SPEAKER_01: You saw that.
29:03
SPEAKER_01: You may have not seen the insurance cost, uh, you know, 3x, 5x, whatever that was.
29:08
SPEAKER_01: On top of that reset.
29:10
SPEAKER_01: Nor did you know that you were gonna replace your roof because you now you're being forced to replace the roof and the electrical.
29:18
SPEAKER_01: That's gonna force a lot more people to hit the market.
29:21
SPEAKER_01: Inventory is gonna skyrocket.
29:23
SPEAKER_01: And by the way, interest rates aren't kind of coming down anytime soon.
29:26
SPEAKER_01: It doesn't appear to be.
29:27
SPEAKER_01: So it's it makes it tough.
29:28
SPEAKER_01: I mean, sometimes people ask me, like, Juan, like, I mean, I know the people that are selling, I know why they're selling because I hear the same things over and over again.
29:35
SPEAKER_01: And it's it's what we're talking about today.
29:37
SPEAKER_01: Sure.
29:37
SPEAKER_01: That's why they're getting out.
29:39
SPEAKER_01: And then sometimes people say, well, then who the heck is buying?
29:43
SPEAKER_01: Like, why would you why would you go buy that grenade?
29:46
SPEAKER_01: Because they're buying it, right?
29:48
SPEAKER_01: Why would you go buy that ticking time bomb?
29:50
SPEAKER_01: Sure.
29:50
SPEAKER_01: And people are still buying.
29:51
SPEAKER_01: And and obviously there's there's still a lot of reasons why people are gonna buy.
29:55
SPEAKER_01: I think when you're looking at multifamily investments, uh, a lot of us will we're playing the long game.
30:01
SPEAKER_01: Uh, we know that we don't have enough housing.
30:04
SPEAKER_01: We know that although there's rent control, uh, rents will never stop going down.
30:08
SPEAKER_01: So that's always gonna go up.
30:09
SPEAKER_01: So right now, a housing provider could raise rents starting August 1st, 8.9% in some areas.
30:16
SPEAKER_01: Right.
30:17
SPEAKER_01: Other areas, uh LA City is gonna be 4%.
30:20
SPEAKER_01: So I'm just saying, like most of LA Orange County is 8.9% moving forward.
30:24
SPEAKER_01: Many people don't know that, but but that's what they can do if they wanted to.
30:28
SPEAKER_01: And they're going to be raising those rents because although we we have rent control, a lot of people would say, you know what, I know I could go 8.9, and last year it was 8.8, but I'm just gonna do 3% one.
30:40
SPEAKER_01: That's what I'm gonna do.
30:41
SPEAKER_01: Listen, anyone could do whatever they want to do, but you get hit with these insurance premiums, and on top of that, you got the electrical and the roof.
30:49
SPEAKER_01: Um, it's gonna change things.
30:50
SPEAKER_01: And it's there there's definitely a trickle down.
30:53
SPEAKER_01: It's a trickle down.
30:55
SPEAKER_01: Um, I I would say that the housing provider can't pass all of it on and and they won't, but it's having an impact on their cash flow.
31:03
SPEAKER_01: It's having an impact on the value of their asset.
31:05
SPEAKER_00: Sure.
31:06
SPEAKER_00: And just to kind of back up just a tad, I mean, the insurance companies, I mean, they're not, I mean, they're a business like any other business, right?
31:12
SPEAKER_00: I mean, whether you're Starbucks, whether you're Boeing, whether you're in the entertainment field, I mean, everyone's in the business of making money, right?
31:19
SPEAKER_00: We're not a not-for-profit, they're not an off-for-profit.
31:21
SPEAKER_00: You know, I work with the insurance companies, but I also I'm also here for my clients.
31:25
SPEAKER_00: My clients depend upon me.
31:27
SPEAKER_00: Um, but just to kind of back up, it's like before, if a tenant had, I'm sorry, tenant, if a landlord had, say, a building with a 15 or 20-year roof, if it was in relatively good condition, everything's fine.
31:40
SPEAKER_00: It's it's the guys that, you know, whereas before the insurance company would look at their roof and go, okay, maybe just replace a few a few shingles.
31:48
SPEAKER_00: Well, now they're afraid of the water damage, right?
31:50
SPEAKER_00: They're afraid of the rains that we're that we might get towards the end of this year or next year.
31:54
SPEAKER_00: So now they're saying, well, look, we can no longer just allow the client to just repair the roof.
31:58
SPEAKER_00: We want to replace because we want to safeguard ourselves in case the roof caves in because the water's so bad that the guy needs a whole$50,000,$100,000 roof replacement, depending upon the size of the apartment building.
32:08
SPEAKER_00: So some of the requests aren't insane, really, per se.
32:12
SPEAKER_00: It's just a clients aren't used to being told that they have to do something in this regard, which I understand, right?
32:20
SPEAKER_00: And they're not, and then some people's cases are so bad.
32:23
SPEAKER_00: Like I know many clients where it's like they have to replace the roof because I mean, granted, maybe it's 30 years past its useful life.
32:30
SPEAKER_00: Maybe it should get repaired, right?
32:32
SPEAKER_00: Maybe it should get replaced, right?
32:33
SPEAKER_00: I mean, but every landlord could be a little different, right?
32:36
SPEAKER_00: I mean, some are very responsible, very proactive.
32:38
SPEAKER_00: They put a decent amount of money back into their properties because they're providing good housing.
32:42
SPEAKER_00: And then you got some landlords, very few, I'm not saying most, they just want to extract every dollar they can.
32:48
SPEAKER_00: And it's just, and it's just a cash box for them.
32:51
SPEAKER_00: So what the insurance companies are trying to do is they're trying to say, well, let's let's let's get away from the guys that maybe just want to use the insurance as a cash box and just a tool for us as the insurance companies to make these repairs for them that they don't want to make.
33:03
SPEAKER_00: Because it's unfortunately one, it's guys that are in that small segment that do that, that blow it up for everybody.
33:09
SPEAKER_00: That's why your home insurance has gone up, that's why mine's gone up, that's why our, you know, the few units that we everything's going up as a result of that.
33:16
SPEAKER_00: But then what happens as a result of that is it just manifests, it just, it just folds up, it just grows from there into other areas.
33:23
SPEAKER_00: Um, so that's kind of just backing up.
33:25
SPEAKER_00: That's kind of what's happening.
33:27
SPEAKER_00: Um so I hate to hate to get on that tangent.
33:30
SPEAKER_00: So it's just, I see it from both lenses, right?
33:32
SPEAKER_00: I see it from the landlords, the investors.
33:35
SPEAKER_00: And then I also know that, you know, we have to be viable with our insurance companies to make sure that they're profitable.
33:41
SPEAKER_00: And we want our insurance companies to stay in California.
33:43
SPEAKER_00: We want new companies to want to invest in California.
33:46
SPEAKER_00: Why?
33:47
SPEAKER_00: Because that's obviously better for our clients.
33:48
SPEAKER_00: The more options they have, the better we can serve them, the better we can help them with their problems.
33:53
SPEAKER_00: And uh, and that's just kind of what we're dealing with on a day-to-day basis.
33:57
SPEAKER_01: Michael, you said something earlier.
33:59
SPEAKER_01: And my question is, is there a chance that this is reversed?
34:03
SPEAKER_01: Is there a chance that these 100 plus and 200 plus carriers come back?
34:08
SPEAKER_01: Or is that like, Juan, that's gonna be like 20 years before that happens?
34:13
SPEAKER_00: I mean uh I mean, it's difficult sometimes to read between the tea leaves in terms of exactly what the outcome of anything is gonna be.
34:20
SPEAKER_00: But at least what I've seen so far, there's more progressive conversation, right?
34:26
SPEAKER_00: I mean, you have to be hopeful, right?
34:27
SPEAKER_00: You have to say, okay, I mean, my gut is telling me that eventually there'll be carriers that'll come back in the market.
34:32
SPEAKER_00: I'm sure eventually State Forum will come back and other carriers and want to offer insurance on apartments again or on rental properties again.
34:40
SPEAKER_00: How they're gonna come back and at what cost and what and how and what depth of coverage are they gonna provide remains unseen.
34:47
SPEAKER_00: I'd like to think it's gonna happen, but like when you've had billions and billions of dollars of losses, it's gonna take a while before you're able to just kind of salt your wounds and just want to come back in there again and just go at it.
34:59
SPEAKER_00: So there are companies now that are trying to put together some things um to you know help, right, to help with this problem and then hopefully make a profit from helping from this problem.
35:11
SPEAKER_00: But uh it's not gonna be overnight.
35:13
SPEAKER_00: It's gonna be it's not gonna be instantaneous, but I do feel eventually we may not get back to where we were exactly, but hopefully, right, between landlords collectively, kind of saying, okay, well, now I got to be maybe just a little bit more proactive on my repairs, right?
35:26
SPEAKER_00: Well, what do I got to do?
35:27
SPEAKER_00: If I have an older electrical panel and I've been called on it by my insurance company, or if I know that my electrical panel is older, I'm gonna have to pay my electrician to get it upgraded.
35:36
SPEAKER_00: If I know that my roof's 30 years old or 25 years old, and I just kind of said, well, hey, I can't afford it this year.
35:41
SPEAKER_00: I want to go on, I want to go to the Bahamas, I want to take my family on a great vacation at summertime.
35:45
SPEAKER_00: Hey, I get it.
35:46
SPEAKER_01: Well, hold on, sign me up too.
35:47
SPEAKER_01: Michael, you're you're you're assuming, you're assuming that there's excess cash flow on these buildings.
35:53
SPEAKER_01: And I would say in some cases there's no excess cash flow.
35:56
SPEAKER_01: But just just because if someone hears this, they're gonna say, hey, not all of us are extracting money from an asset.
36:02
SPEAKER_01: It's possible that you're completely at a break-even.
36:04
SPEAKER_01: You might even be at a negative, um, meaning that, meaning that the rents do not cover the expenses, and that could be the case.
36:11
SPEAKER_01: And so sometimes the I I would say because you and I both talk to the same people, right?
36:18
SPEAKER_01: Um, and and I don't see I don't see a whole lot of cash flow going on, although that's the popular topic.
36:25
SPEAKER_01: And that's why I'm I'm so very like, well, we're buying real estate, not for cash flow.
36:29
SPEAKER_01: Why?
36:30
SPEAKER_01: Because I don't see it.
36:30
SPEAKER_01: Sorry, I don't see it.
36:32
SPEAKER_01: It's not there, but yeah.
36:33
SPEAKER_00: 100%.
36:34
SPEAKER_00: And listen, and and I'm not, and I'm not the inside, you know, believe me, I you you you come to my office, which is literally down the street from where your office is, I'm sitting in front of today.
36:42
SPEAKER_00: I I'm not in an ivory tower.
36:43
SPEAKER_00: You know, I'm not I'm not in downtown Long Beach on the you know 500th floor with the penthouse suite with uh you know hundred uh bottles of rare cognac.
36:52
SPEAKER_00: And I'm just no, that's not me at all.
36:53
SPEAKER_00: I'm here to serve my clients.
36:54
SPEAKER_00: I'm the boots on the ground.
36:56
SPEAKER_00: I'm I'm very approachable.
36:57
SPEAKER_00: Anyone can call me.
36:58
SPEAKER_00: I answer my phone morning, noon, and night.
37:00
SPEAKER_00: I mean, unless unless I'm on another phone call and I don't get you, it's because I'm either on another phone call, I'm asleep, or I'm, you know, eating, eating a couple meals, which I uh don't have a very hard time doing, obviously.
37:10
SPEAKER_00: Uh, those that may be able to see me or not, unless they're driving in the car and they can't see.
37:14
SPEAKER_00: But regardless of that particular topic, you're 100% correct.
37:19
SPEAKER_00: And by me making that statement, it's not to be insensitive.
37:22
SPEAKER_00: It's just okay, it's like going back to when your clients are buying buildings, right?
37:26
SPEAKER_00: And you're correct.
37:27
SPEAKER_00: You can no longer just look at what's the what's the seller's insurance cost?
37:32
SPEAKER_00: Like I'm dealing with one, uh, one right now that was referred to me by another client or friend at Marcus to Billy Chat.
37:38
SPEAKER_00: Well, the on the guy's 20-unit apartment building, he was the seller was paying$5,100.
37:43
SPEAKER_00: Well, you used to be able to, as a broker, right?
37:45
SPEAKER_00: Go off that$5,100, plug that into your calculations, and go, okay, this is our cash on cash return, yada yada, yada.
37:51
SPEAKER_00: If I were a broker today, I would be far more proactive and call the insurance agent.
37:56
SPEAKER_00: Call either me, call the agent that currently insures the building, and say, hey, look, there's gonna be a new buyer of this building.
38:04
SPEAKER_00: Is that$5,100 still feasible and available to the new client that's buying that same property for which you do the insurance for?
38:10
SPEAKER_00: See what he says.
38:12
SPEAKER_00: Yeah.
38:12
SPEAKER_00: And I can guarantee you, as we both know, that rate's no longer, that premium's no longer available.
38:17
SPEAKER_00: So for any of those that are listening that are either gonna be in the market or that are realtors that serve clients like ours that are in the market, right?
38:26
SPEAKER_00: Insurance, realtors, investors, those that cater to multifamily like us, be proactive, right?
38:35
SPEAKER_00: Jump, jump on that now.
38:36
SPEAKER_00: Get don't everybody we call the insurance to get the cost at the very end before escrow's gonna close.
38:42
SPEAKER_00: I wouldn't, I wouldn't wait to the very end.
38:44
SPEAKER_00: My good clients, my good loan brokers, or the good realtors that I work with, they're calling me week one.
38:50
SPEAKER_00: Like, hey, they bought the property.
38:52
SPEAKER_00: They're they're an escrow on Monday, they're calling me Monday night.
38:54
SPEAKER_00: Yeah, they're like, Michael, I got a 30-day escrow, I got a 60-day escrow.
38:58
SPEAKER_00: I want to be proactive, right?
38:59
SPEAKER_00: I want to be smart about this.
39:00
SPEAKER_00: What is my cost really gonna be?
39:02
SPEAKER_00: Or hey, I'm gonna make an offer, right?
39:04
SPEAKER_00: I'm gonna make an offer on this next week.
39:06
SPEAKER_00: Can you give me a projection of what the cost is gonna be?
39:08
SPEAKER_00: And I can kind of help them and guide them and go, okay, well, where's the property located?
39:12
SPEAKER_00: What year was it built?
39:13
SPEAKER_00: What improvements?
39:14
SPEAKER_00: This is the key.
39:15
SPEAKER_00: The insurance companies are leaning on us more than ever to find out three fundamental things.
39:22
SPEAKER_00: Same things they've always wanted to know, but now it's like they want to know this with far more veracity than they ever wanted to know this.
39:30
SPEAKER_00: And what are those three things?
39:31
SPEAKER_00: They want to know has the building had any previous claims?
39:34
SPEAKER_00: Do you have the loss runs from the seller that show there has been no claims?
39:38
SPEAKER_00: Hopefully.
39:39
SPEAKER_00: And if there has been, right?
39:41
SPEAKER_00: Whereas before you can kind of, you know, I wouldn't say we would do this, but some agents would kind of just say, Well, hey, yeah, there was a blossom in the building two or three years ago, they fix it, whatever.
39:51
SPEAKER_00: Well, now the insurance companies are saying, Well, show me proof.
39:53
SPEAKER_00: Because I see it on this database, and that's the thing.
39:56
SPEAKER_00: The insurance companies share all the same databases, there's nowhere to hide.
40:01
SPEAKER_00: If carrier A sees that there might have been a problem on one, two, three, Main Street in Long Beach or whatever, carrier B, carrier D, carrier C, down, they're all gonna see it.
40:11
SPEAKER_00: So, what are the three things?
40:12
SPEAKER_00: Get the loss round to show that the asset that the client's buying is hopefully low risk.
40:18
SPEAKER_00: Number one.
40:20
SPEAKER_00: Number two, uh, has there been any proof or is there any is there anything to substantiate that the uh seller has done any work on the property, right?
40:30
SPEAKER_00: And get photos, right?
40:31
SPEAKER_00: If if if maybe the electrical panel was upgraded or replaced, or the roof was replaced, or the plumbing might be copper, where you know, the seller would probably have that somewhere if they'd done it very.
40:42
SPEAKER_00: If the guy's owned the building for 10, 20, or 30 years and he said he's replaced the plumbing and he's fixed the roof, if it looks like it, he might have from pictures, because I do a lot of site inspections myself, or clients send me photos of the properties they're buying.
40:55
SPEAKER_00: Well, is there a permit?
40:56
SPEAKER_00: Is there something that shows that?
40:57
SPEAKER_00: So then I can then do what?
40:59
SPEAKER_00: Give that to my insurance company and go, hey, look, this is a responsible buyer.
41:03
SPEAKER_00: This is a good owner, or a good seller, I should say, that's done the work that my client's buying.
41:07
SPEAKER_00: And then maybe instead of that premium that was 5,000, that might have been eight or 10.
41:12
SPEAKER_00: Well, maybe I can use that information, do a nice letter to my insurance companies, and maybe I can bring it down to six or seven and still meet the lender's requirements because the lenders have a set of requirements, as we all know, that they that the insurance agent has to jump through, which I do pretty well.
41:26
SPEAKER_00: But at the same token, if I can get that information up front, it helps me to help the client.
41:32
SPEAKER_00: And then more importantly, going forward.
41:33
SPEAKER_00: So those are your first two, right?
41:35
SPEAKER_00: Well, what's the third and what's the last?
41:36
SPEAKER_00: Well, there's there's a couple others, but the third and the last would be is I want to create the right expectation, right?
41:41
SPEAKER_00: So a lot of realtors, you know, loan brokers, they want what?
41:47
SPEAKER_00: Get it done, get it done now, close, very transaction-based.
41:52
SPEAKER_00: Well, what they don't always realize is I'm working with this client sometimes five, 10, 15 years into the future.
41:59
SPEAKER_00: Yeah.
41:59
SPEAKER_00: So my value add is I want to help you look good.
42:03
SPEAKER_00: I want to create the right expectation with your client by doing that site inspection, by seeing the building, by getting the photos.
42:09
SPEAKER_00: And I want to tell the client, hey, I'm here to help you.
42:13
SPEAKER_00: Um it's like a marriage, right?
42:14
SPEAKER_00: I'm gonna be here for you for good times and bad.
42:17
SPEAKER_00: But you're gonna have to help me a little bit too.
42:19
SPEAKER_00: And you're gonna you, and you might have to do things that you might have not had to do before.
42:23
SPEAKER_00: I'll do a lot of it for you, but you have to help me to help you to some degree.
42:26
SPEAKER_00: And that's kind of where we map out a strategy of what we might need to do and what's the insurance company.
42:32
SPEAKER_00: Because the last thing I want to do is help your client to buy a building, not know what the electrical panels are, get the policy bound, get it issued, then the insurance company sends over an inspection company.
42:42
SPEAKER_00: They see that they don't like the electrical panels, they see that the roof's probably 30 years old, which is nowadays you can do that through Google Earth.
42:48
SPEAKER_00: So nowadays, like they can just go and they can see, hey, they can see the roof's bad.
42:51
SPEAKER_00: And they're just, they're just gonna flag it.
42:52
SPEAKER_00: They won't even offer a quote.
42:53
SPEAKER_00: They're gonna say, you know what, forget it.
42:55
SPEAKER_00: I'm just not gonna quote it, whatever.
42:57
SPEAKER_00: But if it's in good shape, whereas before they might give them some time, now if it's a new policy, they're not gonna give them any time, they're not gonna even give them a quote.
43:05
SPEAKER_00: But if it's in good shape, I want to create that expectation so that hopefully, right?
43:09
SPEAKER_00: Going back to your other question, when are things gonna turn?
43:13
SPEAKER_00: Well, if I can segregate and get a good group of clients, both past and new, that help me to help them through this process, then when the tide does turn, they've already done the work.
43:27
SPEAKER_00: They put the time in, they've done the work.
43:28
SPEAKER_00: And then what's more important, then it then it blows back to you.
43:31
SPEAKER_00: They're not getting canceled, they had a great experience.
43:34
SPEAKER_00: So the next time you work with that client again, because they're buying their next property, they can say, you know what?
43:39
SPEAKER_00: Juan, thank you so much.
43:40
SPEAKER_00: You refer me to Michael Leon at Fuller Insurance here in Long Beach down the street from where you are.
43:45
SPEAKER_00: Man, guy knows his stuff.
43:47
SPEAKER_00: He helped me out.
43:48
SPEAKER_00: I had a problem, I had a claim, I had a billing issue, I had a letter from the insurance company that I had to do this, I had to do that.
43:55
SPEAKER_00: Sometimes he's able to help mitigate the problem and make it go away.
43:57
SPEAKER_00: Sometimes he can't.
43:58
SPEAKER_00: But you know what?
44:00
SPEAKER_00: That bastard, he fought for me.
44:01
SPEAKER_00: He helped me out.
44:02
SPEAKER_00: And that's what you and I both do.
44:04
SPEAKER_00: That's how we create ourselves and make ourselves better than the pack.
44:07
SPEAKER_00: And that's why when there's good times, bad times, or you know, we're the we're the we're the we're the two amigos that are still standing.
44:15
SPEAKER_01: No, of course.
44:16
SPEAKER_01: And we've been in the game a very long time.
44:18
SPEAKER_01: Michael, um, two weeks ago when we talked, and and and I it almost like, man, I gotta have Michael on the podcast.
44:26
SPEAKER_01: You said, hey, even when a carrier decides to renew yours, to take a close look, because now they may have excluded some items.
44:34
SPEAKER_01: Why don't you tell us what what they should be looking for?
44:37
SPEAKER_01: Because I'll tell you what, like when it comes to insurance, most people just like, let me cut a check and be done with it.
44:42
SPEAKER_01: And they just assume that everything is covered.
44:46
SPEAKER_01: Right.
44:47
SPEAKER_01: Help me help them.
44:49
SPEAKER_00: Excellent question.
44:50
SPEAKER_00: So, yeah, no, I mean, uh everyone thinks that okay, just by cutting that higher check, you have the exact same coverage as you had before.
44:58
SPEAKER_00: You're you're I think sometimes a lot of clients think in the back of their mind, because their agent works for them or hopefully works for them, by paying that premium increase from the insurance company, everything's fine, and I can just go about business and hopefully, you know, like we all want the clients to cash flow, make a profit so they can buy more properties.
45:16
SPEAKER_00: Absolutely.
45:17
SPEAKER_00: 100% want the same thing.
45:21
SPEAKER_00: Now, with that being said, uh they have to definitely now they have to definitely now come up with a uh uh a solution that's going to help them going forward, right?
45:37
SPEAKER_00: So as far as exclusions are concerned, so now you have a couple things, right?
45:42
SPEAKER_00: So you have caps and limitations on things like water damage, right?
45:45
SPEAKER_00: So earlier in the podcast, we were talking about water damage are becoming very prevalent because of pipers.
45:51
SPEAKER_00: You know, very often I've had many experiences where clients bought a property, they thought everything was fine, they did a, you know, they did a inspection, the inspection report came out great, everything looks okay.
46:03
SPEAKER_00: Three months later, boom, pipers, fifty thousand dollar claim.
46:07
SPEAKER_00: Client pays their$1,000 or$2,000 or$5,000 deductible.
46:11
SPEAKER_00: All right, so the insurance company pays that.
46:12
SPEAKER_00: Well, you do a lot of those and you can see what happens.
46:14
SPEAKER_00: So I would say um what the what what you're gonna have to do simply is um on the exclusions, look look at the exclusion letters that come in the mail, because they do come in the mail.
46:29
SPEAKER_00: Like the client, the insurance companies have to let you know what they're canceling before your renewal.
46:33
SPEAKER_00: They can't just send you the renewal, they have to let you know what's being canceled.
46:36
SPEAKER_00: So it'd be water damage, but this is another important thing that we haven't talked about yet.
46:40
SPEAKER_00: Habitational liability exclusion.
46:43
SPEAKER_00: What is that?
46:45
SPEAKER_00: Well, you know, I mentioned on the podcast earlier about the billboards and the attorneys that would so I had a case on a property here in North Long Beach where the property was in pretty bad shape.
46:57
SPEAKER_00: Not not horrible, but I mean, I I guess it's objective, right?
47:02
SPEAKER_00: My client that's buying the building is very responsible.
47:06
SPEAKER_00: Great investor, value add, fixes up the properties, makes them look great.
47:12
SPEAKER_00: Well, what happened?
47:13
SPEAKER_00: Well, he closed Escroll, let's call it January of 2000, I don't know, let's call it 2018.
47:19
SPEAKER_00: He closes Escroll, did not know, or was not disclosed to him, that there was a couple lawsuits by some of the tenants that resided in that building.
47:30
SPEAKER_00: What became a lawsuit of three turned into a class action regarding 10 of the 12 tenants because the property wasn't actually in pretty bad shape.
47:40
SPEAKER_00: There was cockroaches, graffiti, it smelled bad.
47:43
SPEAKER_00: The person that owned the building obviously did not keep it up, probably as well as they should have.
47:48
SPEAKER_00: Maybe kind of a little bit unbeknownst to me at the time, because I thought everything was kind of in really good shape, kind of, but I didn't know that the problems were as bad as they were.
47:55
SPEAKER_00: Okay, so how did this affect the new buyer?
47:57
SPEAKER_00: Well, the new buyer goes to buy the building.
47:59
SPEAKER_00: That class action lawsuit then changed from the attorney because he saw that it was a sale.
48:04
SPEAKER_00: Now the attorney's salivating.
48:06
SPEAKER_00: Because he can sue the seller, he can sue the buyer.
48:09
SPEAKER_00: The insurance company won, no joke, paid a$1.2 million claim to they had to pay on the seller, they had to pay on the buyer.
48:20
SPEAKER_00: Well, they only carry a million of a million of liability, right?
48:23
SPEAKER_00: So after defense, after all the cost, and I think I think it even went to a trial, jury trial.
48:30
SPEAKER_00: The owners then had to pay out of their own pocket.
48:32
SPEAKER_00: Well, I mean, you try paying two or three hundred thousand dollars in your own pocket after a major claim.
48:37
SPEAKER_00: So they're taking away habitational liability exclusion, or they're capping it at a maximum now, I think, of maybe a hundred thousand maximum, and that's a sublimit, meaning that they're not gonna go above that.
48:50
SPEAKER_00: If there's a habitational lawsuit and it's more than$100,000, even if you can get a carrier that'll even include it, which are becoming so and few and far in between, you're gonna have to pay all that difference.
49:01
SPEAKER_00: And guess what?
49:02
SPEAKER_00: Now the insurance companies aren't always including defense.
49:05
SPEAKER_00: So if it goes to the stage where you need to represent yourself, the insurance companies is not gonna cut a check to the attorney to represent you.
49:11
SPEAKER_00: They're gonna say, you know what, we see this as a lost cause, Mr.
49:13
SPEAKER_00: Smith.
49:14
SPEAKER_00: You're gonna pay that out of your own pocket.
49:15
SPEAKER_00: We're not gonna fight for you in this regard because they can't keep fighting for things that they know they're not gonna win.
49:21
SPEAKER_00: So, what can then owners do?
49:23
SPEAKER_00: Well, proactive.
49:24
SPEAKER_00: You're gonna have to be some proactive to some degree.
49:27
SPEAKER_00: You know, getting getting Dewey pest control to spray once a month may seem like the most stupidest thing.
49:36
SPEAKER_00: Like, okay, I'll do a pest control when my tenant moves out or whatever.
49:40
SPEAKER_00: No, I would say do it every month, do it every other month.
49:42
SPEAKER_00: It's 50, it's 50 bucks, 75 bucks.
49:45
SPEAKER_00: Like that doesn't cost a lot.
49:46
SPEAKER_01: What does that do though, Michael?
49:47
SPEAKER_01: I mean, I I agree with you.
49:49
SPEAKER_01: I do it from the reason of like if I'm in eviction court because the tenant's not paying rent, and they're, you know, they're gonna throw all these allegations at the housing provider.
49:59
SPEAKER_01: Hey, it's this and that.
50:00
SPEAKER_01: And and I've I've shown the the judge, hey, um, I've had Dewey pest control here for the last 12 years of my ownership.
50:08
SPEAKER_01: You tell me I'm a bad housing provider.
50:11
SPEAKER_01: Like it's here, like this is happening, right?
50:14
SPEAKER_01: Like, so I do it from that reason, but you're saying it like what does that do from the insurance perspective?
50:19
SPEAKER_00: From a proactive standpoint, right?
50:21
SPEAKER_00: From a proactive standpoint, it shows the insurance companies, or even if there's a potential lawsuit, that that owner is trying to be responsible, right?
50:29
SPEAKER_00: If I'm paying out of my own pocket to do things like pest control, or, you know, I do things like have monthly site inspections or I get or quarterly site inspections, if I can show the insurance company that I'm a proactive owner, or I'm a proactive owner with my management company, right?
50:45
SPEAKER_00: For the clients that decide to have management companies, I think it's a phenomenal idea.
50:49
SPEAKER_00: If you can afford it, one of the best investments you can make, right?
50:52
SPEAKER_00: Because the management companies, they're professional, they know what they're doing.
50:55
SPEAKER_00: And if done correctly, right, have pest control, have if you decide to pay for professional management, have 24-hour on-call service in case there's emergencies, those are just the tip of the iceberg, right?
51:09
SPEAKER_00: So that's kind of what the insurance companies are asking me and others to specialize in multifamily insurance, what they want the clients, we call them insureds.
51:18
SPEAKER_00: That's what they want the insureds to show proof of documentation.
51:22
SPEAKER_00: If you want to, if you want me, or if you want, if the insurance company is being requested by the client to get a lower premium, well, to some degree, we have to show them that that they're doing what they're doing what they need to do in order to try to get that lower premium, right?
51:35
SPEAKER_00: They can't just say they want it because that to say, well, hey, I'm I'm proactive, I'm listening to Michael's advice, I'm doing these things.
51:41
SPEAKER_00: I have the professional management, I'm I'm doing the pest control, I'm doing the flush outs, right?
51:46
SPEAKER_00: I'm I'm I'm I have my plumber come in.
51:48
SPEAKER_00: On some clients of mine that have larger buildings, I've told them, hey, every year, every two years, have your plumber come in and flush the horizontal and vertical lines.
51:56
SPEAKER_00: Yeah.
51:57
SPEAKER_00: Just do it.
51:59
SPEAKER_00: Like I hate to say this, and I'm not trying to be insensitive because I'm not, but just make it part of your operating cost.
52:06
SPEAKER_00: Because in the long run, it'll help you with your insurance costs, it'll keep your claims less.
52:10
SPEAKER_00: And hopefully, collectively, if enough people do it, it'll kind of collectively start to turn the tide a little bit to where the insurance premiums can come down, and and we can kind of break this nonsense of what's happening right now in this current mess that we're in with insurance.
52:23
SPEAKER_01: Michael, um with less and less carriers out there, with less people like you, uh, I know you're swamped.
52:33
SPEAKER_01: Um what's the best way that our our our listeners, our viewers can reach out to you?
52:40
SPEAKER_01: Yeah.
52:41
SPEAKER_01: If they're in a situation where they have insurance questions or they need a new carrier because something's happened with their yeah.
52:49
SPEAKER_00: So listen, I mean, uh like you, I think.
52:52
SPEAKER_00: I mean, I I I love to just be educational and informative and help people depending upon their degree of help.
52:57
SPEAKER_00: But anybody can pretty much call me.
52:59
SPEAKER_00: Anybody can call me anytime.
53:00
SPEAKER_00: My direct line is 951-520-6447.
53:05
SPEAKER_00: I'm here in Long Beach.
53:06
SPEAKER_00: I serve Long Beach, I serve the South Bay, Avering, California.
53:11
SPEAKER_00: 951 area code folks, don't be scared.
53:13
SPEAKER_00: That's the main office line that goes off of our main office, which is in Chino Hills.
53:17
SPEAKER_00: Uh, but I'm here local, you know, the bricks and mortar office is right here in Long Beach, right off of uh 2nd Street in Grenada, uh, right across from Panama Joe's.
53:27
SPEAKER_00: That know for those of us that uh know the Long Beach area, as many of us do.
53:30
SPEAKER_00: Um, you know, I I'm I'm right above the post office.
53:33
SPEAKER_00: You can, you know, just call, text.
53:35
SPEAKER_00: Uh I I I gotta get more better with the social media like your one.
53:39
SPEAKER_00: I I don't have a big Insta uh uh you know, I I I I need to maybe get more of that going.
53:45
SPEAKER_00: But uh yeah, call that number.
53:47
SPEAKER_00: You can text me.
53:48
SPEAKER_00: My email is also Michael M-I-C-H-A-E-L at Fuller F-U-L-L-E-R-I-N S dot com.
53:55
SPEAKER_00: Call me.
53:56
SPEAKER_00: Let's talk.
53:56
SPEAKER_00: Let me know what your problems are.
53:58
SPEAKER_00: Um, I come in on weekends often to answer questions or just look at policies or review things, and I'll try to give you a straight answer.
54:05
SPEAKER_00: Either I can help you, I can't help you.
54:07
SPEAKER_00: If I can't help you, I'll tell you why.
54:09
SPEAKER_00: If I can't help you, I'll tell you why, and then what we got to do and and talk to me.
54:14
SPEAKER_00: I mean, right now I'm I'm dealing with everything, right?
54:15
SPEAKER_00: I'm dealing with people whose premiums are going up, people that are being canceled, people that have claims, and and no problems too large or small.
54:24
SPEAKER_01: You know, Michael, I I've known you a long time and you were a hard worker before, and now I I would just imagine you're like one of the last people standing.
54:32
SPEAKER_01: And so then if you were busy before, I would I could just imagine um that yeah, you're you're having to work seven days a week.
54:39
SPEAKER_00: Yeah, I mean, look, I'm not gonna say I work every single seven days a week, right?
54:42
SPEAKER_00: I mean, I'm not a robot, I got a family, I got two beautiful girls, I got a loving wife, you know.
54:46
SPEAKER_00: I mean, but I will tell you, I mean, I have an awesome, awesome, awesome office.
54:51
SPEAKER_00: They're fantastic, right?
54:53
SPEAKER_00: I mentioned my my my friend, my broker, the guy that runs our company, Matt Fuller, great guy, uh, smart.
55:00
SPEAKER_00: I mean, for those that have been in the apartment business world for a long time, or your your old school OG uh uh investors and owners, a lot of them uh remember him at Agla and all the work that he did and with the apartment association.
55:13
SPEAKER_00: And so uh it's just great because when I aligned myself with him about going on maybe seven years ago now, we had the same mindset, right?
55:20
SPEAKER_00: We had the same specialization.
55:21
SPEAKER_00: We both liked ensuring rental properties and apartment buildings.
55:25
SPEAKER_00: And Matt's staff is just great.
55:28
SPEAKER_00: I mean, everyone there is seasoned vet, um, you know, I mean, uh hat hats off to everyone that's in our office, right?
55:35
SPEAKER_00: I mean, whether it's Sarah, Valerie, um, and we're growing, right?
55:41
SPEAKER_00: We're growing.
55:42
SPEAKER_00: Those that catered to Alex, I mean, those of us that cater to with a personaline staff, there's another gentleman named uh Eric Dickinson who's been with us for a long while.
55:51
SPEAKER_00: Uh, another Long Beach vet that just now, you know, so we're here to help, you know.
55:56
SPEAKER_00: And then there's myself, you know, Ginny, Ginny's baller, office manager Doreen, uh, our owner Matt, and then there's Dana that handles it.
56:04
SPEAKER_00: So we're listening.
56:06
SPEAKER_00: Uh I love the size of what we are.
56:09
SPEAKER_00: We're not corporate, we're not too hard, too, too large to where every client's a name and number, but we're not too small to where we can't just have enough options and enough, you know, uh uh products to help our clients.
56:21
SPEAKER_00: We're kind of in that sweet spot.
56:22
SPEAKER_00: We're kind of like just the right size, I think, to do what we do, to do it well.
56:26
SPEAKER_00: You know, we can't help everybody.
56:27
SPEAKER_00: You can't always help everybody, but you can try to provide some solutions.
56:31
SPEAKER_00: And those that you can help that want your help, hey, you know, we're here for them.
56:36
SPEAKER_00: And and uh and I can't say enough about my office.
56:38
SPEAKER_00: I mean, it's it's just it's great.
56:41
SPEAKER_00: And it's it it makes tough situations like this to know that you have a team that's behind you.
56:45
SPEAKER_00: It makes things easier because they help me so much.
56:47
SPEAKER_00: They help me.
56:48
SPEAKER_00: I mean, I cannot give them enough accolades, I cannot give them enough kudos.
56:52
SPEAKER_00: Um, and they're just they're my family, right?
56:54
SPEAKER_00: I mean, I have my family at home and I have my work family, and it's just it's what makes everything enjoyable and just makes the day a little bit easier.
57:00
SPEAKER_01: Michael, I want to thank you so much.
57:02
SPEAKER_01: You know, it's interesting when when when we decided to have the YouTube channel, never did I think that we'd be speaking for an hour about insurance, but it's a hot topic.
57:10
SPEAKER_01: And and when we created this, this podcast and our YouTube channel was that we wanted to enter the conversation that's in the client's mind.
57:20
SPEAKER_01: And this is definitely one of those items.
57:22
SPEAKER_01: And and Michael, I appreciate you um with your knowledge, with your friendship, and and for all that you're doing here for us here at Sage Real Estate.
57:30
SPEAKER_01: And uh, thank you so much.
57:31
SPEAKER_01: Thank you, Juan.
57:31
SPEAKER_00: It's a pleasure.
57:32
SPEAKER_00: You're a friend.
57:33
SPEAKER_00: Love working with you.
57:34
SPEAKER_00: And uh I remember us back in our Toastmaster days.
57:37
SPEAKER_00: Uh, I can tell some of those that call us uh some great stories about you and your speeches and the great times that we had.
57:42
SPEAKER_00: So hey, thank you so much, and uh hope everyone has a great day.
57:46
SPEAKER_00: That's all for now.