Case Study: Apartment Building Risk Assessment

Scenario:

As an underwriter at a property insurance company, you have received an application for insurance coverage for a $10-$story apartment building located in a downtown area. The building is equipped with sprinkler systems and smoke detectors on each floor. According to the application, the building is mainly occupied by families and young professionals. However, the building is situated in a neighborhood that is famous for its nightlife, with numerous bars and restaurants nearby. Additionally, the building is older, constructed in the early $20$th century, and has undergone recent renovations to update its electrical systems and other safety features.

Factors to Consider:

$1.$ Building Construction and Age: It is important to assess the construction materials used in the building and determine its age. It is also necessary to determine if any recent renovations have improved its safety features.

$2.$ Location: The neighborhood where a building is located should be evaluated. Factors such as proximity to high$-$risk establishments like bars and restaurants, and any historical data on crime rates or previous incidents should be considered.

$3.$ Fire Protection Systems: The effectiveness of the building's fire protection systems, including sprinklers, smoke detectors, and fire extinguishers, should be reviewed. It is essential to assess whether these systems meet safety standards and are well$-$maintained.

$4.$ Occupancy: The type of occupants in the building and their behaviors should be evaluated. It is necessary to assess if there are any high$-$risk activities or potential hazards associated with the tenants.

$5.$ Surrounding Environment: The surrounding environment should be examined for any factors that may increase the risk of fire, such as nearby industrial facilities or densely populated areas.

After careful consideration of all factors, the underwriter must make a decision on whether to accept or deny the insurance application. This decision should be based on a thorough assessment of the property's risk profile and the insurance company's policies and guidelines. Additionally, the underwriter may recommend risk mitigation measures or adjustments to the policy terms to ensure adequate coverage and protection for both the insured and the insurer.

Property Insurance Assessment Report

Property Details:

Name: Downtown Apartments

Address: $123$ Main Street, Dallas, TX

Building Type: Apartment Building

Building size: approximately $1,764,000$ ft$2$

Construction Type: ISO Class $5$

Construction Year: $1925$

Building Description:

The Downtown Apartments building is a $10-$story residential structure located in the heart of Dallas$$ downtown area. The building was constructed in $1925$ and exhibits classic architectural features typical of early $20$th$-$century urban construction. Its exterior comprises sturdy brick and mortar, while interior elements consist primarily of wooden floors andbut several apartment units sustained significant water damage, leading to temporary relocation for affected tenants.

$3.$ Date: November $5,20$XX

Nature of Loss: Burglary

Description: Overnight, the building was targeted by burglars who gained unauthorized access to several apartment units and common areas. Valuable items, including electronics and personal belongings, were stolen from multiple units. Despite efforts to improve security measures, the burglars managed to evade detection and escape with stolen goods. Police investigations are ongoing, but no suspects have been apprehended yet.

Recommendations:

Based on the loss history report, it is recommended that underwriters carefully assess the risk factors identified and consider appropriate coverage options to mitigate potential future losses. Additionally, proactive risk management strategies, including regular inspections, maintenance, and security enhancements, should be implemented to minimize the likelihood and impact of future incidents.

Total Insured Values

Building: $$379,260,000$

Contents: $$189,630,000$

Business Interruption: $$100,000,000$

Rate

Low: $\mathrm{.}05$

Medium: $\mathrm{.}10$

High: $\mathrm{.}20$

Decision Making:

The underwriter needs to review the given information to decide whether to approve or reject the insurance application. They need to consider the following questions:

$$ Is the age and construction of much concern to the underwriter? What risks may exists?

$$ Would the presence of nearby bars and restaurants increase the risk of fire or other incidents? Are their other exposures worth noting?

$$ Are the fire protection systems sufficient to prevent potential risks?

$$ Are there any specific clauses or endorsements that should be added to the policy to address identified risks? You don$$t need to name them all, just review the policy and tell me what might be worth adding.

$$ What is the overall risk profile of insuring this apartment building? Do you accept or reject the application. What premium would you consider charging? What rate did you choose and why?