Vacant to Lessor's Risk: A Guide for Insurance Agents Managing Properties in Transition Part One

In real estate, investments are power, and insurance helps protect those investments. There are over 151 million properties in the United States (NAR, 2024), and about 10% of them are sitting vacant/unoccupied (USAFacts, 2023). This gives insurance agents plenty of opportunities to write more accounts. Whether you're insuring a property that’s temporarily vacant or getting it ready for future tenants, it’s important to understand how property insurance works. Here’s how you can make the insurance process easier, keep your clients happy, and win the account when the property is vacant—and keep it when it becomes an occupied as a lessor's risk. In part one of this blog series, we explore writing vacant properties.

Why Vacant Properties Require Special Attention

Vacant properties come with unique risks and challenges, which is why they need special insurance coverage. Because of this, many vacant property policies are offered in the Excess & Surplus (E&S) market. As an insurance agent, it’s important to understand these differences so you can provide the best solutions for your clients. Here are some important steps to follow when placing vacant properties.

Step One: Prepare Yourself with Essential Information

Nothing is more frustrating than spending time submitting to a market only to get the dreaded message "more information required." When quoting insurance for property, especially vacant property, asking the right questions can help speed things up and improve coverage options. One important question to ask is about the long-term plans for the property. This helps you understand what your client wants to do—will they tear it down/demolish it, renovate/fix it up, or rent it out? If a property is going to be demolished, it usually can't be insured. On the other hand, if it's being renovated, you'll need a special type of construction policy known as a builder's risk. Of course, in the world of E&S, there are some caveats; as Katherine Cole, Midwest Underwriter, explains, "If renovations are going to be over 30% of the building value - we will need to know there will be a builder's risk policy in place to be able to offer general liability (premises liability)."

Next, gather the COPE information. COPE stands for construction, occupancy, protection class, and exposures. These are key details for any property insurance submission. While gathering COPE details, think about whether there are any risks to consider. For example, problems like structural damage or being close to dangerous areas (like grain bins or scaffolding) might make the property unfit for coverage. Not sure if something will be a problem? Take a picture! Sharing photos can help underwriters decide if the property qualifies. Also, including a No-Known-Loss Letter or records of past losses can help avoid unnecessary delays. Read more about COPE.

Step Two: Educate Clients on Vacant Policies

After you’ve gathered the info to submit, make sure you and your clients understand how vacant property policies work. These policies are unique and can last anywhere from 3 to 12 months, depending on what your client needs and how long the property stays vacant. Things like the economy can affect how long properties remain empty. For example, during the 2008 recession, properties often remained vacant longer. While the market is more stable now, you should still prepare your clients for the possibility of longer vacancies and the impact this could have on their policy.

Vacant property policies often come with certain requirements, like minimum earned premiums (MEPs). MEPs are the smallest amount an insurer will keep, even if the policy is canceled early. They are important because vacant properties face costly risks, like vandalism, fire, or increased damage from being neglected. MEPs help insurance companies cover these risks while still offering short-term policies. MidAtlantic Account Manager Drew Arnold suggest, “Early discussions about minimum earned premiums can help set realistic expectations and prevent surprises down the line.”

Another thing to know about vacant policies is that they aren’t set up to renew automatically. Most E&S carriers don’t auto-renew policies because of E&S compliance. If your client’s vacant property needs coverage past the policy’s end date, it’s important to act early to extend the policy.

Make sure to communicate with your carrier and wholesale partner ahead of time to talk about renewal options. This is especially important for vacant property policies as they get close to their expiration date. Being proactive can help avoid any gaps in coverage.

Next Up: Get Ready to Transition to a Lessor's Risk

Understanding how vacant property insurance works is important to help your clients and protect their investments. Property insurance can be tricky, so it’s good to stay informed and ready for different situations.

Check out part two to learn how to switch from vacant property policies to lessor's risk policies. This will help you keep your clients covered as their properties go from unoccupied to rented, insuring the building's life cycle.

Quote and bind your vacant buildings and land today.

National Association of REALTORS (2024, July 7). Quick Real Estate Statistics. Retrieved October 31, 2024, from website.

USAFacts Team (2023, October 13). How many vacant homes are there in the US? USA Facts. Retrieved October 31, 2024, from website.