The No. 1 question many insurance professionals get from real estate investors is “What is your price?” The exception to this is the real estate investor who’s had a claim on his or her property. Then, the first question is “Do you cover X?” followed by “How fast do you pay it?” and then by “How much?”

Real estate investors are so focused on their cash flows and capital returns that they forget the other “I gotchas” that set them up for financial ruin.

Case in point, a gentleman stopped by an insurance company’s booth at a large regional investor’s conference and asked the No. 1 question. Once he heard the cost, he shook his head and said the company’s pricing was way too high and he had a great deal with his local insurance agent. As he was walking away, the company representative said to him, “Send me your policy, and I will do a comparison of coverages!”

It turns out the investor did follow up eventually, but only after experiencing a large theft loss. The criminals stole the HVAC system and all the updated appliances in one of his houses that was ready to be purchased. He found out the hard way that, because he had no theft and vandalism coverage, he was out almost $30,000 for the appliances and damages caused by the theft.

Again, lower insurance premiums don’t necessarily equate to lower out-of-pocket expenses related to your insurance program. Payment plans, cancellation provisions and what “isn’t covered “in your insurance policy is more impactful on the investor’s bottomline returns than merely less expensive rates. Wise investors should be looking at every expense related to the purchase and financing of the asset. Don’t base your insurance purchase strictly on price. That can’t be stressed enough.

One must also know how building values are quoted (e.g., by the square foot, the door, the key, etc.) as well as terms like ADR, IRR, RevPar, cap rate and more. Additionally, concepts like construction renovation costs, replacement reserves and loan terms are important to understand.

Mastering this terminology is the foundation all true real estate investors must build upon.


At a minimum, real estate investors should purchase a landlord property insurance policy with replacement cost as well as all-risk insurance coverages with normal exclusions and liability coverages in the event of a third-party injury or someone claiming to be injured on your investment property.


And, in today’s crazy weather environment, consider a flood quote, whether the property is in a special flood hazard area or not. Five out of six flood losses experienced in Hurricane Harvey did not have flood insurance, and many were not located in a nationally-defined flood zone. Can you imagine how many real estate investors lost everything they had when they found out they had no coverage? The same issues are surfacing in the recent floods in North Carolina.


Read your insurance policy, especially the exclusions and limitations sections. Don’t believe everything your friend who just became an insurance agent tells you. Many policies have “special” coverages, which typically means they are taking away coverages, not adding them to your policy. Most of these “special” coverages can be found toward the back of the insurance policy in the endorsement section.

A primary example would be a house that is vacant at the time of loss. That’s a common situation in the real estate investor world since properties are often being rehabilitated or are between renters if the property is being used for tenants. Most homeowner policies and some landlord polices may deny a claim because the property has been vacant for more than 30 or 60 days.

Another “special” coverage to watch out for is a “special deductible.”  This is the out-of-pocket expense to you, the insured, before the insurance company pays for damages exceeding such deductible. This is common for wind- and hail-prone areas and is usually a percentage of the insured property value with a stated minimum dollar amount.

Another “special” deductible is a vandalism/malicious mischief deductible that may exclude coverage entirely or charge a very large deductible for this cause of loss. This can be found in the general wording of the policy or as a “special” coverage in the endorsement section located at the back of the policy.

If your real estate investor strategy includes “flipping” the property in a short term, the premium total doesn’t necessarily impact the out-of-pocket expense as much as the insurance policy cancellation provisions, especially assets purchased and sold within 90 days. Usually this wording is found in the general policy language under the cancellation clause header or in the endorsement section at the back of the policy. Insurance companies impose these hidden cancellation charges for not having the policy stay in force for an entire year. These charges appear as minimum premiums, earned policy fees and/or short rate cancellation penalties. They can be significant depending on how long you stayed on their insurance policy.


Find an experienced insurance agent who is familiar with your industry and the risks associated with your investment strategy. Get your insurance questions answered in writing from your insurance agent. If the insurance agent refuses to do so, then it’s time to find a new agent. Unfortunately, investors are sometimes finding that an extremely low rate, quoted outside the industry-norm guidelines is not always accompanied by swift and accommodating claim payment. Do your homework and check references with your industry associates and leaders of your associations or network. These additional steps will pay significant dividends in the long term.

MARK GANNAWAY, CPCU. Arcana’s strategy is executed under the leadership and direction of Mark Gannaway, CPCU. Gannaway has 35-plus years of insurance experience, including executive roles in both insurance company and MGA operations.

Pets Biting into Profits

Real Estate Journal – Summer 2019

Are dog’s really “Man’s Best Friend?” For most pet owners it’s a resounding “Yes” but to cat lovers, real estate investors and most insurance companies, it’s a resounding “it depends.” After you read this, you may
replace your trusty Fluffy with a goldfish.

According to a recent Washington Post article and our friends at Price Forbes with Lloyds of London, 57% of the United States (US) population owns a pet, 33% own a dog only, 14% own a dog and a cat, 11% own only a cat, and 4% represent some other type of pet. Of the 47% who own dogs, which makes up 89.7 million dogs, roughly 67% of owners own one dog with 24% owning two and 9% owning three or more dogs. This means on average, owners have just shy of 2 dogs (roughly 1.7).

In today’s world of renting, an investor or property manager must include pets in the work flow signup process. Why? The chances of your property having an uninsured loss due to a dog bite, or a tenant discrimination complaint just went up tremendously.

In addition to the potential tenant having a background check, what process is in place for pets? Do you have an animal policy in your leasing documents? How do you confirm whether the tenant has a pet? Do you have the tenant sign a document saying he or she has read and agreed to the terms of your pet policy? What happens if your approved tenant six months into the lease buys a pit bull for “protection?” What happens when a guest of the tenant comes over with their dog and bites someone? These areas of concern must be addressed and documented.

First, the dog bite. Most insurers are excluding dog bites or limiting coverage for certain dog breeds when providing defense cost, medical payments or third-party awards from litigation.

Most insurance companies exclude the dogs listed below for any type of property or liability coverage:
• Akitas
• Alaskan Malamutes
• Boxers
• Cane or Corsos
• Chow Chows
• English Bulldogs
• Doberman Pinschers
• German Shepherds
• Great Danes
• Mastiffs
• Presa Canarios
• Pit Bulls
• Rottweilers
• Siberian Huskies
• Staffordshire Terriers
• Wolf Hybrids

Of the 89.7 million dogs owned in the US, the above breeds and those breeds with severe bite history, represents only 2.5%. There are approximately 4.7 million dog bites per year in the U.S. with most dog incidents having the following characteristics:
• Most dog attacks involve male dogs (roughly 92%). Nonneutered is a major contributor.
• The odds that a bite victim will be a child is 3.2 to 1
• Severe injuries occur almost exclusively in children less than 10 years of age.
• 61% of dog attacks happen at home or in a familiar place
• 77% of dogs that have bitten belonged to the victim’s family or friend

When a child less than 4 years old is involved, the family dog was the attacker half the time and 90% of the attacks happen in the family home.

Approximately, 34% of ALL annual dog bites or incidents are not covered by the terms and conditions of the homeowner or landlord policy.

The second big issue when it comes to renting to pet owners is defining the animal living with your tenant. Is it a pet or a medical tool? The US Housing and Urban Development (HUD) is very sensitive to that topic. If you’re employee is improperly trained, this could lead to an inappropriate question or response to the potential tenant, opening you up to a possible tenant discrimination complaint with HUD. An Emotional Support Animal (ESA) is defined as a medical tool and not a pet. Under Federal Fair Housing Laws, ESAs must have access to apartments or single-family homes for rent with a no-pet policy and are exempt from pet-related fees. ESAs help aid with an emotional or mental disability. ESA dogs can be any type of breed and are exempt from breed or weight discrimination. So, if your tenant has a 130-pound rottweiler as an ESA, according to this definition, you have no choice.

To mitigate some of these issues, there are resources available at your fingertips on the World Wide Web. One that many investors and property managers are starting to use is It’s a free web-based service to the property manager or investor and takes into consideration the breed, weight, age, vaccination record and pet owner’s care and adherence to pet policies. There is also a couple of insurance companies now offering a Dog Bite insurance policy with multiple optional coverage amounts and affordable pricing.

Of course, an article like this cannot cover all the possible uninsured losses you may have had or will experience in the future. Please read your own insurance policy or ask your insurance agent what insurance coverages you do have for these types of risk. And remember, always get your answers in writing.

Mark A. Gannaway, CPCU, is the Chief Executive Officer and Founding Partner of Arcana Insurance Services, an all-lines property and casualty managing agency that’s been working with real estate investors since it began in 2005.

Worst-Case Scenario Has Happened — Your Property Has Sustained a Loss

Real Estate Journal – Falls 2018

The first thing that crosses your mind is “am I covered for this?” That’s a great question, because if you have selected the wrong insurance, the answer could be NO. There are a lot of possibilities why you have no coverage; the most common being you attached your investment property to your Homeowner’s Policy and the property is vacant because you are rehabilitating, your homeowner’s policy may deny the claim because the property has been vacant for more than 30 or 60 days. Arcana highly recommends you acquire a separate policy, be it from us or another insurance Company.

Let’s assume you have made the wise decision regarding your insurance and have acquired a separate policy; hopefully with Arcana. Now you are ready to file a claim. Arcana provides two options from which to choose how best to file a claim. You may email a fillable PDF form to our Claims Department or you may go to our website and file the claim electronically. Your claim is received and set up in our claim system. You will receive a letter acknowledging receipt of your claim which will provide you with your claim number and deductible information. A local adjuster from our independent adjusting company is assigned the claim. They have three working days to contact the designated contact person you have provided.

If your property has sustained damage that leaves the interior of the property exposed to the elements, you may make temporary repairs to prevent further damages. You may take some photos of the damages prior to the temporary repairs and provide those photos to the adjuster upon inspection. Be sure to present any invoices for temporary repairs to the adjuster at the time of inspection. If you have sustained water damage to the interior of the property, you may also begin the process of mitigating the water damage prior to the inspection by the adjuster to prevent further damage. Be sure to document the damages prior to these repairs as well with photos and provide them to the adjuster. If there is fire damage to the property, you will not want to begin any clean up until you are advised to do so. You should only secure the property from further entry.

The adjuster will come out and inspect the damages to the property and verify the facts of loss with you or your representative. You may have your own contractor or representative at the inspection if you desire. The adjuster will complete an estimate of the damages. This estimate will be submitted to the adjuster’s supervisor for review. If the estimate appears in order, the supervisor will submit the estimate to Arcana’s Claims Department for a second review. Once the estimate has passed Arcana’s review, it will be forwarded to the insured. The insured may then review the estimate for accuracy and an agreed scope of damages. Once an agreed scope is reached, the initial payment will be requested from our accounting department.

Take notice of two specific line items in the summary of your estimate. One is Recoverable Depreciation and the other is Non-recoverable Depreciation. Recoverable Depreciation is just what it says. It is the Depreciation you are entitled to recover once the repairs have been completed. To claim the Recoverable, we require the insured to submit the final repair invoice for review. Once the review is completed, a check request for the recoverable is requested from our accounting department. Nonrecoverable Depreciation is depreciation that the insured may not claim. It is utilized on items which are paid on an actual cash basis as opposed to replacement cost.

There are a couple of other items related to filing a claim you should know about. If you are filing a claim for theft or vandalism, you will need to provide a police report of the incident before a claim payment can be issued. In the case of a fire claim, you will need to provide a copy of the fire report prior to any claim payments being issued.

Most importantly; know what claims are covered in your Policy. Arcana is recognized nationally as one of the leaders in providing professional claim services. Please feel free to call with any questions you may have regarding your Arcana Policy.

Susan Gropp
Executive Vice President and a partner at Arcana Insurance Services, LP. She is over the underwriting and claims divisions.

Don’t Base Your Insurance Purchase Strictly on Price

Real Estate Journal – Summer 2018

It’s no secret, the days of purchasing single family homes for investment purposes has become extremely competitive and challenging for the average buyer. No doubt it’s a sellers’ market, especially in major metropolitan areas like Atlanta, Charlotte, Chicago, Dallas-Fort Worth, Phoenix, Portland and Seattle with values appreciating in the last 12 months 8% to 25%. Overpaying for a property typically leads to an unsuccessful ending, especially if you’re financing the property with a lender. Higher purchase prices mean lower ROI, unless the investor can collect higher rents to offset. Higher rents require higher income tenants which again is a limited resource. Plus, there is a chance the price will be too far out of the market standard and therefore, out of the Investor’s control.

As the Arcana team travels around the country visiting NREIA chapters, the first question we most often hear is “What are your rates?” Not about coverage, industry experience, service standards, technology or how do you pay claims? Real estate investors in many cases are still just checking the “insurance box” when purchasing a policy. Often, we hear “I have a good deal!” which means they believe they have the best price. The next question I asked them, “Have you ever submitted a claim?” followed by “Have you read your insurance policy?” Most of the time the answer is “no” in both cases. Everyone wants a good deal, including me, but how do you define a good deal? Lower insurance rates don’t necessarily equate to lower out of- pocket expenses related to your insurance program. Payment plans, cancellation provisions and what “isn’t covered” in your insurance policy is more impactful to an Investor’s bottomline returns than merely cheap rates. Wise investors should be looking at every expense related to the purchase and financing of the asset, but as I have mentioned before in this periodical and in speaking engagements to NREIA chapters and other groups, don’t base your purchase strictly on price.

If you’re a “flipper”, the rate doesn’t impact the purchase and sale of a home – especially assets purchased and sold within 90 days. It’s the hidden cancellation charges most insurance companies charge like minimum premiums, earned policy fees and short rate cancellation charges that impact overall cost. If your strategy is to hold and rent, then you’re looking for maximum
cash flow to fund one’s investment and make a decent financial return for you or your investors. Under the Arcana / NREIA customized program, you truly get the best of both worlds. Listed below are the advantages of the Arcana’s insurance program for members of National REIA.

  1. Maximized Cash Flow – No minimum premium charge, No earned policy fees, daily Pro-rate insurance calculation, monthly In-arrears payments with no interest charges, and flexible payment schedules. The following scenario shows how the Arcana / NREIA program is different from most insurance companies. -for example: You purchase a one-year insurance policy through Arcana / NREIA
    for $365 and you sell the home on day 30 day of the insurance policy and go online and cancel your policy. The total insurance charge is $30 dollars plus applicable State surplus lines tax which is typically 5% of the earned premium. This as opposed to the other Policies where you might be facing a three-month minimum payment.
  2. No Underwriting – No photos, loss history, or inspections.
  3. Maximum Benefits – Replacement cost, All-Risk Coverage with normal exclusions, no Vacancy Clause, Occupied and Vacant rates the same.
  4. Industry-leading Technology – 24/7 ordering capability from your computer or smartphone. All accounting records at your fingertips. Dashboard platform to purchase other coverages including builder’s risk, flood, renter’s insurance, tenant discrimination and cyber liability.
  5. Great customer service and outstanding claims turnaround.
  6. The buying power of the NREIA’s 40,000 plus members give you the best program for the best price, especially for small portfolios or new investors to the market.

I also want to bring up another point; the insurance world is no different than you when it comes to expectations on the use of its financial capital. Insurance companies are looking for a reasonable return on their investment. Arcana is a U.S. Insurance Coverholder for Lloyds of London, the largest property insurer in the United States. Less than 80 firms can claim this prestigious title. Recently our underwriters informed us that, overall, the U.S property markets have lost money the past 2 years. Fortunately for our customers, Arcana had another good year, not a great year, but better than most according to our companies underwriting divisions. The U.S domestic insurance companies have also experienced poor results. So, don’t expect the insurance market to reduce pricing any further. If you see lower pricing, be weary and cautious. Do your homework & due diligence. What you think might be a “good deal” probably isn’t.

Mark A. Gannaway, CPCU
Chief Executive Officer and Founding Partner

The True Cost in Purchasing Insurance

Real Estate Journal – Spring 2018

I hate using the old worn out term “you get what you pay for” especially for Arcana’s first article with National REIA, but sometimes getting a “good deal” or saving a few dollars on your insurance premiums can lead to big problems when you need it most – filing an insurance claim.

Like most insureds, real estate investors are no different than anyone else — many times price points are the sole driver of decision making, not proper insurance coverage placement. Every policy you purchase should include at a minimum: replacement cost, all risk insurance coverages with normal exclusions, wind and hail coverages and liability coverages in the event of a third-party injury or someone claiming to being injured on your investment property. In today’s environment, I highly recommend a Flood quote whether the property is in a national flood zone or not. Five out of six flood losses experienced in Hurricane Harvey did not have flood insurance and many were not located in a nationally defined flood zone.
One purchases insurance to have comfort in knowing when something goes amiss, and it will, the Claim will be paid within a reasonable time line at a fair value. Unfortunately, Investors are sometimes finding that an extremely low rate, quoted outside the industry norm guidelines is not always accompanied by swift and accommodating Claim payment. Do your homework and check references with your industry associates and leaders of your Association. This additional step will pay significant dividends in the long term.

Another challenge in today’s real estate investment market is finding an insurance agent who understands your business and the financial exposures you as a real estate investor face. I’m amazed how many times I hear “Uncle Joe or my fraternity brother does all my insurance”. First question I ask them is “Why?”, followed with “what does Uncle Joe know about your business and the industry you’re in”? This often leads to a “deer in the headlights” look staring back at me. You must have an insurance agent experienced in this type of industry, a lack of understanding of the exposures you have as a real estate investor could be fatal to your business.

Another big mistake is the assumption that a Homeowner’s policy is all one needs to cover their investment property, especially on smaller portfolios. They call their insurance agent once they purchase the property, have them add an endorsement to their Homeowner’s policy insuring their new purchase; listing the address, mortgagee, and the preferable insurance amount. Again, my first question is, “have you ever read your Homeowner’s policy?” A typical Homeowner’s Policy requires that the property is occupied. Occupied means more than just a table and chairs and a few pieces of furniture. If the property has been vacant at least 30 or 60 days, depending on the insurance company’s policy, and they prove the claim occurred when nobody was living in the property, there is a high probability they will deny the claim.

How about the property being vacant while you “rehab” the building? Does your Homeowner’s or Landlord policy cover the vacancy period and the “builder’s risk exposures associated with your construction project. Many policies exclude this type of risk potential.

In today’s investor environment, we are seeing more and more investors choosing to “hold” properties instead of flipping them to new buyers due to the high rental income returns being experienced in many markets. This introduces a whole new set of problems for the investor/landlord relative to their Homeowner’s coverage. From a property risk analysis exposure, if the insurance company can prove the tenant caused the damage in question, the Homeowner’s Policy may have an Intentional Acts clause giving the insurance company reason to deny a claim. From a liability risk analysis exposure, does the Homeowner’s Policy afford you third party coverage in the event a tenant’s guest is hurt while visiting your investment property? What if your tenant has a service animal at your location, does your policy afford you coverage? With your Homeowners Policy as your insurance program for your investment properties, there is also the negative financial impact of your investment property losses impacting your own personal insurance loss history.

So, choosing the wrong method of mitigating your potential financial losses whether through buying the wrong insurance policy or trusting “Uncle Joe” with his recommendations or both, has the potential to both sink your potential profits in your investment property and you having to pay more out of pocket when they raise your rates or cancel your Homeowner’s policy.

In the end, the main lessons here are choose an insurance agent who knows your business and the market segment in which you are working and then purchase the correct insurance coverage. The risks you face in the future will continue to evolve and you need a knowledgeable source who will put your best interest before the mere selling of a low cost policy. Understanding your financial exposures will go a long way in saving your real estate investments and possibly your business.

Mark A. Gannaway, CPCU
Chief Executive Officer and Founding Partner

Arcana Insurance Services is an all-lines property and casualty managing agency that’s been working with real estate investors since it began in 2005. But long before that, founder and CEO, Mark Gannaway, served as President, Chief Marketing Officer, and Executive Vice President for several other well-known agencies and brokerages. With over 35 years of experience behind him, including 20 with Lloyd’s of London as a US Coverholder; one of only a select few in the United States.

Insurance Journal – October 16, 2017

Insurance Journal

Insurance Journal delivers the latest business news for the Property & Casualty insurance industry.
In this edition, you can find an article about The Complicated Risk Exposures of Property Managers and Investor written by our CEO – Mark Gannaway, page SC7.
Also, check out our advertisement on page SC4.