What Happens to NOI When an Operator Moves All Three Insurance Layers to a Captive

The strongest version of the captive case isn’t the resident layer alone, or the property layer, or the operator layer. It is all three running together. This post models what happens to NOI when a professional multifamily operator moves all three insurance layers into a captive. It is an illustrative model built from the programs we’ve built and published loss ratio benchmarks, not a quote.

The base case: 1,000 units in the traditional market

Assumptions: a 1,000-unit portfolio at 88% occupancy, a management company with 45 employees, and a moderate-cost insurance market.

• Resident insurance at $18 a month and 85% enrollment: $161,280 a year

• Property and habitational: $720,000 a year, or $720 a unit

• GL and umbrella: $160,000 a year

• Workers’ comp for 45 employees: $135,000 a year

• D&O, E&O and EPLI: $65,000 a year

• Total insurance spend: $1,241,280 a year

In the traditional model, all of that goes to carriers and the operator gets nothing back.

Layer 1: resident program

On $161,280 in premium at a projected 13% loss ratio, the estimated annual distribution is about $86,573, or $7,214 a month. Our programs have consistently averaged 75% to 93% resident enrollment over time, so the 85% assumption here is in line with that range. See how profit-sharing works on this layer.

Layer 2: property and GL in a captive cell

About $880,000 of property and GL premium is suitable for captive retention, with catastrophe exposure ceded to reinsurance. At a projected 18% loss ratio, the estimated annual distribution is about $300,600, or $25,050 a month. For how this layer gets added, see our illustrative owner cell case.

Layer 3: operator lines

Workers’ comp plus D&O, E&O and EPLI total $200,000 in premium. At a projected 25% blended loss ratio, the estimated annual distribution is about $70,000, or $5,833 a month.

The full stack

• Resident layer: $86,573 a year

• Property and GL: $300,600 a year

• Operator lines: $70,000 a year

• Total: $457,173 a year, or $38,098 a month, on $1.24 million in premium

At a 5% cap rate, a $457,173 annual NOI improvement implies about $9.1 million in added asset value. That figure is illustrative.

What it looks like on the NOI statement

Before:

• Insurance expense: $1,241,280

• Insurance contribution to NOI: $0

After:

• Premiums paid: $1,241,280, unchanged

• Captive distributions received: $457,173

• Net insurance cost: $784,107

• Effective cost per unit: $784 versus $1,241 before, a 37% reduction

Premiums don’t drop and coverage doesn’t drop. What changes is where the underwriting profit goes. Our post on turning insurance into a profit center covers the strategy.

How Insur3Tech fits

Insur3Tech’s captive has no minimum premium and no unit minimum; portfolios as small as 4 doors can join. There are no holdout periods. The entire program is reinsured, so you carry no downside risk. What isn’t spent on claims comes back to you. We insure 100,000+ doors.

Want all three layers modeled for your portfolio? Book a free discovery call. We’ll audit your portfolio for free and tell you how much you can expect to get back every year.