How Monoline Property Insurance Can Boost Real Estate Developers

Real estate developers face many risks whenever they embark on a new project and monoline property insurance can help. They may also need funding from third-party sources to ensure the completion of the planned development. Of course, without appropriate insurance, they risk incurring catastrophic losses that could put their company and personal assets at risk.

Getting monoline property insurance is one way to safeguard against these risks. Although many insurance options are available to developers, going with a company specializing solely in property insurance could be advantageous in many respects. 

We will uncover monoline property insurance and how it can benefit real estate developers. 

What is Monoline Insurance?

Monoline insurance firms are insurance companies that offer only a single type of insurance plan. In most cases, they come from larger organizations that insure bonds.

Insurance for debt security options such as bonds come as credit wraps. These could improve borrowers’ credit ratings and protect them against the possibility of being downgraded.

How Monoline Insurance Works 

Debt security issuers often work with monoline insurance firms to boost their debt issue ratings or prevent these from being downgraded. Insurance firms can do this by providing issuers with credit wraps.

Investors such as real estate developers can utilize credit wraps to safeguard against securities losses by committing to repay part of the loan interest or principal. Alternatively, they could repurchase some of the defaulted loans in their portfolios. In essence, credit wraps function as insurance on debt securities.

Debt issue ratings protected by credit wraps typically correspond with the credit rating of the wrap provider. Monoline insurance firms may also provide bonds that safeguard against defaults in transactions involving physical products and merchandise.

As the term implies, monoline insurance firms provide only a single type of insurance. Unlike other insurers, they don’t offer multiple insurance options, such as auto, home, and bond insurance. By focusing on a single product, they can more easily gain expertise in that particular segment of the insurance trade.

Strictly speaking, monoline insurance firms can provide any insurance. But most such companies typically focus on providing their clients debt security protection.

What does Monoline Insurance Usually Cover? 

Some of the most common risk coverages offered as monoline policies are: 

  1. General liability
  2. Property
  3. Products liability
  4. Cyber liability
  5. Pollution

Why Real Estate Developers Need Monoline Insurance

Real estate developers typically opt for monoline property insurance when they can’t get what they need from standard insurance packages. Some scenarios in which monoline insurance is a feasible alternative are: 

High-Risk Exposures

Many insurance policies do not cover extreme risks. Consequently, real estate developers may have to purchase monoline policies to address the coverage gap. 

For example, some developers may have package policies that cover liability and materials but exclude property protection. If so, they must purchase monoline property insurance to augment their general liability policy.

Large Organizations

Monoline insurance is especially well suited to more prominent real estate development firms. For most such companies, getting everything they need from a single packaged policy can be cost-prohibitive or otherwise impossible. Most insurers prefer to contain their exposure to significant liability or property risks and are unwilling to cover other risks. 

Let’s say the insurance company commits to covering only a portion of the property. To get adequate coverage, the developer must obtain primary property insurance for the first 10% of their property’s value. They would then have to purchase three monoline policies that offer 30% coverage each to cover the remainder.

It is a common practice in the insurance industry known as “excess layering.” It uses monoline policies to spread the risk between several insurers.

Custom or Specialized Solutions Requirements  

Real estate developers generally need more customizable solutions than what packaged or bundled policies provide. A monoline policy will work if they need coverage for specific risks that other insurance plans don’t cover. 

About Snyder Specialty

Snyder Specialty, LLC is a New York-based underwriting facility that provides a range of property and liability solutions for personal and commercial lines. Specializing in coastal properties and hard-to-place risks, Snyder Specialty expands your current capabilities with proven solutions for complex risks. Find out more about the company’s range of services by calling (718) 362-8039.