Most real estate professionals have seen an increase in their revenue over the past year due to the effects of COVID-19 and inflation (read about these in our other blog post). Increased revenue leads to an increased risk, which in turn increases your premium.
Gross commission income (GCI) impacts your premium
The past year, the real estate market has been on the upswing, and most real estate professionals have been doing extremely well. When real estate professionals are doing so well, gross commission income (GCI) goes up.
GCI is one of the factors used to calculate your E&O insurance premium. If you are making larger sales and transactions, your GCI will increase due to the larger commission. These large transactions carry more risk and complications with them.
The large transactions real estate professionals have been making are due to the low inventory of real estate. With this low inventory, property values have increased, which in turn increased real estate professionals’ GCI.
Increased revenues = Increased exposure = Increased E&O premiums
Firms may have had the same number of transactions as prior years, but with the inflated property values, there will be increased GCIs. These recent years with elevated property value transactions continue to be covered by your E&O carrier; therefore, the risk stays with you. Because the transactions stay with you, this means real exposure is on the carrier.
The types of transactions you make impact your premium
A commercial transaction or a high-value home sale can be more involved than a typical residential transaction. These transactions can become complicated, and the more complex the transaction, the higher the risk. The higher the value of the transaction, the larger the claim demands could be. Since residential transactions are less complicated and possibly of lower value, they carry less risk.
We all do make mistakes, and that’s why you have E&O insurance—to cover yourself just in case an issue happens.
Your firm’s specialties
If your firm has a lot of non-residential business, your premium will be higher because of the higher risk that comes with commercial transactions. You might even have a commercial specialist within your firm who brings in more commercial business. With any increase in non-residential real estate business, you’ll see movement in your premium.
Your premium pays for more than just insurance—it also pays for customer service. Pearl Insurance truly cares about you and your firm. We have a Risk Management newsletter our real estate professionals receive every month to help them learn how to better protect their businesses and reduce their risk. Want an idea of what our Risk Management newsletters look like? Check out the issue linked below.
