Buying Investment Property? Ask for the Insurance Loss Runs

The seller's insurance claims history may tell you something about the property that the inspection report doesn't.

When purchasing investment property, most buyers carefully examine the rent roll, operating statements, property taxes, and physical condition of the building. But there's another document that deserves a place on the due diligence checklist: the insurance loss run report.

A loss run report is a record of claims reported to an insurance company under a particular policy, generally showing the date of loss, type of claim, amounts paid, outstanding reserves, and whether the claim remains open or has been closed. It can reveal a history of water intrusion, storm damage, fires, liability claims, or other incidents that may not be obvious during a property inspection. For example, repeated water damage claims involving different apartments may suggest an underlying plumbing or building-envelope problem rather than a series of unrelated accidents. A prior slip-and-fall claim might prompt closer examination of sidewalks, stairs, lighting, and other common areas.

Why the Claims History Matters

The claims history can affect more than your assessment of the property's physical condition. It may also affect your ability to insure the property at a reasonable cost.

Insurance underwriters may consider a property's prior losses when evaluating coverage, premiums, deductibles, and exclusions. A building that has experienced repeated water damage claims, for example, may be more difficult or expensive to insure, even if the seller has completed the repairs. An open claim may raise additional questions about responsibility for repairs, outstanding payments, and coverage for damage discovered after closing.

Loss runs also provide an opportunity to compare the seller's account of the property's history with the insurance record. If a claim involved substantial storm damage, ask what repairs were performed, who performed them, whether permits were required, and whether warranties are transferable. A closed insurance claim doesn't necessarily establish that every underlying problem was corrected.

What Should You Request?

Ask the seller to obtain loss run reports covering at least the preceding five years, if available, from every insurer that covered the property during that period. The seller or its authorized insurance agent will generally need to request these records; a prospective purchaser ordinarily cannot obtain another owner's claims history directly from the insurer.

Review the reports for frequency, severity, and patterns of losses. Pay attention to claims that remain open, claims denied by the insurer, and claims involving repeated damage of the same type. If the property has changed insurance companies, make sure the reports cover the prior policies as well.

A loss run showing no claims isn't a guarantee that the property has never suffered damage. Owners sometimes pay for repairs without filing insurance claims, and a report may not include losses under another owner's policy or a tenant's insurance. Loss runs are one part of due diligence, not a substitute for physical inspections, seller disclosures, or examination of maintenance records.

Don't Wait Until After Closing to Talk to Your Insurance Agent

Provide the available loss runs and property information to your insurance agent early enough to obtain a meaningful quote before your due diligence period expires. Ask whether the property's history raises concerns about insurability, premium increases, unusually high deductibles, or exclusions.

A purchase that looks attractive based on the seller's existing insurance premium may look considerably less attractive when the buyer receives a new quote. And discovering that an essential coverage is unavailable after closing is a problem no investor wants.

The bottom line: A property's financial history includes more than its rents and operating expenses. Its insurance claims history may reveal recurring physical problems, potential liability exposures, and future insurance costs. Requesting loss runs before purchasing is a relatively simple step that can help protect both your investment and your anticipated return.