The multifamily insurance market is both volatile and cyclical. Double-digit annual increases were the norm from 2019 to 2024, but for the past two years, owners have experienced high single- to low double-digit decreases. If history repeats itself, as it has many times before, the current cycle of premium decreases will end, and insurance buyers will yet again see increases in the future.

While these cost fluctuations are concerning, the key issue is less about the amount of money owners have to pay and more about the uncertainty they face year to year, said Tim Kraft, founder and managing partner at Working Layer Programs.

“Owners seek stability in their budgets, not the swings up and down,” Kraft said. “While a downward swing may look attractive in the moment, several years later, you’re likely to have a double-digit increase that you haven’t budgeted for. This is the problem the Working Layer solves.”

In insurance terms, the “working layer” is a predictable layer of attritional claims — smaller-scale claims that regularly occur throughout the life cycle of a property, things like small kitchen fires, toilet overflows and pipe bursts. These are best financed by owners directly, instead of being funneled through insurance companies that charge significant markups, Kraft explained.

“Property insurance companies underwrite to a 50% loss ratio in their working layers,” he said. “So, if you do the math, for every one dollar of claim they pay, they need to charge two dollars of premium. However, owners self-insuring these predictable claims can do so for significantly less than traditional insurance carriers. This is exactly the dynamic that Working Layer Programs was designed to resolve.”

For the past 26 years, Kraft has worked as an outsourced risk management consultant, buying insurance for CRE owners and managers. Working Layer Programs was born out of his frustration at being unable to find the right formula to efficiently transfer risk.

“Year after year, my clients suffered deaths by 1,000 cuts from the underwriters,” he said. “The small, predictable losses eroded the carriers’ profitability, and every year, I would see rate and deductible increases. I tried for years to restructure my clients' programs in the traditional insurance marketplace but couldn’t find the right fit to provide my clients a lower, longer-term stable cost. So I built one.”

Kraft launched Working Layer Programs to provide institutional-grade property self-insurance and an alternative to renters’ insurance to midmarket multifamily owners who'd been priced out of these types of programs in the past.

“The economics of our approach start to make sense north of 3,000 units,” Kraft said.

Making these programs work requires owners to unbundle risk, determine what they can and cannot retain, and then assemble the infrastructure to execute it. This also requires the help of retail brokers, wholesale brokers, captive managers, managing general underwriters, actuaries and more, all of whom charge a separate fee.

Working Layer Programs and its proprietary software take this complex, disjointed process and bring it all under one turnkey platform, Kraft said.

“With us, the client gets the best of both worlds: the financial benefit of more efficient insurance administration by managing and financing their attritional claims, while at the same time having the backstop of a major carrier’s balance sheet for the catastrophe claims,” he said. “The goal is to provide the same protection but with a better outcome. Program participants realize a level of control and cost stability unavailable in the traditional marketplace”

Kraft creates these efficiencies in two ways: by having his client self-insure higher property deductibles and also replacing their renters’ insurance requirement with a damage waiver program known as Tenant Legal Liability. In both cases, downside risk is mitigated through a partnership with an excess property carrier that covers catastrophic risk. It’s the same coverage, with net savings of 10%-25%, made possible simply by changing the funding dynamics for these two risks.

Kraft says these approaches are proven moneymakers. He told the story of one client for whom he negotiated a 50% rate reduction to remove all attritional claims from the client's loss history. As a result, he was able to achieve significant savings by managing claims in-house rather than having the insurance company subject the client to its significant markups.

In another case, the client had a very good loss history, but it was in a class of business — wood frame residential risk — that was deemed hazardous by the underwriters, Kraft said. For this client, Kraft implemented a $1M deductible that removed the underwriter’s attritional risk of loss. That program is currently on track to achieve 25% insurance savings for the client with no additional risk, compared to previous years in which those profits from the working layer of risk would benefit his client’s carrier.

“In both cases, we were able to remove attritional losses from the underwriters’ profit and loss statement,” Kraft said.

The carriers are happier with a lower rate because they make a higher profit margin with relatively little expense, and they’re better suited to pay any catastrophic claims. Likewise, the owner is better suited to manage their own money paying attritional claims, and in doing so, Working Layer Programs created significant savings.

"Giving the owner more control in their insurance solution also creates more budget stability by insulating a big portion of their spend from the market swings," Kraft said.

This article was produced in collaboration between Working Layer Programs and Studio B. Bisnow news staff was not involved in the production of this content. 

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