Insurance is a growing expense for commercial property owners, eating away at their revenues in an already competitive market. For some properties, the share of revenue reduced by insurance costs has doubled in recent years. 

Some might feel the bite of this inflation more acutely than others, particularly the midsized players who make up the bulk of commercial real estate ownership. One CRE professional says it is time they did something about it.

“I’ve been in the real estate business for more than 10 years, and like most midsized, low-loss real estate owners, I’d been buying my insurance coverage through a broker,” said Angad Guglani, founder of Cooper Square Acquisitions and, more recently, Real Property Captive. “My broker was charging a 30% commission, which meant they were making $100K for a program that cost $300K or $400K a year. I thought, ‘This has to end.’”

RPC is a captive insurance program built for companies like Guglani’s: not small players, but not multibillion-dollar giants. Rates for companies in this middle category can be considerably higher than what an institutional owner might pay for similar coverage, he said. 

“We've identified about 16,000 owners in America that are between $100M and $3B in total insured value, and we want to be the most efficient outlet for them for insurance,” he said.

Bisnow spoke with Guglani about what he learned when he began to dig into the issue and why his solution could save middle-market companies 25% to 35% on premium costs.

Bisnow: What started your migration from CRE owner to founder of a reinsurance program?

Guglani: I realized our rates were completely divorced from what the people at institutional scale pay for the same coverage. Rates in the middle market could be as much as 70% higher than what an institutional owner would have to pay.

Bisnow: What’s the reason for that discrepancy?

Guglani: Broker inefficiency is one reason, and it results in money being taken from our pocket. However, most people at the institutional level either have their brokers on flat fees or they don't use brokers — there is no 30% commission being paid out of their premiums. 

The second reason is that the largest institutions have captives that buy reinsurance. They’re skipping over four or five layers — the retail broker, wholesale broker, manager, general agent, carrier — and going right to reinsurance, which is far better priced and more efficient. 

A captive is your own insurance company. This means if you’re a better-than-average risk and you don't file claims, it results in a profit for you.

Bisnow: How does RPC address these issues?

Guglani: Our program adds value in three ways. One is the captive model: When you don't file claims, the captive accumulates capital, and as a member-owned company, that revenue comes back to the owners. 

Two, we're buying reinsurance at giant scale because we’ll be an aggregation of hundreds, and eventually thousands, of middle-market owners. 

And three is distribution efficiency. If you want to use an agent, you're more than welcome to. You can pay them a flat fee, but we allow you to buy coverage directly. The commission that is currently being paid out of your policies is dollars that should be in your pocket, and we cut out all the distribution inefficiency that people in the middle market are forced to take on.

Bisnow: Why can’t a midmarket player address these inefficiencies on its own?

Guglani: Midsized firms don't have a beefy executive team, and it's rare for a firm under a billion dollars in assets to have a chief risk officer whose full-time job is to manage the insurance program. They have to rely on brokers, who legally don't have to disclose what the commission is. So there's no disclosure of what your rate is versus what other owners are paying for the same coverage. It's completely opaque, and you have to trust blindly that some broker is doing their job. 

Bisnow: OK, but why haven’t they taken a captive approach like RPC’s?

Guglani: I wish someone had done this before, but sadly, people rarely understand how opaque and inefficient the insurance business is unless they're in the insurance business. And people in the insurance business make money off the opacity, right? It is a commodity business with high margins because of information asymmetry, and insurers have no incentive to launch a program like this. It takes someone from our industry to step up and do it, and that's probably why it hasn't been done before.

 

Bisnow: What makes you think you can make this work? More to the point, why should prospective clients have confidence in your model?

Guglani: Our policies will be issued by name-brand carriers, and we're in talks now with three. Whoever gives our clients the best terms will issue the policies in full force, and our clients will get a fully binding policy. 

Secondly, it's a very regulated business, and our captive is likely to be launched as a Bermuda entity, and the Bermuda Monetary Authority has to review every single captive, all their financials, their whole business plans and their teams. Our team is made up of eight partners that all have 20-plus years of industry experience, including as actuaries, accountants and investment managers

RPC’s job is being the quarterback or general partner of this. We are not actually performing any direct functions of the captive — there are people on our team that have decades of experience doing that.

Bisnow: As you approach your Jan. 1, 2027, target date for launch, what’s been the response so far?

Guglani: Most people say, "I'm so glad someone's finally doing this because it makes perfect sense.” 

I've built this program to be completely efficient and transparent, with the customer experience in mind. I don't think there's an element that we haven't thought of to create a better program for the client.

This article was produced in collaboration between Real Property Captive and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.