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By Bryan Ridgway, CIC Services
For multifamily property owners, protecting margin increasingly requires looking beyond rent growth and expense cutting to examine where money already moves through the business and who ultimately benefits from it. Insurance is one of the clearest places to start. National Apartment Association research found that real annualized multifamily property insurance costs increased from about $465 per unit in 2019 to approximately $821 in 2024, a 77% increase in five years. The NAA describes insurance as a meaningful source of pressure on net operating income, particularly as costs in some markets climb well beyond the national average.
Those increases have prompted owners to scrutinize deductibles, coverage, limits and carrier relationships, but the larger financial question extends beyond what insurance costs. For certain predictable exposures, owners with sufficient scale can also examine who receives the economic benefit when premiums exceed claims and the expenses associated with providing coverage.
Tenant legal liability provides a useful case study. Property owners already bear financial exposure when residents cause certain types of accidental damage to a building, and lease requirements commonly establish a mechanism for addressing that risk. When the associated insurance sits entirely with a third-party carrier, however, the property owner receives the protection while the carrier retains the underwriting economics. A captive insurance structure can alter that arrangement for qualified portfolios by allowing the organization to retain a defined portion of the risk and potentially benefit from favorable underwriting results.
The opportunity is not a way to manufacture revenue from an unrelated tenant fee. It is a question of whether an existing insurance transaction can be structured more efficiently for a property business that has the scale, loss history and financial capacity to assume some of its own risk.
Looking at Tenant Liability as a Portfolio Risk
The basic business concept has parallels outside insurance. Consider a restaurant whose customers routinely finish dinner and then walk next door for dessert because the restaurant does not offer it. The restaurant did not create the demand, but it also receives none of the revenue from the second transaction. At some point, an owner might reasonably ask whether adding dessert makes economic sense rather than continuing to send that business elsewhere.
Tenant-related insurance presents a more complicated version of the same question because the underlying transaction involves regulated risk transfer rather than an ancillary product. Property owners face recurring exposure to damage caused by residents, including incidents involving fire, smoke or water. Individual events can vary considerably in severity, and losses can extend beyond the unit where an incident begins. Tenant legal liability coverage is designed to respond to specified circumstances in which a resident becomes legally liable for damage to a landlord’s property.
At the individual-unit level, the economics may appear relatively small. Across several thousand apartments, they no longer are. A program generating the equivalent of $15 per participating unit each month would represent $180,000 in annual premium at 1,000 units, $900,000 at 5,000 units and $1.8 million at 10,000 units. Those amounts are premium flow, not profit. Claims, administrative expenses, insurance costs, reserves and other obligations must be funded from the program.
What scale changes is the significance of the underlying risk pool. A large portfolio produces more exposure, but it also produces more data and a broader base across which losses can occur. That can give an owner a better foundation for evaluating frequency, severity and whether retaining a portion of the risk deserves consideration.
The Difference Between Paying for Risk and Financing It
Commercial insurance traditionally allows a property owner to transfer defined risks to an insurer in exchange for premium. The insurer assumes the covered exposure, pays qualifying claims and retains the financial result after losses and expenses.
That arrangement remains essential for risks that an owner cannot or should not retain. It does not follow, however, that every insurable exposure needs to be financed in exactly the same way.
A captive insurance company gives a business another option. The National Association of Insurance Commissioners defines a captive as an insurer owned by the organization or organizations whose risks it insures. Captives function as a form of self-insurance and operate under regulatory requirements that can include capitalization, reserves and financial reporting. They allow an organization to retain selected risks rather than transferring all of them to an unrelated commercial carrier.
In a tenant legal liability program, that structure can give a property organization an economic interest in the underwriting result. Premium allocated to the captive supports insured losses and program expenses. If the pricing proves adequate and covered losses remain below the amount available after those costs, the captive can retain underwriting income. If losses deteriorate, the captive participates in that result as well.
That two-sided exposure is fundamental. The financial opportunity exists because the owner has agreed to assume insurance risk, not because a captive converts an insurance charge into automatic revenue.
Why Unit Economics Become More Important at Scale
Multifamily businesses already analyze relatively small financial changes through a portfolio lens. A few dollars per unit in maintenance expense, collections, utilities or turnover can translate into a substantial annual effect once multiplied across thousands of apartments. Insurance deserves similar analysis because premium and loss costs also accumulate one unit at a time.
The current insurance environment makes that examination more consequential. NAA’s analysis found that national multifamily insurance costs remained relatively stable for much of the period from 2010 through 2018 before accelerating sharply in subsequent years. By 2024, real annualized costs had reached about $821 per unit. NAA’s research attributes the increase to a combination of catastrophe losses, replacement-cost inflation, reinsurance conditions and other pressures affecting property insurance markets.
Tenant legal liability does not solve the broader property insurance problem, nor should owners view it as a substitute for appropriate commercial coverage. Its significance lies elsewhere. It gives owners an opportunity to isolate one recurring category of risk, understand its loss characteristics and determine whether their existing approach sends all of the associated underwriting economics outside the organization.
For a sufficiently large portfolio, that merits more than a procurement discussion. It becomes a capital allocation and risk-financing question.
Underwriting Performance Has to Drive the Decision
Any analysis that begins with projected profit instead of projected losses has the priorities backward.
Before retaining tenant legal liability risk, an owner needs credible information about historical claims, expected loss frequency and severity, program participation, administrative costs and the capital required to support the risk. Geography can also affect results. A portfolio concentrated in one region may have a different risk profile from thousands of units dispersed across multiple markets, while variations in building type, age and resident characteristics may influence loss experience.
The captive itself carries obligations that a conventional insurance buyer does not bear directly. Capital must remain available to support claims, reserves must reflect insurance liabilities and the program requires actuarial, regulatory, claims and administrative oversight. The NAIC notes that captive insurers remain subject to regulatory requirements that include reporting, capital and reserve obligations. Those requirements reflect the fact that a captive remains an insurance company even when its insured and owner are closely related.
For that reason, the relevant benchmark is not whether a tenant liability program can produce revenue in a favorable year. Owners should determine whether they possess enough scale, information and financial capacity to retain the risk responsibly through a range of outcomes.
When the answer is yes, favorable underwriting performance can become an additional source of income. When the answer is no, transferring the exposure to another insurer may remain the more efficient use of capital.
Finding Margin Inside an Existing Risk
Multifamily owners have limited control over some of the largest forces affecting property performance. They cannot set interest rates, determine local property taxes or dictate conditions in global insurance and reinsurance markets. What they can control is how deliberately they examine the financial transactions already embedded in their operations.
Tenant legal liability deserves that examination because it combines an existing property exposure with an existing insurance transaction. For large portfolios, the sums moving through that transaction can become substantial even when the economics appear modest on a per-unit basis.
The strategic opportunity is therefore broader than finding another source of ancillary revenue. An owner that understands a recurring risk may be able to decide more deliberately how much of that risk to transfer, how much to retain and whether outside insurers should continue to capture all of the potential underwriting return.
Captive insurance provides one structure for doing that, but the structure only creates value when the underlying insurance performs. The strongest case begins with sound underwriting, credible loss data and sufficient scale. When those pieces align, tenant legal liability can move from an insurance requirement on the edge of property operations to a risk-financing decision with a direct connection to portfolio margin.
About the Author
Bryan Ridgway serves as managing partner and chief operating officer of CIC Services, LLC, where he leads the structuring of new captive insurance formations and oversees the company’s client management and administrative services. With nearly 20 years of experience in the captive insurance industry, he has developed extensive relationships with regulators and service providers around the world. Before joining CIC Services, Bryan served as chief financial officer for a third-party captive administrator, where he oversaw the development and implementation of more than 50 captive insurance transactions. He also brings more than 10 years of public accounting experience, with a focus on taxation. Bryan was born and raised on St. Croix in the U.S. Virgin Islands and graduated cum laude from the University of the Virgin Islands with a Bachelor of Science in accounting. He also holds the Associate in Captive Insurance designation from the International Center for Captive Insurance Education.
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