Insurance Expense Pass-Throughs in CAM: Premium Allocation, Policy Changes, and Exclusions

The Category Nobody Forecasts Well

Insurance premiums for commercial properties increased 40-65% cumulatively between 2020 and 2025. A building that paid $180,000 in property insurance in 2020 is now paying $270,000 to $300,000 for comparable coverage. In some markets and risk profiles, the increase has been even steeper.

This makes insurance the single largest source of year-over-year variance in most CAM reconciliations. When a tenant receives a reconciliation statement showing a 15% increase in total operating expenses, insurance is often responsible for half or more of that increase. And because insurance is a single line item from a single vendor (the carrier, via the broker), tenants who want to challenge the charge know exactly where to focus their audit.

Getting insurance pass-throughs right means understanding what is recoverable, how to allocate it, and how to document it so the billing withstands scrutiny.

What Is Recoverable vs. What Is Not

The lease definition of "Operating Expenses" or "CAM Charges" controls recoverability. But most leases use broad language that leaves room for interpretation on specific insurance products.

Typically Recoverable

Typically Excluded

Gray Area: Depends on Lease Language

Mid-Year Policy Changes

Insurance policies rarely align with calendar years. A policy renewing July 1 means the January-June expense belongs to the prior policy, and the July-December expense belongs to the new policy. If the renewal brings a 20% premium increase, the calendar-year expense reflects a blend of the old and new rates.

Allocation Method

Prorate the premium by the number of days each policy is in effect during the calendar year.

Example: A property with a July 1 policy renewal.

The $263,638 is the amount that appears in the reconciliation, not the $288,000 annual premium from the new policy or the $240,000 from the old one.

Common mistake: Using the renewal premium as the full-year expense. A controller who records $288,000 for 2025 overstates the expense by $24,362. That overstatement flows directly into tenant bills and is easy for an auditor to catch.

Premium Installments vs. Annual Payment

Some carriers bill premiums in installments (monthly, quarterly, semi-annually). Others bill the full annual premium at inception. For reconciliation purposes, the billing frequency does not matter. What matters is the coverage period.

If the landlord pays the full $288,000 annual premium on July 1, 2025, only $144,789 of it belongs in the 2025 calendar-year reconciliation (July-December). The remaining $143,211 belongs in the 2026 reconciliation (January-June).

On a cash basis, this requires an accrual adjustment. On an accrual basis, the premium should already be spread monthly. Either way, the reconciliation should reflect the expense attributable to the reconciliation period, not the payment date.

Premium Increases: Documenting the Why

A 20% insurance premium increase in a CAM reconciliation will draw tenant questions. Having the documentation ready avoids a weeks-long back-and-forth.

What to Keep on File

1. Prior year policy declaration page showing the old premium
2. Current year policy declaration page showing the new premium
3. Broker's renewal summary explaining the increase (loss history, market conditions, coverage changes)
4. Loss runs for the prior 3-5 years showing claims that affected the renewal
5. Coverage comparison showing any changes in limits, deductibles, or covered perils

What to Include in the Reconciliation Package

You do not need to send tenants the full policy. Include:

• A one-page summary showing prior year premium, current year premium, and the percentage change
• The broker's renewal letter (redacting any proprietary financial terms of the ownership entity)
• A note explaining any coverage changes that affected the premium (higher deductible, added earthquake coverage, removed terrorism rider)

Example summary:

Note the deductible increase. The landlord accepted a higher deductible to limit the premium increase. Without the deductible increase, the premium would have risen 28% instead of 20%. That context matters when tenants ask why insurance went up.

Deductible Allocation

When a covered loss occurs and the landlord pays the deductible before the carrier pays the remaining claim, the deductible amount becomes a reconciliation question.

Scenario

A burst pipe causes $85,000 in damage to the building lobby (common area). The property insurance policy has a $25,000 deductible. The carrier pays $60,000. The landlord pays $25,000 out of pocket.

Question: Is the $25,000 deductible a recoverable operating expense?

Analysis by Lease Language

Lease says "including deductible amounts": The $25,000 is recoverable. Straightforward.

Lease says "insurance premiums and related costs": Arguable. "Related costs" may include deductibles. Most landlords bill it; some tenants challenge it.

Lease excludes "costs resulting from the negligence of Landlord": If the pipe burst due to deferred maintenance, a tenant could argue the deductible is a consequence of the landlord's negligence and should be excluded.

Lease is silent on deductibles: Default to the nature of the underlying expense. The pipe repair would have been a recoverable R&M expense if there were no insurance claim at all. The deductible is effectively the uninsured portion of a recoverable repair. Most practitioners treat it as recoverable, but document the rationale.

High-Deductible Policies

Some landlords carry high-deductible policies ($50,000 to $250,000) to reduce premiums. This shifts more cost to the operating expense pool when claims occur. If your building has a $100,000 deductible and experiences two claims per year, the deductible payments could exceed $200,000, which is a material operating expense.

Best practice: When switching to a high-deductible policy, calculate the breakeven. If the premium savings are $40,000/year and the expected deductible payments average $60,000/year, the tenants pay more under the high-deductible structure. That math needs to be defensible.

Terrorism Insurance (TRIA)

The Terrorism Risk Insurance Act requires carriers to offer terrorism coverage, but it is not always required to be purchased. When landlords do purchase it, the premium is a separate line item.

Recoverability

TRIA premiums are recoverable if the lease includes terrorism insurance within the definition of operating expenses, or if the lease broadly covers "all insurance maintained by Landlord with respect to the Building."

Common Tenant Objections

• "Our building is in suburban Kansas. The terrorism risk is zero."
• "TRIA coverage is not required by any lender or regulation."
• "The premium is $18,000/year for a risk that will never materialize."

Landlord's Response

If the lease language supports recovery, the landlord's response is straightforward: the lease permits recovery of insurance maintained on the building, and terrorism coverage is maintained on the building. The landlord's assessment of risk is not subject to tenant approval.

If the lease language is ambiguous, some landlords exclude TRIA premiums from CAM as a goodwill gesture, particularly in low-risk locations where the premium is small relative to the relationship cost of the dispute.

Earthquake and Flood Supplementals

Earthquake Insurance

Standard property policies exclude earthquake damage. Separate earthquake coverage is common in California, the Pacific Northwest, and parts of the Midwest (New Madrid fault zone). Premiums range from $0.50 to $5.00 per $100 of insured value depending on location, construction type, and soil conditions.

Example: A 200,000 SF building in Los Angeles insured for $40M.

The earthquake premium is 34% of the total insurance cost. If it is not recoverable, the landlord absorbs $160,000 per year. At a 5.5% cap rate, that is a $2.9M reduction in property value.

Flood Insurance

Required if the property is in a FEMA-designated Special Flood Hazard Area and has a federally backed mortgage. Premiums under the National Flood Insurance Program (NFIP) range from $3,000 to $30,000 depending on zone, elevation, and coverage limits. Private flood insurance can be significantly more expensive for high-value properties.

Recoverability: Generally recoverable if lender-required or if the lease definition of operating expenses includes "insurance required by any mortgage holder." Voluntary flood insurance outside a flood zone is harder to recover and more likely to be challenged by tenants.

Allocation Across Multiple Buildings

When a landlord insures multiple properties under a single blanket policy, the total premium must be allocated to each property for CAM reconciliation purposes.

Common Allocation Methods

Best practice: Request a property-level premium breakdown from your broker. Most brokers can provide this based on the underwriting schedule, which lists each property's insured value, construction type, and location risk. If a broker breakdown is not available, insured value is the most defensible allocation basis.

What not to do: Allocate equally across all properties. A 50,000 SF suburban office building should not carry the same insurance allocation as a 300,000 SF coastal retail center with a history of wind damage claims.

How CapVeri Handles Insurance Pass-Throughs

CapVeri separates insurance into sub-categories (property, liability, earthquake, flood, terrorism, umbrella) and maps each to the appropriate recovery pool based on your lease definitions. When a policy renews mid-year, the system prorates the premium across the calendar year automatically.

For blanket policies, you enter the total premium once and CapVeri allocates to each property based on the method you choose (insured value, SF, or broker allocation). Changes to one property's insured value automatically recalculate the allocation without manual adjustment.

Related Resources

• What Is Included in CAM Expenses — Full breakdown of recoverable vs. non-recoverable categories
• CAM Expense Caps — How caps interact with insurance increases
• CAM Estimate Forecasting — Projecting insurance premiums for next year's estimates
• Transparent CAM Billing — Communicating insurance increases to tenants without triggering disputes