How Working Layer Programs Reshapes CRE Insurance Costs
Commercial real estate insurance has delivered little budget certainty for multifamily owners. After years of double-digit increases, premiums recently dipped by high single to low double digits, but history suggests the relief is temporary. For owner-operators, the real pain point is not the absolute cost—it’s the unpredictability that makes annual planning a guessing game, says Tim Kraft, founder of Working Layer Programs.
Kraft, a 26-year risk management consultant, built his firm to solve the feast-or-famine cycle many owners face. The core idea: unbundle the predictable, smaller claims—kitchen fires, toilet overflows, burst pipes—that carriers call the “working layer.” Underwriters typically price this layer with a 50% loss ratio, charging roughly $2 in premium for every $1 of expected claims. Kraft argues owners can finance these claims themselves for far less, cutting out the middleman’s markup while maintaining catastrophic coverage through an excess carrier.
Working Layer Programs offers a turnkey platform that combines institutional-grade self-insurance for property deductibles with a Tenant Legal Liability damage waiver that replaces traditional renters’ insurance requirements. The firm says the economics start to make sense for portfolios above 3,000 units, and early case studies point to 25% savings on a $1 million deductible and a 50% rate cut when an owner removed all attritional claims from its loss history. Kraft’s pitch: give the owner more control, and let the carrier focus on true catastrophes.
The Mechanics and Economics of Self-Insuring Attritional Claims
The Unbundling of Risk
Traditional CRE insurance rolls everything—minor maintenance incidents to total losses—into one premium. By separating attritional claims, owners can stop transferring a predictable expense and instead fund it directly. In a hard market, where carriers hike rates aggressively to recoup losses, self-insuring the working layer turns a recurring cost into a manageable operational line item. The trade-off is that the owner must now handle claims administration and maintain sufficient liquidity for a stream of small payouts.
Why Traditional Carriers Leave Money on the Table
Property insurers underwrite the working layer at a 50% loss ratio, meaning half of premium in this segment is their margin. For every dollar of claims, the owner pays two, with the carrier pocketing the surplus. Self-insurance eliminates that margin, making room for Kraft’s claimed 10–25% net savings. But the arithmetic only works if the owner’s claims experience mirrors the underwriter’s assumptions; a spike in frequency could erase the advantage. The model also hinges on an excess carrier willing to step in for catastrophic losses, a role that typically requires a healthy relationship with a major insurer.
The Scale Requirement and Market Fit
Kraft sets the breakeven at around 3,000 units, a threshold that screens out smaller landlords. Below that, the fixed costs of setting up a self-insurance program—actuarial work, captive management, reinsurance brokerage—can swallow the savings. This positions Working Layer Programs as a solution for midmarket multifamily owners that previously couldn’t afford the bespoke structures available to large institutions. The bundled platform condenses what would otherwise be a disjointed, multi-firm process, but it also means clients rely heavily on a single provider’s software and advisory layer.
What Multifamily Owners Should Consider Before Adopting the Model
For Multifamily Owners Exploring the Working Layer Model
- Validate the 3,000-unit floor. Kraft’s own benchmark is north of 3,000 units. Owners with smaller portfolios should run a detailed cost-benefit analysis with their brokers before assuming savings will materialize.
- Stress-test your reserves. Self-insuring attritional claims means carrying higher deductibles and covering minor incidents out of pocket. Model scenarios with multiple small claims in a single year to ensure you won’t face a liquidity squeeze.
- Scrutinize the excess carrier partnership. The program’s backstop is an external insurer for catastrophic losses. Understand the credit rating and claims-paying ability of that excess provider, and examine the contract’s exclusions and sub-limits carefully.
- Compare Tenant Legal Liability to traditional renters’ insurance. The damage waiver approach may simplify enforcement and reduce tenant friction, but check that it provides equivalent coverage for tenant-caused damage and meets any lender or agency requirements (Fannie Mae, Freddie Mac).
- Watch for market shifts in reinsurance pricing. The program’s economics depend partly on excess-of-loss rates. If catastrophe losses rise industry-wide, the cost of the excess layer could climb, compressing the savings that self-insurance provides.
Risk & Opportunity Assessment
| Commercial Risk | Medium | Savings depend on accurate prediction of attritional claims. If actual loss frequency exceeds assumptions, self-insurance could cost more than traditional coverage. Additionally, the platform’s reliance on a single excess carrier introduces concentration risk. |
| Competitive Risk | Medium | Major insurers and reinsurers could adjust pricing models or launch competing self-insurance platforms to retain premium volume. If large carriers offer their own unbundled solutions, Working Layer Programs may lose its edge. |
| Regulatory Risk | Low | State insurance regulations may require captive or self-insurance programs to meet solvency standards, but Working Layer Programs operates within an existing framework. No immediate regulatory threat, though evolving captive insurance rules could add compliance costs. |
| Reputation Risk | Low | For the company itself, reputation is tied to the success of its early clients. For adopting owners, failure to manage claims properly could lead to disputes with tenants or lenders, but this is an operational rather than brand risk. |
| Technology Disruption | Low | The firm’s platform digitizes an existing self-insurance process rather than introducing a fundamentally new technology. Incumbent insurtech players could replicate the functionality with similar ease, but no disruptive tech threat is imminent. |
| Commercial Opportunity | High | If the claimed 10–25% savings hold across a growing portfolio, midmarket owners could redirect significant capital to operations or acquisitions. The current market environment—where traditional insurers are vulnerable to attritional losses—creates a window for this model to scale. |
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