Loss Costs

Co-ops and condos, particularly those with commercial tenants, are looking to their insurance policies for some help during this pandemic. Can you explain the three types of insurance policies that co-ops and condos tend to have, what each one covers, and which one might offer some help?

The three types of policies that boards carry are a property policy, a liability policy, and a directors and officers policy. We all know that the pandemic has caused a lot of shutdowns in stores and has put a lot of people out of work. Co-ops and condos are being faced with lost rents and lost tenants – and how do you cover that? Claims are being reported to the property insurance carriers under the business interruption section of the policy. Unfortunately, there is a virus exclusion in those policies. Also, for a business interruption loss to be covered, you need a physical loss to the property.

Right now, the insurance industry is discussing, along with attorneys and everybody else, what constitutes a physical loss to the property. We don't have the answer right now. Hopefully, down the road we'll get to the answer, and, hopefully, it will be a positive one for the buildings. But right now the carriers are saying the virus exclusion is going to stand.

Under the negligence portion of the liability policy, the building has to be negligent for the insurance company to pay out a loss. You will be defended in the event you get sued for something that either a resident or another person feels the building did that resulted in bodily injury or property damage. We haven't seen these claims come in yet, but in the event that they do, this would be the section of the policy that would respond.

The directors and officers policy is triggered when there's a wrongful act, or the board's going to be deemed wrongful because, for example, they didn't do the proper cleaning, or they didn't close the building soon enough to deliveries. Until we get a claim for a wrongful act, we don't know how the insurance carriers are going to respond.

What kinds of increases are you expecting to see in premiums when policies get renewed?

Unfortunately, the insurance industry is facing its most challenging times as it sinks deeper and deeper into what we call a hard market. Even before the pandemic happened, premiums in insurance policies were beginning to rise. The pandemic has only made it worse because the insurance business is one that really wants to make a profit, and it has to make money in order to be able to pay the claims. So what we see – depending on the type of policy, the type of building, your loss history, how many prior claims you’ve had – buildings could be seeing anywhere from a 3% to a 50% increase in premiums. They could also be seeing deductible increases;  it really depends on each individual building.

There's agency billing, and there's direct billing. One of these may be helpful in terms of budgeting. Could you explain what this is?

Sure. The agency bill and direct bill are the ways you pay your insurance premiums. Many carriers will allow you to go onto direct bill, which means that instead of getting an invoice from your broker, you will get the invoice directly from the insurance company. When you get that invoice, you will pay the company directly. Because of this pandemic, the insurance companies are being a bit lenient, letting you pay maybe a little bit later than you normally would. And they're holding off on cancellations in most cases and hoping that within the next 30 days you'll be able to make the payments and keep up with your premiums.

And in paying the premiums, whether it’s agency or direct billing, can I say, “Whatever my premium is, divide it by 12"?

Most carriers will allow you to stretch it out – not to 12 payments a year, maybe nine payments. So direct billing could be a good way to avoid having to come up with a lot of money at any one time.