Umbrella Policies Have Sprung a Leak

Reverse math. Boards seeking protection from excess liability – such as a serious injury to a worker during a facade project – are finding that the umbrella policies of yesteryear, with their high coverage limits and relatively low premiums, are a thing of the past. In today’s insurance market, coverage is down, and premiums are up.

The backstory. Elizabeth Heck, the president and chief executive of GNY Insurance Companies, says today’s hard market began to take shape back in 2018. “Once carriers realized that there were deficiencies in their reserves caused by unexpectedly large claims, they had to raise premiums,” she says. “And they would have had to go up even more if coverages weren’t limited. When there’s an uptick in losses, you see the pricing go up.” Insurance costs are being pushed up by jury awards that, in her words, “don’t reflect reality.” 

Silver lining. The good news, Heck contends, is that the $100 million-plus coverage limits of the past were probably beyond what was necessary. She says most co-ops and condos should be comfortable with a coverage limit of $75 million, or even $50 million. Still, brokers and underwriters agree that boards need to be diligent about another reality of today’s hard market: an increase in exclusions on general liability policies. Contractors, faced with their own high insurance costs, have been cutting those costs by buying policies that don’t indemnify boards in the event of an injury to one of the contractor’s workers. 

Proceed with caution. Failure to spot such exclusions can spell disaster for a co-op or condo. “They’re not always evident at first glance – especially to someone who’s not versed in the language of insurance,” says Jason Schiciano, the president of the insurance brokerage Levitt-Fuirst. He advises boards to have their broker, or some other expert, give a close reading to contracts that often run in excess of 100 dense pages.

Meanwhile, it looks as if the hard insurance market is here to stay for the foreseeable future. “In my opinion, it will certainly be here through 2021,” Heck says, “and I think it’ll probably be here into 2022.”