New Insurance Challenges Include Risk, Cost, and Fine Print

Jonathan Steward

Vice President, OSA Insurance Brokerage Services 

It’s much more difficult for co-ops and condos to get a good general liability insurance policy today than it was five years ago. Due to the frequency of claims in New York, carriers have exited the market, and a lot of those who remain are changing their underwriting approach. For example, a five-story walkup building that has a sprinkler system in the hallway used to be able to get coverage with certain carriers. But now those same carriers are requiring fire escapes, which means the building is no longer insurable with them.

NEXT STEPS

There are about 10 carriers out there that haven’t really tightened their restrictions, and they’ll want to take a look at your property to determine if they will provide coverage to you. There’s no communication between the carriers themselves, so you’re not affected if one of them won’t insure you. But there are certain things all carriers will look at, the most important being building violations, especially from the Department of Housing Preservation and Development (HPD). They’ll also look at violations issued by the Department of Buildings (DOB). If there are any, carriers want to make sure they are limited and not serious violations, like those issued administratively because of missing paperwork.

Aside from that, you also need a proper risk-transfer process in place for when a shareholder or unit-owner hires a contractor to perform work in their apartment. The condo or co-op board needs to oversee this process. In its alteration agreements it needs to utilize indemnification hold-harmless language that state the contractor or subcontractor will not hold the board legally or financially responsible for any loss, damage or legal liability that may arise during the period of the agreement.

Boards also need to make sure that the contractor is naming their building as an additional insured so that they are protected from large claims. It depends on the carrier, but some of the stricter ones will definitely ask boards to see a sample alteration agreement. Others will want to make sure you're following certain safety protocols — for example, fixing any cracks on the sidewalk that could cause a pedestrian to trip and fall, or keeping a log of when sidewalks are salted and shoveled when it snows.

THE HIGH COST OF PREMIUMS

As for property and general liability coverage, we’re in a hard market. Insurance companies are not making as much profit on their investment income, so they have a reduced appetite for risk and are increasing their premiums. Right now policy premiums are going up between 10 and 15 percent, and umbrella policies (providing extra insurance beyond property and liability coverage) are increasing between 50 and 70 percent. About 85 to 90 percent of all co-ops and condos have umbrella policies, so this is substantial. 

That’s why you want a broker to go over your insurance prior to renewing your policy, and even after you’ve renewed it. A broker can tell you about any existing DOB or HPD violations so you can get started addressing them. Boards and their management companies can also reach out to brokers to make sure they’re using the proper wording in their contracts and have obtained the proper amount of coverage for when work on apartments is being done. Over the past two years, reviewing policies and coverage has become something that more insurance brokers are dealing with. I get a lot of calls every day from boards saying: "We're working on this project. Is this insurance acceptable? Am I using the proper contracts?" 

READ THE FINE PRINT

It’s important to review all of that, because contractors’ insurance policies are starting to limit coverage. A contractor that’s doing facade work might have a certificate of insurance that indicates your building is named as an additional insured, but its policy might have a specific exclusion for any work being done above four or five stories. You want the contractor to provide you a copy of its policy to check it for any exclusions that might be problematic.

Management companies can work directly with the brokers for their buildings, but I think it’s better for boards to have a direct relationship with their broker. My other piece of advice would be to make sure that you are properly maintaining your building. Unlike prior years where carriers used to look at just your loss history to see if you’ve had any claims, now they’re focusing on violations and risk transfer. You want to have a head start in finding an affordable carrier that's giving you proper coverage in this hard insurance market.