Hard Facts About Insurance

We’re now in what’s known as a hard insurance market. Are your co-op and condo board clients experiencing trouble, or is it just business as usual with a little bit more expense?

It really varies depending on the location of the sites, but as the renewals start coming in, I’m starting to see that buildings are running into hardship, especially when it comes to these rapid increases in insurance premiums due to the hard market.

How big are the increases?

We’re seeing increases from 5% to 7%, which is relatively high, all the way up to 15% in some cases. When you have a $100,000 or $200,000 premium, 15% is a significant increase.

These increases are driven partly by the insurance industry’s business model but also by the loss record at a property. Is there anything boards can do to keep premiums down?

Loss runs are driving the increases, true, but at the same time insurance carriers are being a lot more vigilant, a lot more cautious about a property’s history, its location and what’s going on in the building. To minimize premium increases, I always recommend that boards review the deductible. That’s one line item you can kind of play with to move the premium up or down a couple of thousand dollars. We always recommend going higher in the deductible because, let’s face it, if it’s a $5,000 or $10,000 insurance claim, it’s almost always cheaper to repair it in-house rather than filing a claim, because every claim is reported on the loss run, which results in an increase in the premium. So we always recommend clients to aim for upward of $20,000 to $25,000 for a deductible because that’s really when you need the insurance.

Do you have any anecdotal stories about claims that were denied?

Absolutely. During Hurricane Ida in September 2021, a Starbucks cup got lodged in one of the drains on the roof at one of our properties in Brooklyn. That restricted the flow of water, and the roof ended up flooding and destroying a few units down the line. Naturally, we contacted the insurance carrier because this claim was in excess of a few hundred thousand dollars. The insurance adjuster came onsite and left shortly after. He said, “We’re sending someone else to inspect.” A few days later, another adjuster comes with all these fancy gizmos and gadgets, and two weeks later we get a denial letter in the mail. It read very specifically, “The roof slope should have been 3%. We calculated the roof slope at 2.77% because of an improper installation. We are denying your claim.”

That would not have happened five or 10 years ago. And it goes back to my point that insurance carriers are really assessing every situation rather than just cutting a check and saying, “OK, on to the next one.” They’re really cracking down. They do preliminary inspections prior to binding or renewing any coverage, looking at the sidewalks, the facade, the air conditioners, anything that may potentially be a liability. These are things that they can assess just by looking at the building. But figuring out that a roof’s pitch is a quarter of a percent off — you could have a hundred engineers stand on that roof and they would never be able to figure it out unless they came in with all the fancy equipment.

What do co-op and condo boards need to be doing — or not doing — in the face of this hard insurance market?

It comes down to realistic expectations. The cost of everything is going up. A basic repair that was maybe $500 10 or 15 years ago is now $750 to $1,000. Not only is the material going up, but the insurance requirement for these vendors to stay in business is going up. At the very least, boards have to keep their maintenance and common charges at the rate of inflation.