Condo Finds Solution to Insurance Renewal Challenges After String of Claims

Sophie Bird
Senior Vice President,
IMA Financial Group

“When a carrier refuses to renew, you may have to turn to the riskier non-admitted market”

In the current hard insurance market, where premiums are rising and coverage is decreasing, co-ops and condos that have filed multiple insurance claims can have trouble renewing coverage with their carriers — and finding new ones. The good news is that both are possible, even for buildings that have been tarnished with a bad loss record. Sophie Bird, a senior vice president at the insurance brokerage IMA Financial Group, came up with a strategy that enabled one board to clean up its history and renew its policy. But the solution took time and patience. 

Forced To Switch to a Riskier Carrier

A newer 41-unit condo on the Lower East Side had been plagued with consistent leaks with its through-the-wall air conditioning units. The bylaws specified that repairing damage to anything original in the building was the condo’s responsibility, including inside the four walls of every unit. That heavy burden cost the condo in more ways than one: After receiving more than $500,000 in water damage claims over several years, the condo’s carrier refused to renew the policy. 

Left in the lurch, the condo was forced to turn to the non-admitted market. Admitted carriers have to file forms with the state and have their rates and policy forms approved, but if they go bankrupt, they are protected by the New York State Guarantee Fund, so clients won’t lose their coverage. Non-admitted carriers, however, “don’t have to file and don’t have that guarantee, so they are more of a risk,” Bird explains. “But they’re also more comfortable with taking a risk with buildings that have significant claims histories.”

The good news for the condo was that it was able to find a non-admitted carrier willing to take that risk; the bad news was that coverage came with a shockingly steep price. “The premiums more than doubled, going from $35,000 to $80,000,” Bird says. “We were brought in to try to stop the hemorrhaging.”

Creating a Plan To Correct and Prevent Future Problems

Working with IMA, the board tried to figure out what the condo could do during the next 12 months that would prevent another punishing premium increase. “When you have a condo or co-op building in this kind of situation, it’s always advantageous to have a positive story to tell come renewal time,” Bird says. “You want to be able to say, ‘Yes, this building has had half a million dollars in claims, but this is what they were caused by, and these are the specific steps we’re taking so that the problems won’t happen again in the future.’”

To create that compelling narrative, the board got quotes on the cost of installing sensors in all the apartments that would shut off the source of the water as soon as leaks were detected. It wasted no time with the installation, which came to about $43,000 and was completed before renewal time. “When we showed the condo’s loss run over the previous five years — which is the minimum period carriers want to see — to the existing carrier, we were able to say, ‘Look, here’s proof of installation, here’s paid receipts, here’s the scope of work done, which means you won’t have to pay these types of claims going forward,’” Bird says. “But the carrier looked at the information and said, ‘That’s great, but we’re still going to increase your premium to $100,000.’”

Bird persevered and eventually found a non-admitted carrier not only willing to insure the building, but for the bargain price of $85,000. “Even though we couldn’t prove that the sensor system was effective, having a strong narrative worked,” Bird says. “Going with a non-admitted carrier was a bit of a precarious situation, but certainly better than not having coverage.” 

Returning to the Admitted-Carrier Market 

And there’s light at the end of the tunnel. When buildings can show a positive claim history for several years, brokers can get them back into the relative security of the admitted-carrier market. “You’re in the penalty box, then you’re out,” Bird says. In this case, the condo stayed with the non-admitted carrier for two years, and its premiums remained relatively flat because the leak detectors proved to be effective. “That put the condo in a very favorable position, and we were able to get the condo back with an admitted carrier,” she says. “Even better, the rate was around $50,000 — much closer to the amount the condo was paying before the water damage claims and premium increases.” 

Bird points out that it’s not just condos that can find themselves in this predicament. “At some co-ops, especially older ones where the proprietary lease has not been updated, the onus is on boards, not shareholders, for repairing or replacing the original elements in the building,” she explains. “Given current market conditions, where premiums are going up 25% to 30% year over year, all boards have to be proactive. So if you can pinpoint the problems that led to your claims, create a plan of action to address them and show that it’s working, you can really mitigate increases in your insurance spend. You’ve got to tell the right story.”