BOARD MEMBER / INSURANCE PRO REVEALS: SECRETS OF CONTROLLING INSURANCE COSTS

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• Umbrella Liability

This third-party coverage sits excess of the primary general liability limits and terms, thereby increasing the overall liability limit. This coverage can be arranged by a standard policy issued by one carrier for an annual premium. It is also available through several Risk Purchasing Groups, or RPGs. With the RPG approach, many insurance buyers in the same business segment (such as real estate) are grouped together and issued one "master" policy that provides separate limits to individual members. Policyholders do not receive actual insurance policies, but rather certificates that act as evidence of their membership in the RPG.

Limits available through RPGs can be $100 million or higher and can usually schedule D&O as an underlying policy. The ability of RPGs to offer umbrella coverage to real estate clients is something that has been around only since 1986, when RPGs were introduced.

Package Deals

For property and general liability coverage, policies can be written separately for each coverage line by separate insurance companies, or they can be combined on a "package" policy. There are advantages to each approach. If the policy is written by the same insurer on a package policy, in theory the combined premium should be lower because of economies of scale and because the insurer can apply a "package credit." This approach also has the advantage of one-stop shopping and eases the claim-reporting process. There are a limited number of insurance companies that will provide a package policy for New York area co-ops and condos, and each has its own specific underwriting guidelines.

If property and general liability coverages are written on separate policies, the field is open to more insurers, as some property insurers may not want to insure the general liability, and vice versa. For example, if one property insurer insures high property limits at competitive premiums, this then opens the door for other insurers to insure the general liability competitively.

Admitted vs. Non-Admitted

Your agent or broker may present quotes that are "non-admitted" in the state of New York. This means your broker probably went to a third-party intermediary, or wholesale broker, on your behalf, and it is the wholesale broker who actually negotiated with insurers.

That insurer, if a surplus lines or non-admitted insurer, would not be subject to state guarantee funds in the event of insolvency. There are also surplus lines taxes and fees added to the policies, which increase the ultimate cost to the buyer. Therefore, unless there is a compelling reason not to do so, it is generally recommended that coverage be placed with admitted insurers.

TRIA

In 2002, the federal government implemented TRIA to serve as a financial backstop for insurers offering terrorism insurance coverage as part of their policy. The insurance buyer has the option of purchasing coverage under TRIA for an additional premium or of rejecting it and not paying the premium. The additional premium applicable to TRIA is always spelled out in insurers' proposals before coverage is issued.

TRIA coverage should always be purchased, as the risk of not doing so is too great and not worth the premium savings.

Insurance is not the most exciting topic for co-op and condo boards to address, but in the event of a large claim, it is the most critical.

Adapted from Habitat April 2012. For the complete article and more, join our Archive >>