Hard Insurance Market Raises the Bar for Co-op and Condo Renovations

The realities of today's hard insurance market — higher deductibles, higher premiums, reduced coverage limits and increased exclusions — have pushed many co-op and condo boards to tighten insurance requirements in their alteration agreements when shareholders or unit-owners embark on apartment renovation projects.

"It’s really about the proper transfer of risk," Gustavo Rusconi, director of management at Argo Real Estate, tells Brick Underground. Like most property managers, Rusconi reviews every policy he is presented with. He has seen bids for work in co-ops and condos from contractors with exclusions in their insurance stating they are not covered to work in residential buildings. Rusconi has also seen bids from contractors for facade work with height exclusions — meaning they aren't covered by insurance to work above the fourth floor even though the bid is for exterior work on a 20-story building.

"The contractor will not be let into the building if they don’t have the proper insurance," he says.

The tighter insurance requirements in alteration agreements are simply co-op and condo boards' response to the hard insurance market.  "Insurance companies have been paying out very expensive claims, and as a result, they are forcing their new terms downstream on all vendors and building services," says Mark Levine, principal at the property management firm EBMG. “The insurance companies are increasingly pricing out the vendors who used to be able to work freely in the building, and it's forcing the little vendors to not be able to work in many buildings.”

In the end, it trickles down to the shareholder or unit-owner who's renovating an apartment. If the smaller contractor does not have adequate insurance and the larger one isn't interested in the work, the solution is the mid-size contractor. These are companies with 15 to 25 employees. Unfortunately they will add to the cost of apartment renovations.

"You will have to get a contractor with the right insurance," Rusconi says, "and typically the contractors that are property insured tend to cost more."

It's just one more hard fact of life in today's hard insurance market, which shows no signs of softening anytime soon.