Insuring Wooden-Frame Co-ops and Condos Is More Expensive Than Ever

It’s no secret that we’re in what’s known as a hard insurance market, a time when insurance carriers deal with a squeeze on their profits by raising premiums, lowering coverage limits and adding exclusions to their policies. But the boards of many co-ops, condos and homeowners associations, especially in the outer boroughs and suburbs, are getting hit by another hard reality: insuring wooden-frame buildings is now more expensive than ever.

“It’s always been an issue, but it’s worse now because of the hard market,” says Ed Mackoul, president of the insurance brokerage Mackoul Risk Solutions, headquartered in Long Beach. “Wooden-frame buildings that are too tall or too high in value will have a tough time getting insurance. So will a wooden-frame building four stories or taller that doesn’t have sprinklers. We’re seeing maximum coverages of $2 million to $3 million per building. From an insurer’s perspective, these buildings are more susceptible to fire.”

The deeper source of the problem, according to Mackoul, is re-insurers — the companies that insure insurance carriers against major losses on claims, such as a hurricane or a building collapse. “The re-insurers are cracking down on their capacity for risk,” he says, “and these wooden-frame buildings present more exposure to risk.”

Mari Ann Cole, president of Long Island Coverage, an insurance brokerage based in Hauppauge, adds another wrinkle. “Insurance carriers are looking at a building’s replacement cost more closely than they used to because of their reinsurance contracts,” she says. As replacement costs rise, insurance rates follow suit.

She cites a two-story condominium, made entirely of wood, that had a replacement cost of $79 million last year. This year, the insurance carrier upped the number to $90 million — which resulted in a 23% increase in the condo’s general liability and property coverage. “In order to maintain blanket coverage,” Cole says, “the board had to accept the higher valuation.”

In years past, Cole advised her co-op and condo board clients to budget for 5% to 10% increases in annual insurance costs. “Now,” she says, “I’m telling them to budget for 25% or more, especially if it’s a wooden-frame or all-wood building.”

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The numbers get even more crippling if a building has a series of insurance claims in the course of a year and none of the half dozen admitted carriers, whose rates are regulated by the state, will renew the policy. Those buildings are relegated to what’s known as the excess and surplus carriers, who are willing to take on risky clients and are free to charge higher rates. Cole estimates that about one-fifth of her clients are in the excess and surplus market, usually due to numerous insurance claims or a location near the waterfront. “Those premiums,” she says, “have gone through the roof. I’ve seen triple-digit increases for policies that got non-renewed.”

Alvin Wasserman is the senior director of asset management at Fairfield Properties, which manages 65 co-ops, condos and homeowners associations on Long Island, plus a few in Queens. “The vast majority of the buildings on Long Island are wooden-frame,” he says, “so this is a very big headache. In the past, insurance might have been the fourth or fifth largest item on these properties’ budget. With the recent changes — the hard insurance market and concerns about wooden-frame buildings — insurance has jumped to number two.”

Wasserman advises his boards that they need to face the facts when they draw up their budgets. “Some boards may be in denial about these rising costs, but you can’t get away with that long-term,” he says. “If you don’t budget realistically for these increases in insurance costs, eventually you’re going to hit the ground.”