3 Tips for Weathering Today’s Hard Insurance Market

Today’s so-called hard insurance market is the result of a perfect storm. Record personal injury claims have driven up the cost of liability insurance. Umbrella policies for excess liability protection are shrinking, with fewer carriers offering less coverage at higher prices. Property insurance premiums are soaring due to increased labor and material costs. And reinsurance carriers, the companies who insure the insurers, are also raising their rates.

But there are ways for co-op and condo boards to weather the storm. Here are three areas where they can control insurance costs:

1. Violations. Clear up all violations with the Department of Buildings (DOB), whether the problems are building-related or confined to individual apartments. “The more violations you have — especially those that insurers perceive as posing a risk for a future liability claim — the less likely they will renew a policy or grant a new one,” says Thomas Thibodeaux, co-owner of New Bedford Management. 

To make sure they have a clean slate, boards and managing agents can check their buildings’ complete violation history using the DOB’s Building Information Search or the Housing Preservation & Development’s HPD Online. Poring over the records is especially crucial for co-ops that had sponsors, where boards may be unaware of old violations that were never cured and live on in city systems.  

2. Claim and bid history. Claims are the single biggest culprit behind rising insurance rates. And carriers are all-knowing when it comes to the facts about your building’s claim history over the past five years, thanks to something called the Comprehensive Loss Underwriting Exchange. 

“Insurers are looking at these reports, also known as loss runs, and looking for patterns and trends that could mean trouble,” says Ed Mackoul, the president of the insurance brokerage Mackoul Risk Solutions. “It could be anything from repeated slip-and-falls, where insurers might think there’s a tripping hazard on the sidewalk or the building is being negligent about shoveling or salting after it snows, to multiple Directors & Officers claims, which might suggest an ongoing problem with the board members.”

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Mackoul adds that claim frequency can count more than severity. “If you have five small water-damage claims and one big fire-damage claim,” he says, “the water claims could be a bigger strike against you because it looks like there’s a systemic problem in the building.” 

It’s a good idea for boards and managing agents to review their loss history every year to get a better grasp of their buildings’ track record and how that might affect future costs. While some claims are unavoidable, seeing the big picture can help boards make smarter decisions in the future. 

MacKoul also recommends boning up on your building’s bid history. “Whenever insurance brokers go to market for you, they should be giving you a list of the results — why this company declined, why that company raised rates,” he says. “If it’s because of violations or your loss run, you’ll know which course corrections you need to make.”

3. Spread the burden. As insurance rates continue to rise, some co-op boards are trying to cut costs by getting shareholders to shoulder some of the burden. Most bylaws provide that the co-op is responsible for paying the deductible on its master policy. “But we’re starting to see a shift where boards are apportioning the cost when an issue in one apartment causes damage to the building structure or common elements,” says David Dockery, a senior attorney at the law firm Becker & Poliakoffa. “In that case, the shareholder would be responsible for all of the deductible. If the damage extended to another apartment, each would pay half. And if it also affected a common element, the two shareholders and the co-op would each pay accordingly.”