New York's Cooperative and Condominium Community
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What goes up … well, you know the rest. The laws of gravity apply just as much to insurance premiums as they do to bouncing balls. And bargain days may be here again. Ask Edward Mackoul. As president of Mackoul & Associates, an insurance broker, he keeps his finger on the pulse of the market. And his prognosis? “It’s a buyer’s market,” he says. “We have seen a softening recently. If your building is up for policy renewal, this may be a good time to get a deal.”
He’s not alone in his assessment either. “I believe the market is more competitive this year than it has been in prior years,” says Barbara Strauss, executive vice president at York International, an insurance broker. “A lot of the premiums are going down faster than they’ve gone down before,” adds Marjorie Young, vice president of E.G. Bowman Company, a commercial insurance brokerage. “During the first quarter, [premiums] had a very sharp drop, the biggest drop they’ve had in a couple of years.”
The rates had gone sky high after the attacks on September 11, 2001, as companies worried about the threat of further terrorism. But even before 9/11, the industry was hurting from years of fierce, in some ways self-defeating, competition. Many insurers had been cutting premiums in order to pick up new business. “It was an unhealthy price war,” says Michael Spain, president of the Spain Agency, a broker. Many insurance companies cut the reserves that they should have been building up in case of hard times. In any event, the reinsurance companies (which supply the bulk of the coverage to insurance firms) were there to pick up much of the cost.
That all changed with the terrorist attacks. Both the insurance companies and the reinsurers paid out millions of dollars after 9/11. The reinsurance companies passed those costs on to the insurers, who subsequently raised premiums. “When the insurance companies went to renegotiate with the reinsurers, they saw steep increases,” recalls Spain.
Another factor that affected insurance pricing was that the insurers were investing premiums and profits in the financial markets. When those markets suffered, so did the insurance companies – and that affected their pricing, Spain notes.
In addition, the market became less competitive because there were fewer insurers out there. The reasons? Some got out of New York entirely, others went belly up, and still others had their ratings by the A.M. Best Company, which rates the financial stability of a company, downgraded.
But, as time went by, the insurance companies took in record profits from their much-higher premiums. And, over the last few years, many insurers began returning to New York as they sought slices of the pie for themselves. That, in turn, led to a price war when established companies attempted to keep their client base and their market share from decreasing.
Which brings us to 2008 and what some are calling a newly created “buyer’s market.” As Spain notes: “A rule of thumb is that most buildings have been able to negotiate a 15 percent better deal for themselves – either last year or this year.” While deals depend on the type of building, its claims history, and its location (structures near potential terrorist targets, such as Grand Central Station or the Empire State Building, may not get any price breaks), many brokers say there are price reductions to be had.
“These are the types of policies that are renewed every year, so if something’s coming up for renewal [managers should expect] to get a decrease from their upcoming renewal,” Young says. “It’s good news for a lot of insurance purchasers.”
Similarly, Orsid Realty’s Eric S. McPhee, vice president in the risk management division, says he’s seen a slight reduction in costs in terms of being able to “buy more coverage with a reduced premium.” Orsid has 140 buildings in its portfolio, boasting some 12,000 units, the great percentage of which are co-ops. Of the buildings, five are what McPhee calls “true condominiums” and about 85 are co-ops, with a selection of rental units. “Depending on the size of the building, we were able to save anywhere from five percent to twenty-five percent on renewals,” he notes.
“In a hard market,” observes York’s Strauss, “a building that’s $100 million in property values would have to spend ten to twelve cents per $100 of building value or $1,000 to $1,200 per million to write that insurance. Now, with the soft market, you can go out and find insurance for that same building and get it written for seven or eight cents (depending, again, on the location and the claims history of the property).
So, what’s the best way to cash in on this buyers’ boom? Strauss says the trick is to have a good broker who knows the market and deals with the insurance carriers whose specialty is writing insurance for co-ops and condos.
“There are only a handful of insurance companies that write insurance competitively for co-ops and condos and continue to maintain the broadening coverage that is so vitally important to the building,” she notes. Over the years, the better brokers took advantage of whatever market they could to try to keep the prices as low as they could.
“It doesn’t necessarily mean that every building is going to benefit from the soft market when renewal time comes,” she says. “After all, there is only so much credit you can find in a policy.”
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