Some brokers call them “The Insurers of Last Resort.” And if the people in your co-op or condo are accident-prone – or your building has a run of bad luck, such as repeated floods or fires – you may have to hire them.
Here’s why: if you are filing too many claims – there is no exact number, say insurance professionals, but the insurer has to consider it an excessive amount – you could lose your coverage. And that could have a domino effect: a co-op without insurance would probably lose its mortgage, and since insurance is required by banks, potential buyers could not get loans to buy into your mortgage-free property.
That would force the co-op to go into secondary markets, which are pricier and less comprehensive than typical insurers. “They’re sometimes referred to as excess and surplus lines carriers,” explains Michael Spain, vice president at Brown & Brown Insurance. Mari Ann Cole, president of Long Island Coverage, says that from five to ten properties she handles are denied coverage every year. “That’s a significant amount,” she notes, adding that some of these excess and surplus lines companies aren’t guaranteed by the New York State Department of Financial Services, an organization that covers claims if an insurer goes out of business.
You are also paying more than you might have at a regular company. “If you’re paying $100,000 for a package policy through Greater New York Mutual and you have to flip it over to [an excess and surplus lines carrier],” says Cole, “you could be paying $200,000 to $300,000 at a minimum at that point in time. So it’s double to triple what you cost would be normally.” And, warns Spain, “generally the coverage is more limited.”
Is there a way out? Cole says you can escape insurance hell by cleaning up your act. “You have to have a strong handle on your claims,” she says. “It usually takes from three to five years. If you show them that you’ve made no claims, they may take you back.” One can only hope.