Insurance Premiums Are Rising, But Coverage Is Falling

Insurance premiums are rising significantly for virtually all businesses in the United States. Here’s what this means for New York’s co-ops and condos:

Property Insurance. New York properties have been underinsured for many years, and carriers are now insisting on more accurate values. Carriers are also often insisting on far higher deductibles for water-damage claims — as much as $50,000 or even $100,000. Premiums will very likely increase based on higher valuations.

General Liability. New York State Labor Law regulations are now having a huge impact on the insurance industry. As injuries persist, plaintiff attorneys are getting more sophisticated and aggressive, and because of the state law, the insurance carriers are having an impossible time limiting judgments. This is resulting in significant rate increases.

Umbrella Liability. Umbrella policy premiums have been very low as it has been rare to see litigation exceed the primary $1 million limit provided on General Liability and Directors and Officers policies. Claims exceeding $1 million are now increasing rapidly, often because of the Labor Law. The few remaining carriers have sharply higher rates, far higher minimum premiums and lower limits of coverage. We are expecting rate increases of at least 50% to 100% this year, and it is very possible that increases will be far higher. In the near future, boards will likely have to consider lower limits of liability on umbrella policies — possibly as low as $5 million.

Directors and Officers (D&O) Liability. Premiums for most New York boards are typically in the range of $2,500 to $10,000 — yet we have seen countless claims where defense costs alone exceeded $100,000. We are expecting rate increases of at least 25% to 50% over the next few years.

Excess and Surplus (E&S) Markets. When we cannot underwrite through one of our preferred primary insurance carriers because of a client’s poor loss ratios or unacceptable underwriting criteria, we turn to E&S markets. In the past the rates with these carriers were as much as 50% higher than the standard carriers, and coverage terms were typically more restrictive. E&S carriers are implementing larger increases along with tougher underwriting guidelines. As a result, when we have to utilize E&S carriers, we are often seeing premium increases of 100% or more.

Based on current market conditions, I recommend that boards budget for 15% to 20% increases in insurance premiums. If the property has had significant claims in the past few years, the board should budget even more. The market is so volatile that it is probably safe to project on the high side.

Alex Seaman is a senior vice president at the insurance brokerage Hub International.