Paula Chin in Board Operations on February 4, 2025
Leaky through-wall air conditioners led to $500,000 in insurance claims for this condo building.
History is destiny, some say. Nowhere is this adage truer than in today's hard insurance market, where co-op and condo boards are finding that a history of major insurance claims often leads to rising premiums, shrinking coverages and, in some cases, an inability to renew existing policies or find a new insurance carrier willing to underwrite such a risky building.
But there are ways to soften the hard realities of today's insurance market. Sophie Bird, a senior vice president at the insurance brokerage IMA Financial Group, came up with a strategy that enabled a Lower East Side condo board to clean up its messy claims history and renew its policy at a manageable price.
This 41-unit condominium had been plagued with persistent leaks around its through-wall air conditioning units. The bylaws specified that repairing damage to anything original in the building was the condo’s responsibility, including inside the four walls of every unit. That heavy burden cost the condo in more ways than one: After receiving more than $500,000 in water damage claims over several years, the condo’s carrier refused to renew the policy.
Left in the lurch, the condo was forced to turn to the so-called "non-admitted' market. Admitted carriers have to file forms with the state and have their rates and policy forms approved, but if they go bankrupt, they are protected by the New York State Guarantee Fund, so clients won’t lose their coverage. Non-admitted carriers, on the other hand, “don’t have to file and don’t have that guarantee, so they are more of a risk,” Bird explains. “But they’re also more comfortable with taking a risk with buildings that have significant claims histories.”
The good news for the condo board was that it was able to find a non-admitted carrier willing to take that risk; the bad news was that coverage came with a shockingly steep price. “The premiums more than doubled, going from $35,000 to $80,000,” Bird says. “We were brought in to try to stop the hemorrhaging.”
The first step involved storytelling. “When you have a condo or co-op building in this kind of situation, it’s always advantageous to have a positive story to tell come renewal time,” Bird says. “You want to be able to say, ‘Yes, this building has had half a million dollars in claims, but this is what they were caused by, and these are the specific steps we’re taking so that the problems won’t happen again in the future.’”
To create that narrative, the board got quotes on the cost of installing sensors in all the apartments that would shut off the source of the water as soon as leaks were detected. It wasted no time with the installation, which came to about $43,000 and was completed before renewal time.
“When we showed the condo’s loss run over the previous five years — which is the minimum period carriers want to see — to the existing carrier, we were able to say, ‘Look, here’s proof of installation, here’s paid receipts, here’s the scope of work done, which means you won’t have to pay these types of claims going forward,’” Bird says. “But the carrier looked at the information and said, ‘That’s great, but we’re still going to increase your premium to $100,000.’”
Bird persevered and eventually found a non-admitted carrier willing to insure the building for the bargain price of $85,000. “Even though we couldn’t prove that the sensor system was effective, having a strong narrative worked,” Bird says. “Going with a non-admitted carrier was a bit of a precarious situation, but certainly better than not having coverage.”
The condo stayed with the non-admitted carrier for two years, and its premiums remained relatively flat because the leak detectors proved to be effective. “That put the condo in a very favorable position, and we were able to get the condo back with an admitted carrier,” Bird says. “Even better, the rate was around $50,000 — much closer to the amount the condo was paying before the water damage claims and premium increases.”
In the end, Bird says, there's a simple key to overcoming a damaging claims history: "You've got to tell the right story."