Michael Schwarz, president of SYMS Insurance Agency, answers questions about the challenges boards face when changing insurance carriers.
A lot of co-op and condo boards are fearful of changing insurance carriers. Why is that?
I think the No. 1 fear of changing insurance carriers is that the boards are afraid of the inspection. Any new carrier coming into a building is going to perform a physical inspection, and it may issue some recommendations, which can be costly at times.
What kinds of things are they liable to find?
They can find small things, such as air-conditioner units without proper brackets. Those are pretty easy to fix. They can find things a little more complicated to fix, such as replacing uneven sidewalks, which are trip-and-fall hazards. Even more than that, it can be something as significant as having to replace the whole electrical system in the basement. Old buildings had fuses and fuse boxes, which in the last 20, 30 years have mostly been upgraded to circuit breakers. For a 100-unit building, a job like that can be $100,000 or more. And that's something that boards are fearful of. But if a board already has plans to upgrade the electrical system, why not go ahead and change the insurance carrier if it’s going to save money?
What about a board that gets surprised by these new requirements from the new carrier after buying the policy? They've suddenly got a new expense that they weren't expecting. That sounds like a reasonable fear.
The job of a good insurance broker is to be proactive and discuss with the board and the property manager all details of their building. The broker needs to tell them exactly what they have and, in some cases, go down to the building to see for himself if there are any issues that can become costly after an inspection by the insurance carrier. That, I think, is the only way to do that.
Are you, as a broker, aware of the demands that individual carriers have of a building, such as the fuse box, the sidewalk, the elevator, the fire escapes? Are you able to advise boards on what they may face in terms of new expenses if they change carriers?
Absolutely. We'll go down with a list of about 15 to 20 items and go through all of them. Whichever ones we have a feeling may come up and may be something that the board is going to have to change, we'll let the board know that. That way, board members know what they’re in for, and there are no surprises later. One last thing: some insurance carriers hire outside companies to do building inspections before the client buys the policy. And they can tell a board what it’ll face if it switches insurance carriers. If you’re going to make a change, you should go in with your eyes wide open.
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